Why the Price-Earnings Ratio is a Hoax

   

Tesla Spotlights 

the 

Curse and Cure

According to a rampant hoax, the ratio of price to earnings (PE) is the mainstay for gauging a stock for investment. The yardstick is meant to divine the likely direction and extent of the price level downstream.

Unfortunately, the PE ratio can and often does vary hugely from one stock to another whatever their future prospects might be. Moreover, the quotient has a way of swinging wildly over time even for a given equity. As a result, the PE metric is hereby exposed as a treacherous guide to predicting the market. 

According to the party line, a high value of PE implies that the stock is overpriced and will thus crumple before long. In reality, though, the quotient can remain lofty for ages or even climb higher. 

From a different angle, the PE quotient tends to rise with the likely rate of growth in future earnings. For this reason, the PE ratio relative to the growth rate is a much better yardstick for vetting a stock. 

That is, the PE ratio may be divided by the growth rate, G. The latter term denotes the estimate of growth in earnings on an annual basis, expressed as a percentage of the profits actually garnered over the previous 12 months. The resulting quotient is known as the PEG yardstick.

The PEG is far more consistent than the PE throughout the stock market. As a consequence, an extreme level of PEG goes a long way in gauging whether a stock is overpriced, underpriced, or moderate.

Despite this fact of life, the mass of participants – ranging from part-time amateurs to full-time professionals – believe the PE ratio to be the mainstay for valuation. As we noted earlier, though, the PE varies a great deal regardless of future prospects and is therefore pretty much useless for sizing up a stock. Instead, the PEG yardstick provides a better metric by far in gauging the zest for the widget among market participants.

On a positive note, investors in the aggregate seem to grasp the bunkum behind the PE ratio on a subconscious plane even as they affirm its primacy at a conscious level. Here is an example where people say one thing, but do something else.

To round up, investors are impulsive creatures that like to band together. For instance, the plungers pile into the ring in the heat of a bubble and flee en masse in the freeze of a panic. One upshot is a wild ride in the ratio of the current price to past earnings. For this and other reasons, the PE is a lousy guide to valuation. On the bright side, though, the punters are far more consistent when the PE is adjusted by the future growth of earnings. 

Here is a rare instance where the actors as a group do the sensible thing despite their faulty grasp of the marketplace. Whether or not a gamer believes in the fable of the PE, they must act according to the PEG in order to prevail. Otherwise they suffer the consequences and often pay dearly as a result. 

In short, the shrewd investor in order to survive and prosper has to pursue a cogent strategy in practice even if they embrace the myth of the PE from a conceptual slant. In reality, the PEG is a far better gauge for divining the current appeal and future promise of all manner of stocks.

NOTE:  The full report is titled, “Why the Price-Earnings Ratio is a Hoax”. The document in PDF form is available at ResearchGate. 

#Investment #Tesla #Stocks #Growth #Hoax #Myths

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Forecast of Top Index Funds – Long View Till the 2030s

 

ETF Review and Outlook for DIA, SPY and QQQ

A review of the top index funds paves the way for a coherent approach to forecasting and investing in the stock market. From a pragmatic stance, the choice vehicles lie in the exchange traded funds for the leading benchmarks of the bourse. The latter consist of the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. For these stalwarts, the tracking funds take the form of DIA, SPY and QQQ respectively.

Within the tangible economy, the conditions have not changed a great deal since the Great Recession. On the downside, the politicians of the West went out of their way to solidify the distortions in the housing sector that emerged en route to the financial crisis of 2008. A showcase of bungling involved trillions of dollars in bailouts for gutted banks that had succumbed to their own reckless schemes. In this way, the pols kept alive some of the biggest and most unproductive firms in the economy.

The struts put in place also prevented the property sector from shedding the mountain of blubber it had built up during the housing bubble that led to the financial fiasco. Given the enormity of the shackles imposed, the economy as a whole was consigned to wheeze and limp at least until the 2020s.

In this shaky environment, the prospects for the industrial nations are lackluster at best. A glaring example lies in Europe which continues to wallow in the doldrums. Given the torpor of the senescent regions, the emerging markets of the world are fated to slog ahead mostly on their own power.

Luckily for investors, though, several factors have softened the blows dished out by the politicos. One tonic lies in the bloom of the world economy, along with the swell of profits for global firms ranging from Apple and Boeing to Google and Visa. Another boost comes from the revamp of the U.S. tax code in 2017 along with the surge of corporate earnings to follow.

Better yet, vanguard firms make deft use of digital technologies ranging from online platforms to smart agents. The crank-up of productivity by the spearheads has enabled the stock market to fare much better than the real economy. Moreover the tailwinds have plenty of room to run over the years and decades to come.

On a cautionary note, though, the upswell of the bourse during the late 2010s and afterward will lure a growing number of punters out of the woodwork. As a result the market will get ahead of itself from time to time. The DIA fund, for example, will continue to slump by a handful of percent every few years as well as slam into full-fledged crashes a couple of times per decade. On the bright side, the crackups will deter the general public from stampeding the bourse during the 2020s. In that case, a full-blown bubble will not arise until the subsequent decade.

On the whole, the turning points for the top benchmarks occur around the same time. Despite the linkage, though, every index dances to its own tune tempered by a host of historical landmarks, psychic drivers, and market forces. To cite an offbeat example, the investing public faced a mental hurdle lying at 20,000 points for the Dow index; but the benchmark trotted past the milestone in 2017 with only a brief pause due to the ebullience of the madding crowd at the time.

As a rule, the junior members of the bourse surge when the senior ranks trudge higher. Examples of springy groups lie in bantam firms and emerging regions. For instance, an icon of the small fry lies in an index fund that sports the ticker symbol of IWM. On the whole, the lightweights have a way of outpacing the heavyweights such as DIA and SPY.

On a downcast note, the developing markets turned in dismal results during and after the Great Recession. The standard bearers in the field, which flaunt the call signs of VWO and EEM, bounced around but made no progress throughout the decade following the bust of the housing bubble.

In the United States, the real economy has crawled along at a couple of percent a year on average in the millennium. The meager increase in output and income did not come close to justifying the huge surge of the stock market during the 2010s. As we noted earlier, though, a growing fraction of the profits for American firms comes from foreign markets. Thankfully, the world economy in toto should expand at a crippled but bearable pace of 3% a year or so on average over the next few decades.

At the microlevel of the singular firm, a go-getter can often crank up its net income by several times any upturn in revenues. For instance, a hustler that expands its online sales by 10% might increase its profits by thrice that much. Given this backdrop, an uprise in earnings of 15% a year on average till the 2030s lies fully within reach of the Dow index that represents diverse sectors of the marketplace.

From a larger stance, the foregoing figure of 15% also jibes with the second half of an expansive wave that straddles the real economy and financial forum. More precisely, the stock market has a custom of flourishing when the commodity market flounders; and vice versa. This supercycle, comprising the inverse hookup between the cost of raw materials and the pot of corporate earnings, lasts some 34 years on average.

The last trough of the commodity cycle in the physical economy cropped up in tandem with the peak of the Internet craze in 2000. From the burst of the digital bubble to the middle of the 2010s, the stock market thrashed around but did not get very far. The exemplar involved the cave-in followed by the retrace of the Nasdaq market to its prior peak. The good news, however, is that the bourse in the mid-2010s has shown patent signs of starting the upward phase of the supercycle. If the past is prologue, then the future looks bright for the equity mart till the middle of the 2030s or thereabouts.

Long before then, however, international investors should by the early 2020s venture in droves beyond the relative safety of the U.S. bourse. In that case, the feisty vessels such as VWO will chalk up roughly twice the gains snagged by the chief benchmarks such as DIA and SPY. Moreover the ascent of the emerging regions should parallel the rousing performance of QQQ despite the endless hail of sideswipes and smackdowns to beset all manner of markets along the way.

To sum up, the leading companies earn a blooming share of their profits from the budding countries. For this and other reasons, the DIA fund is slated to enjoy an uptrend of some 15% a year on average until the 2030s. In that case, the corresponding turnout for SPY should be a few percent higher. Meanwhile QQQ ought to rack up percentage gains reaching into the 20s per year on average. The latter feat also applies to the corps of bantam firms tracked by the IWM fund as well as the emerging markets in the form of EEM and VWO.

NOTE:  The full ebook is available in PDF form under the title of Forecast of Top Index Funds for Investing in the Stock Market at MintKit Library.


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MintKit Growth Index

 

A Benchmark of the Stock Market

for

Sprightly Growth at Modest Risk

The ideal of investment lies in a robust strategy for high growth at low risk. Granted, a perfect solution could never emerge in an imperfect world such as ours. Even so, certain approaches toward the objective make more sense than others.

By received wisdom, the leading benchmarks of the stock market are cogent and meaningful portraits of the action on the bourse. Sadly, though, the reality differs greatly from the mirage.

For starters, the renowned indexes track the stocks in the prime of their lives rather than the entirety of their lifespans. In the process, the yardsticks gloss over the fact that death is the way of life for all companies along with their equities. The outcome is a grossly distorted picture of the payoff for the entire throng of shareholders over the long range.

Even in the near term, the traditional benchmarks have little or no bearing on the mass of participants. For instance, many an index monitors a group of stocks according to their market caps.

While this approach may befit a profile of the bourse as a whole over the short run, the unbalanced scheme has scant relevance to the thoughtful investor who is most unlikely to load up their portfolios according to the market caps of the stocks at hand.

For these and other reasons, the traditional benchmarks are unsuitable as beacons for the investing public. Instead, a worthwhile index should address the true concerns of serious investors in areas ranging from pertinent metrics to workable strategies.

An example of a fruitful scheme involves the equal weighting of stocks within a benchmark. The benefits lie in conceptual elegance as well as practical relevance for the participants. Another drawcard is the tendency of uniform weighting to deliver higher returns compared to the labored scheme based on market caps.

In seeking a trusty path, a basic step is to canvass the timeworn benchmarks in multiplex areas ranging from conceptual soundness and logical rigor to common sense and pragmatic import. The wholesome assay then leads to guidelines for designing trenchant beacons suited to investors in tending their private portfolios. The enhanced framework is showcased by the MintKit Growth Index: a model benchmark geared toward promising stocks poised for zesty growth at modest risk.


NOTE: The briefing is titled, “MintKit Growth Index”. The slide presentation may be viewed as a document in PDF form or a video in MP4 mode.


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Forecast of Top Index Funds for Equities – 2017 and Beyond

 

ETF Review and Outlook 

for DIA, SPY and QQQ

A review of the top index funds clears the ground for a coherent approach to forecasting and investing in the stock market. For this purpose, the vehicles of choice lie in the exchange traded funds for the leading benchmarks of the bourse. The latter consist of the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. For these beacons, the tracking vehicles take the form of DIA, SPY and QQQ respectively.

By contrast to received wisdom, the financial forum is entwined with the real economy not only in the future but also the present which depends on the past. In view of the linkups, the mindful investor has to examine the landmarks in the backward direction as well as the outcrops in the current environment in order to sketch out the prospects downstream.

Moreover, the course of the markets going forward depends on the conditions today along with the contours of the landscape downrange. For this reason the survey ought to draw on the driving forces at this juncture as well as the likely upthrows over the coming year and beyond.

From a practical stance, the companies listed on the stock market earn their living within the economy at large. That much is true even in the case of virtual firms such as online retailers and brokerage houses. For this reason, the aggregate level of economic output plays a vital role in corporate earnings and thus the price patterns on the bourse.

Within the tangible economy, the conditions have not changed a great deal over the past few years. On the downside, the politicians of the West have gone out of their way to solidify the distortions in the housing sector in the wake of the financial crisis of 2008. A showcase involved the prop-up of some of the biggest and most unproductive firms in the economy. In particular, the politicos in motley countries shunted trillions of dollars into bailouts for a ragbag of gutted banks that had succumbed to their own reckless schemes.

To make matters worse, the struts put in place have prevented the property market from shedding the mountain of blubber it had built up during the manic bubble in real estate prior to the financial blowup. Due to the shackles imposed, the economy as a whole has been consigned to gasp and limp well into the 2020s.

In this shaky environment, the prospects for the industrial nations are lackluster at best. A glaring example lies in Europe, which continues to wallow in the doldrums. Given the torpor of the rich countries, the emerging markets round the world will have to slog ahead amid the general weakness of the global economy.

On a positive note, though, the U.S. has been recovering slowly from the disruptions caused by the housing craze and its aftermath. The mangling of the markets during the bubble was compounded by a rash of knee-jerk reactions by the pols, as in the likes of lifelines for ruined banks coupled with crutches for real estate. After stumbling for half a decade in the aftershock of the Great Recession, the U.S. economy has recently taken some steps toward regaining its health.

In the financial forum, the stock market often anticipates the real economy by half a year or so. For this and other reasons, the American bourse in particular is poised to head higher as the year rolls on.

On the downside, though, the main cumbrance of course lies the frail health of the economy. The chains of production and distribution were bent severely out of shape amid the riot of speculation during the housing frenzy prior to the financial flap of 2008, followed by the orgy of government spending and money printing in the years to follow. Given the breadth and depth of the traumas, the economy has only recently begun to recover in earnest from the abuse it received at the dawn of the millennium.

Moreover, the politicos will make a lot of noise about boosting the economy during the first year of the 4-year Presidential cycle in the U.S. Regardless of the substance – or lack of such – behind the clatter, the happy talk will shore up the spirits of millions of voters and investors. The fond hopes of the investing public will help the market in crawling higher over the course of the year.

For the past year and more, the main hurdles for DIA stood at $175 followed by $185 after which came a landmark at $200. The gap between the last two figures is $15. After adding the difference to the latest milestone, we end up with $215. In relative terms, the next milepost at $215 lies 7.5% higher than the $200 totem reached at the onset of 2017.

As is often the case at the beginning of the year, the market will thrash around more than press ahead during the months of January and February. The splash of turmoil will drag down the Diamonds toward the prior milestone at $185, after which the market should regain the $200 level once more during the spring.

After that flip-flop, the index fund is slated climb to $215 by the summer before falling back. Then the tracking fund will head for the $225 mark. On the other hand, we can expect the Diamonds to crumple as usual during the third quarter. In that case, the index fund should return to the $200 zone within a couple of months. That pullback should occur by the winter, after which the Diamonds will tramp toward the $225 zone once again. With a bit of luck, the index fund will loiter around the latter target as the year wraps up.

The Diamonds closed out 2016 at $197.51. In that case, the milepost at $225 represents an increase of nearly 14%. The latter figure is the default target for the end of this year in spite of – and due to – the gyrations along the way.

As a rule, the market hits a major landmark at least three times before it can break through in earnest. For this and other reasons, the prospects for 2018 are muted at best. Looking at the big picture, the default script calls for a retreat of DIA to the $200 zone at least once before it can tramp higher in a compelling way.

In addition to the circle of 30 titans tracked by the Dow index, another leading benchmark lies in the troupe of 500 giants monitored by the Standard & Poor’s company. The yardstick is tracked by an index fund which runs under the banner of SPY.

Moreover, the third stalwart of the bourse deals with the Nasdaq market. On this exchange, a broad-based yardstick known as the Composite Index is widely reported by the financial media. On the other hand, a subset of the market made up of a hundred giants is the mainstay for practical investing. The tracking vehicle for the Nasdaq 100 Index – also known by the nickname of NDX – is found in QQQ.

This report examines the special aspects of SPY and QQQ which distinguish their prospects from DIA. Moreover a pointed forecast of each of the broader benchmarks is also provided.

From a larger stance, we can assess the relative movements of the benchmarks during the recent past. Over the past 5 years, the Spyders rose by 1.28% on average for every percentage rise of the Diamonds. Meanwhile the corresponding figure for the Qubes was 1.88%.

If a similar relationship were to hold over the course of this year, an advance of 14% by DIA would entail an upturn of nearly 18% by SPY. The latter amount is plausible and even likely.

By the same type of reasoning, QQQ would surge by a little over 26% by the end of this year. On the other hand, such a big jump for the Qubes seems unlikely for a couple of reasons. One hang-up lies in the landmark at 5,000 points for the underlying benchmark – that is, the Nasdaq 100 index – which will weigh on the market over the next year or so.

In short, the trio of stalwarts for the U.S. bourse will trudge onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other markets round the globe.

Although there are plenty of exceptions, the bourses of the budding regions often advance roughly twice as much as the Diamonds or Spyders. In that case, an upswell for DIA ought to accompany a lively surge for the emerging markets.

On a negative note, though, the feisty markets also tend to be the most flighty. To bring up another factor, the mass of investors remain somewhat skittish at this stage. As a result, the international crowd may well refrain from moving en masse into the budding markets over the next few years.

The task of forecasting this year poses a challenge of uncommon complexity. For starters, the forces in play include a passel of routine factors as well as wayward facets. An example of a commonplace theme involves fundamental drivers such as business conditions and monetary policies in the real economy, or technical motifs as in seasonal patterns and multiyear trends in the financial tract.

Due to the burly landmark at the 20,000 level, the Dow index is slated to thrash about more than usual. As a result, the Diamonds will flounder around the $200 zone. In a similar way, the Nasdaq 100 benchmark has to grapple with a major hurdle at the 5,000 level. Partly as a result, the Qubes are slated to dance around the vicinity of $122.

On the bright side, the S&P index does not face any roadblocks near its current location in the vicinity of 2,300 units. In that case, the Spyders are free to move higher – although their ascent will be damped in part by the travails of the Diamonds and Spyders. Even so, SPY finds itself in a favorable position compared to the lot of DIA and QQQ.

Amid the pother on the bourse, the swarm of international investors will continue to fret over the icky conditions in the mature economies. An example involves the quagmire in Europe caused by the housing bubble, followed by a raft of witless schemes ranging from the prop-up of real estate to the rescue of brain-dead banks from their own rabid bets.

Another sample concerns a profligate response to mass migration. A number of countries in Europe have accepted droves of transplants by the millions at a stroke. The showcases lie in Germany and Sweden which have admitted unlimited numbers of refugees and pledged to pay for the upkeep of the newcomers and their descendants forever in manifold ways ranging from cash stipends and paid housing to free healthcare and unpriced education. The upshot is a massive burden for the taxpayers which will amount to trillions of euros over the decades to come. The millstone will cripple not only the spendthrift countries but hamper the entire continent. If the lurching markets of Europe and the U.S. plod along at a stunted pace, then the emerging regions will also suffer due to the throttling of export earnings in particular and economic growth in general.

Over the past half-decade, equity investors have favored the U.S. over the rest of the planet including Europe. On the other hand, the anxiety over secondary markets will not last forever. For one thing, the bulk of economic growth for the world as a whole springs from the emerging regions. As a result, their stock markets ought to surge when the American bourse climbs.

At some point, the mass of investors will stop fretting over the up-and-coming regions. In that case, the nascent markets will come to life with gusto. In line with earlier remarks, though, the developed countries will continue to wheeze and stagger until the 2020s at least. For this reason, it's unlikely that the emerging regions and their stock markets as a group will burgeon anytime soon.

To sum up, the trio of index funds for the U.S. bourse will totter onward and upward in a fitful fashion as usual. The plot will unfold in a similar fashion for the other stock markets of the world.

Although there are plenty of exceptions, the bourses of the budding regions often advance roughly twice as much as the Diamonds or Spyders. For instance, an upturn of 15% for DIA is apt to impel an uplift of 30% or so for the frisky markets.

On a negative note, though, the jejune bourses are prone to be much more volatile than their American counterparts. Moreover the mass of investors remain somewhat nervous at this stage. For this reason, the international crowd is apt to hold back rather than rush into the emerging markets over the coming year and beyond.

On the bright side, the emerging regions generate the bulk of economic growth for the world as a whole. Sooner or later, the superior performance of the dynamos in the real economy will attract a flood of capital into the blooming markets.

The inrush of mint could perhaps begin within a few years. In that case, the bourses of the sprightly regions will snap out of the funk they endured since 2011 and revert to their custom of trumping the benchmarks of the mature countries. Given the hulking problems in Europe and elsewhere, however, the bourses of the emerging regions may have to dodder along for a few more years before they surge ahead as befits their performance in the real economy.


NOTE: The full report is available under the title of “Forecast of Top Index Funds for Investing in the Stock Market”. The updated version, available in PDF form, may be downloaded from the Library at MintKit.

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Forecast of Top Index Funds for Equities – 2016 and Beyond

ETF Review and Outlook

for

DIA, SPY and QQQ

A review of the top index funds sets the stage for a coherent approach to forecasting and investing in the stock market. For this purpose, the vehicles of choice lie in the exchange traded funds for the leading benchmarks of the bourse; namely, the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. For these beacons, the tracking vehicles take the form of DIA, SPY and QQQ respectively.

By contrast to received wisdom, the financial forum is entwined with the real economy not only in the future but also the present which happens to spring from the past. In view of the jumbling, the mindful investor has to examine the landmarks in the backward direction as well as the outcrops in the current environment in order to sketch out the conditions downstream.

Moreover, the course of the markets going forward depends on the forces at work today along with the contours of the landscape downrange. For this reason the survey here draws partly on, and fleshes out, the drivers at this juncture as well as the conditions in store over the coming year and beyond.

From a practical stance, the companies listed in the stock market earn their living within the economy at large. That much is true even in the case of virtual firms such as online retailers and brokerage houses. As a result, the aggregate level of economic output plays a vital role in corporate earnings and thus the price movements on the bourse.

Within the tangible economy, the conditions have not changed a great deal over the past few years. On the downside, the politicians of the West have gone out of their way to solidify the distortions in the housing sector in the wake of the financial crisis of 2008.

A showcase involved the prop-up of some of the biggest and most unproductive firms in the economy. In particular, trillions of dollars round the world were shunted into bailouts for a gaggle of gutted banks that had succumbed to their own reckless schemes.

To make matters worse, the struts erected have prevented the property market from shedding the mountain of blubber it had built up during the manic bubble in real estate prior to the financial blowup. Due to the shackles in place, the economy as a whole has been doomed to gasp and limp well into the 2020s.

In this shaky environment, the prospects for the industrial nations are lackluster at best. A glaring example lies in Europe, which continues to wallow in the doldrums. Given the torpor of the rich countries, the emerging markets round the world will have to slog ahead amid the general weakness in the global economy.

On a positive note, though, the U.S. has begun to recover somewhat from the disruptions caused by the housing craze and its aftermath. The mangling of the markets during the bubble was compounded by a raft of knee-jerk reactions by impulsive politicians, as in the likes of lifelines for ruined banks along with crutches for real estate. After stumbling for half a decade in the aftershock of the Great Recession, the U.S. economy has finally taken a few faltering steps toward regaining its health.

On the political front, 2016 happens to be an election year for the U.S. presidency. As the race heats up, the air will crackle with the platitudes and promises of politicians in their zeal to beguile voters by ranting about the desperate need to create jobs and boost incomes, bolster business and lavish favors on one and all. The whirl of bluster will kindle a spark of hope amongst large swaths of the populace and imbue the listeners with a warm, fuzzy feeling. Moreover a binge of wanton spending is apt to give the economy a boost over the short run despite the exorbitant cost to the society over the longer range.

In the financial forum, the stock market often anticipates the real economy by half a year or so. For this and other reasons, the American bourse in particular is poised to head higher as the year rolls on.

The buoyant tenor of the election year, coupled with the stagnation of the bourse over the past year, provides the backdrop for a moderate advance. As a result, the Dow yardstick may by the second half of 2016 surge by 20% or more on a short-lived basis.

On the downside, though, the main cumbrance is of course the precarious state of the economy. The chains of production and distribution were bent severely out of shape amid the riot of speculation during the housing frenzy prior to the financial crisis of 2008, followed by the orgy of government spending and money printing in the years to follow. Given the breadth and depth of the traumas, the economy is only now starting to take some feeble steps toward recovering in earnest from the gross abuse it received at the dawn of the millennium.

To recap, the politicos will make a lot of noise about boosting the economy in the run-up to the elections in November. Regardless of the substance – or lack of such – behind the clatter, the happy talk will shore up the spirits of millions of voters and investors. As a result, the market should follow its custom of crawling higher as the winter draws near. From a larger stance, the election year tends to be a peppy portion of the four-year Presidential cycle.

As is often the case at the beginning of the year, the market will thrash around more than press ahead during the months of January and February. After the splash of turmoil, however, the bourse should muster the energy to press ahead by a modest amount.

In the months to come, the market will waddle higher as the temperature rises. In the spring, the first task for DIA is to regain the peak at the $180 level which was formed last year. After that stage the subsequent milestone lies at $190, a marker which should be reached by the summer.

Then comes the usual tumult around the middle of the year. On a positive note, though, the Olympic Games will take place for several weeks in August. At that stage, the general air of festivity and goodwill round the world will cast a warm glow on the stock market as well. For this reason, the bourse will be more upbeat than usual for that time of year. As a consequence, the Diamonds are slated to reach and even surpass the landmark at $200.

After forming a crest, the market will slump as usual in the autumn. The comedown will be followed by a reluctant recovery as the year draws to a close.

Looking at the big picture, the leading benchmarks of the bourse face a series of big challenges over the year to come. Some of the stumpers have nothing to do with the substance and reality of the marketplace yet everything to do with the perception and bias of the actors involved.

For one thing, the Dow index faces a monumental wall at the 20,000 level. When the beacon reaches the landmark, the market will duly break down. The jarring crunch should amount to a sizeable drop toward the threshold of 15% that marks a full-blown crash of the stock market in the U.S.

In the most likely script, the market will bump up against the wall at 20,000 points a couple of times before breaching it on the third try. The travails of the Dow will of course be mirrored by the DIA which will have to grapple with its own hang-up at the $200 mark.

Even so, the Diamonds are likely to surpass the totem at the $200 level by the second half of this year. After reaching the subsequent milepost at $210, however, the index fund will fail to hold onto the prize. Instead the market will fall back promptly then flail around for a few months.

When it retreats, DIA will return to the watershed in the $200 zone in short order. That backtrack should occur by the time next winter rolls around.

The Diamonds closed out 2015 at a price of $173.99. In that case, the watershed at $200 represents an increase of 15%. The latter figure is the default target for the end of this year in spite of – and due to – the gyrations along the way.

In addition to the circle of 30 titans tracked by the Dow index, another leading benchmark lies in the troupe of 500 giants monitored by the Standard & Poor’s company. The yardstick is tracked by an index fund which runs under the banner of SPY.

Meanwhile the third beacon of the bourse deals with the Nasdaq market. On this exchange, a broad-based yardstick known as the Composite Index is widely reported by the financial media. On the other hand, a subset of the market made up of a hundred giants is the mainstay for practical investing. The tracking vehicle for the Nasdaq 100 Index – also known by the nickname of NDX – is found in QQQ.

This report examines the special aspects of SPY and QQQ which distinguish their prospects from the agenda for DIA. Moreover a detailed forecast of each of the broader benchmarks is provided.

To round up, the trio of stalwarts for the U.S. bourse will tramp onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other stock markets round the globe.

Although there are plenty of exceptions, the bourses of the budding regions often advance roughly twice as much as the Diamonds or Spyders. In that case, an upswell for DIA ought to accompany a lively surge for the emerging markets.

On a negative note, though, the feisty markets also tend to be the most flighty. To bring up another needler, the mass of investors remain somewhat skittish. As a result, the international crowd may well refrain from moving en masse into the sprouting markets until the end of the year or thereafter.

The task of forecasting this year poses a case study of uncommon complexity. For starters, the forces in play include a host of routine drivers as well as wayward factors. An example of a commonplace theme lies in fundamental drivers such as business conditions and monetary policies in the real economy, or technical features as in seasonal patterns and multiyear trends in the financial realm.

To add to the muddle, though, a bunch of issues crop up only once in a few years or even decades. An example of the former is the weighty impact of the political theater on the stock market due to the election cycle in the U.S. Meanwhile an instance of the latter is the psychic barrier posed by a towering landmark that arose during an epic bubble in online commerce on the eve of the millennium.

On the upside, the hoopla on the political front will infuse hordes of investors with hopeful views on the real economy along with the stock market. On the downside, though, a gauntlet of mental roadblocks will hamper the madding crowd and prevent the bourse from gaining its stride. In line with earlier remarks, an example lies in a hulking barrier for the Dow index at the 20,000 level. Another sample is a dual barrier against the Nasdaq 100 Index due to its historic peak at 4,816.35 points forged at the height of the Internet craze, followed by a mental block at the glaring landmark of 5,000 points.

Given the lineup of stumbling blocks, the stock market is destined to flounder even more than usual during the second half of the year. Along the way the leading benchmarks of the bourse will suffer a series of thumping flops. The drubbing will of course be worse for the minor leagues as in the case of bantam stocks or emerging markets.

Amid the pother, the swarm of international investors will continue to fret over the drab conditions in the mature economies. An example involves the quagmire in Europe resulting from the housing bubble, followed by a raft of witless schemes ranging from the prop-up of real estate to the rescue of braindead banks from their own rabid bets.

Another instance concerns a lavish response to mass immigration. A good example is the intake of refugees at the rate of millions per year by Germany and Sweden, along with the upkeep of the asylees in motley ways ranging from cash stipends and paid housing to gratis healthcare and free education. The upshot is a crushing burden which will amount to trillions of euros over the decades to come. The millstone will cripple not only the Teutonic countries but hamper the entire continent and even the global economy to some extent.

On the financial front, one way to predict the course of SPY and QQQ is to consider their relative motion in comparison to the DIA fund. For this purpose, the standard approach taken by the financial community lies in the beta factor. The latter quantity, however, happens to be a misleading and problematic gauge for the genuine investor focused on the long range. For this reason, we rely instead on the actual value of the scaling factor over a fitting timespan rather than lean on the beta coefficient along with its unrealistic assumptions and predictions.

Over the course of 5 years ending in early 2016, the Diamonds turned in a capital gain of 34.80%. Meanwhile, the corresponding returns for the Spyders and Qubes were 46.23% and 89.01% respectively.

Based on the first two values in the preceding paragraph, the scale factor for SPY compared to DIA was 46.23/34.80, which comes out to some 1.33. By contrast, the effective value of the scaling factor for QQQ amounts to 2.56.

According to this approach, the final outcome for SPY at the end of this year lies roughly 33 percent higher than the closing payoff envisaged for DIA. As we noted earlier, the mostly likely turnout for the Diamonds lies 15% beyond the terminal price it reached last year. In that case, a surfeit of 33% means that the corresponding target for the Spyders amounts to an annual gain of 20% over the course of 2016.

We can perform a similar calculation for the Qubes. The product of 15% for DIA and the scaling factor of 2.56 for QQQ comes out to roughly 38%.

On one hand, the latter value does lie within the realm of possibility. Even so, the lofty target seems far-fetched in view of the barricades along the way. As we noted earlier, an example in this vein is a mental block at the towering peak formed at the height of the Internet craze at the turn of the millennium.

In the throes of the digital bubble, the Qubes formed a peak at a nominal price of $232.88. On the other hand, the latter price has to be halved in order to compensate for a stock split of two shares for one during the second half of March 2000. In that case, the corresponding price today happens to be $116.44.

The Qubes came within spitting distance of the latter landmark when it reached $115.75 in December 2015. But the hustler fell back promptly and closed out the year at $111.86.

From the latter baseline, a ramp-up of 38% would take QQQ to $154.37 over the course of 2016. On one hand, the latter peak could well be reached by the second half of this year. Even so, the Qubes are unlikely to end the year on such a high note.

For starters, QQQ has yet to surmount the massive barrier at the split-adjusted price of $116.44 reached at the height of the Internet froth in spring 2000. Moreover, the index fund is apt to challenge the landmark at least a couple of times more before it breaks through in a decisive fashion.

Under these conditions, the Qubes are much more likely to hover around the $140 level as the year draws to a close. The latter value represents an upturn of 25% beyond the price of $111.86 set at the end of 2015.

We now return to the raw benchmarks within the Nasdaq market. As a backdrop, the Composite index reached a zenith of 5,132.52 points in March 2000.

Over the past year, the yardstick pushed a bit beyond the historic landmark when it touched 5,231.94 units in July. After forming the peak, the index was bound to fall hard – which it did.

By comparison, the Nasdaq 100 index soared to 4,816.35 points in March 2000. Over the past year, though, this benchmark managed only to reach a high of 4,694.13 units in July. But the NDX had to fall back since the broader Composite had hit its own ceiling and was obliged to take a dive as a result.

Even so, the NDX – unlike the Composite – still had room to run before it reached its own historical peak set in 2000. For this reason, the leaner index formed a higher apex of its own at 4,739.75 points in December 2015.

Despite the latest peak for NDX, neither of the Nasdaq benchmarks was going to push past their watersheds in a forceful fashion anytime soon. One consequence was a harrowing plunge for the entire bourse before and after the turn of the year as 2016 rolled around.

To sum up, each of the gaudy peaks set at the height of the Internet bubble has acted as an attractor: a point toward which a system within the vicinity tends to move. After forming a trough in 2002, the stock market propelled each of the leading benchmarks higher for a handful of years. The story was similar after the bust of the housing bubble followed by the financial flap of 2008. As an example, the Nasdaq 100 index has in recent years been rushing toward its all-time peak at a brisk pace.

A series of landmarks were reached as expected over the course of 2015. Looking downrange, each of the prior peaks will continue to act as an attractor in a negative sense by posing as a deadweight or a blocker against further progress. For instance, the underlying benchmarks of the Nasdaq will lurch back and forth across their all-time highs over the year to come and likely even longer.

The antics of each index will of course be mirrored by its tracking fund. As an example, QQQ is slated to advance beyond its prior summit during the first half of this year but is unlikely to breach the ceiling in a substantial way anytime soon.

In these ways, the trio of index funds for the U.S. bourse will tramp onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other stock markets round the world.

Although there are plenty of exceptions, the bourses in the budding regions often advance roughly twice as much as the Diamonds or Spyders. For instance, an upturn of 15% for DIA should result in an uplift of 30% or so for the frisky markets.

On a negative note, though, the callow benchmarks also tend to be much more volatile than their American counterparts. Meanwhile the mass of investors remain somewhat skittish at this stage. For this reason, the international crowd is likely to hold back rather than rush into the emerging markets over the year to come.

On the bright side, the emerging regions generate the bulk of economic growth for the world as a whole. Sooner or later, the superior performance of the dynamos in the tangible economy will attract a tidal wave of capital into the blooming countries.

An inrush of mint could perhaps begin within a couple of years. In that case, the bourses of the flowering regions will snap out of the funk of the recent past and revert to their habitude of trumping the benchmarks of the mature countries. Given the mondo problems in Europe and elsewhere, however, the comeback of the emerging markets with the zest they deserve may have to wait another few years or more.


NOTE: The full report is a document in PDF form. The fresh update of the publication, titled “Forecast of Top Index Funds for Investing in the Stock Market”, may be downloaded from the Library at MintKit Core.


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Toolkits and Tollgates for High Growth Markets

Sidekicks Trump Primos

During a Gold Rush in

Concrete or Virtual Fields

In the throes of a gold rush, the best strategy for growth – whether in terms of business or investment – is to cater to the swashbucklers on the front lines by way of toolkits and tollgates rather than lead the charge into the unknown. By plying the wildcats in the field with the essentials they need, the sidekicks at the rear can extract a huge share of the bounty reaped in the budding terrain.

On one hand, the heap of opportunities in a flowering market has a way of luring myriads of eager beavers. On the other hand, the mass of firebrands rushing into the wilderness are for the most part destined to flail and flub then flop and fail. The dire fate of the hotheads is a natural consequence of the brutal competition in a scramble open to all comers regardless of germane experience, special savvy, or inborn talent.

By contrast, the context differs entirely for the canny supplier of armaments to the jousters in the field. The armorer can earn a juicy profit by providing the kit required by the combatants bent on bashing each other in their frantic quest for lucre. The advantage of the aide applies to the panoply of domains ranging from mining to farming in the primary sector; from carving to brewing in the secondary branch; from shipping to banking in the tertiary patch.

To spotlight the key concepts, we examine a case study in depth along with a medley of vignettes in brief. The first cameo involves a literal example of a gold rush. A bounteous lode in California gave rise to a stampede of migrants on a global scale for the first time in the annals of history.

More recently, a gold rush of a different kind arose with the upgrowth of digital technology. As usual in a free-for-all, however, the hustlers on the front lines had a rough time trying to hit the jackpot or even make ends meet.

By comparison, the vendors of tools and services had a field day. Thanks to the toll positions they staked out, the sidekicks as a group flourished as the markets bloomed. As a result, the adjuncts in the wings managed to outshine the primos at center stage in the realms of hardware as well as software.

Granted, the go-getters plunging headlong into a lush tract have a way of attracting the bulk of the attention and hoopla along with the financing and glory. On the downside, though, the crunch of competition in a riotous field has a way of quashing most if not all of the dashers on the front lines. As a result the mass of entrants end up losing their shirts, and likewise for the patrons who back the upstarts.

In contrast, a sprouting field has plenty to offer the crafty players working behind the scenes. For this reason, the entrepreneur as well as the investor ought to pay close attention to toolkits and tollgates as a way to ensure sound growth in a booming market.


NOTE: The full report is a document in PDF form under the title of “Toolkits and Tollgates for High Growth Markets”. The publication may be viewed or downloaded from the Library at MintKit Core.

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Forecast of Top Index Funds for Equities – 2015 and Beyond

ETF Review and Outlook

for

DIA, SPY and QQQ

A review of the top index funds sets the stage for a coherent approach to forecasting and investing in the stock market. For this purpose, the vehicles of choice are found in the exchange traded funds for the leading benchmarks of the bourse; namely, the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. For these touchstones, the tracking vehicles take the form of DIA, SPY and QQQ respectively.

By contrast to received wisdom, the financial forum is entwined with the real economy not only in the future but also the present which happens to spring from the past. In view of the jumbling, the shrewd investor has to examine the milestones in the backward direction as well as the outcrops in the current environment in order to sketch out the conditions downstream.

Moreover, the slant of the markets depends on the forces at work right now along with the contours of the landscape downstream. For this reason the survey here draws partly on, and fleshes out, the drivers at work over the coming year and beyond.

From a pragmatic stance, the companies listed in the stock market earn their living within the economy at large. That much is true even in the case of virtual firms such as online retailers and brokerage houses. As a result, the aggregate level of economic output plays a vital role in corporate earnings and thus the price action on the bourse.

Within the tangible economy, the conditions have not changed a great deal over the past few years. On the downside, the politicians of the West have gone out of their way to solidify the distortions in the housing sector in the aftermath of the financial crisis of 2008.

Another bungle involved the prop-up of some of the biggest and most unproductive firms in the economy. In particular, trillions of dollars round the world were handed out as bailouts for a gaggle of gutted banks that had succumbed to their own reckless schemes.

To make matters worse, the struts put in place have prevented the property market from shedding the mountain of blubber it had built up during the manic bubble in real estate prior to the financial blowout. Due to the shackles in place, the economy as a whole has been doomed to gasp and limp well into the 2020s.

In this shaky environment, the prospects for the industrial nations are lackluster at best. A glaring example lies in Europe, which continues to wallow in the doldrums. Given the torpor of the rich countries, the emerging markets round the planet will have to plod along despite the general weakness of the world economy.

On a positive note, though, the U.S. is starting to recover from the disruptions stemming from the housing craze in the run-up to the financial flap of 2008. The mangling of the markets during the bubble was compounded by a welter of knee-jerk reactions by impulsive politicians, as in the likes of lifelines for ruined banks along with crutches for real estate. After stumbling for half a decade in the aftershock of the Great Recession, the U.S. economy has finally taken the first tentative steps toward regaining its health for real.

In a nutshell, the outlook for the global economy is a mixed bag. For the world as a whole, the volume of output should increase by about 3.0% this year – after adjusting for the pinch of inflation based on the official figures cooked up by government agencies. The forecast for 2016 is marginally better, amounting to a growth rate of 3.3%.

In line with the norm, the developing regions as a group will contribute the lion’s share of the increase in global output thanks to an upturn of 4.8% in 2015, followed by 5.3% the next year. By contrast, the rich countries will muster a mere 2.2% this year before crawling up to 2.4% in 2016.

On the financial front, the stock market faces a raft of challenges over the year to come. Moreover, some of the biggest stumpers have nothing to do with the substance and reality of the marketplace but everything to do with the perception and bias of the investors.

As an example, the Dow index will run into a huge obstacle at the nice, round number of 20,000 points. As things stand, this barrier will crop up by the summer. There are of course lots of other factors that prod the market to the upside as well as downside.

As is often the case at the beginning of the calendar, the stock market is slated to thrash around more than press ahead during the months of January and February. After the spate of churning, however, the bourse should marshal enough energy to climb higher in earnest.

On the upside, the first milepost for DIA – also known as the Diamonds – lies at the $189.07 level. Based on current conditions, the landmark should be reached by the spring.

Shortly thereafter, the stormy currents of the summer will as usual throw the market for a loop. Despite the tempest, though, DIA is slated to waddle higher by a modest amount. In that case, the peak for the summer should arise around the $198 level.

After reaching the vertex, however, the Diamonds are unlikely to hold onto the summit. Instead the market will fall back and flail around for a few months.

Unfortunately, the outlook is not much better as we move into the second half of the year. For one thing, the market has a habit of floundering during the dog days of summer then flopping with the gusty winds of autumn. More precisely, the bourse will enter its weakest stretch of the year as September rolls around.

One negative factor for the stock market springs from the mien of the Federal Reserve in the current environment. As a backdrop, the central bank decided in October 2014 to wrap up the third and last round of quantitative easing. The act of partial restraint in money printing will ratchet up the cost of credit in the financial forum as well as the real economy. The step-up of interest rates should begin by the third quarter.

In line with earlier remarks, the Dow index faces a monumental block at the 20,000 level. Once the benchmark reaches the blockade, the market is bound to break down. The crack-up that ensues should amount to a mini-crash from peak to trough.

In the most likely scenario, the market will bump up against the landmark a couple of times before breaching it on the third try. The travails of the Dow will of course be mirrored by the labors of the Diamonds which will have to grapple with their own hang-up at the $200 mark.

The next hurdle lies in the perennial spate of upheaval in the autumn. Thanks to the heaving and shoving of the madding crowd at this time of year, the Diamonds are destined to trip up and fall flat by way of another near-crash.

After that knockout, the ground will be cleared for a push to the upside in the final stretch of the year. After punching through the roadblock at $200, the next milestone lies a tad higher at $210. The latter figure stands around 18% beyond the closing value of $177.88 notched at the end of last year.

Turning to the political front, 2015 happens to be the run-up to a Presidential election in the U.S. As the winter rolls around, the air will crackle with the platitudes and promises of politicos about the need to create jobs and lift incomes, furnish handouts and bolster business.

The resulting spurt of busywork coupled with the bluster will kindle a wisp of hope across a large swath of voters and imbue them a warm, fuzzy feeling. Moreover a spree of wanton spending should in fact give the economy a boost over the short run despite the crushing cost to be paid by the entire society over the medium range as well as the long haul.

As a rule, the financial forum anticipates the course of the real economy. For this reason, the bourse in particular is poised to head higher this year.

The buoyant tone of the pre-election year, coupled with the sturdy uptrend of the bourse in recent years, is a godsend for the investor. As a result, the Dow yardstick could end up surpassing the projected target of 18% by a goodly amount. In that case, the gain in percentage terms could reach well into the 20s.

On the downside, though, the main argument against a huge advance is of course the precarious state of the economy. The chains of production and distribution were bent severly out of shape during the riot of speculation in real estate prior to the financial crisis, followed by the orgy of government spending and money printing in the years to follow. Given the breadth and depth of the disruptions, the economy is only now starting to take the first steps toward recovering in earnest from the abuse it received at the dawn of the millennium.

A second reason for caution involves the fact that the stock market is already puffy and overpriced to some degree. In particular, the average ratio of price to earnings for the stocks within the Dow index has been lounging on the high side for years on end.

On the other hand, a pricey market can become even more pricey before it regains its equilibrium. For this reason, the Diamonds could well enjoy a giddy ride to the upside by this time next year.

In addition to the circle of 30 titans tracked by the Dow index, another leading benchmark lies in a troupe of 500 heavyweights monitored by the Standard & Poor’s company. The yardstick is tracked by an index fund which runs under the banner of SPY.

Meanwhile the third benchmark of the bourse deals with the Nasdaq market. On this exchange, a broad-based yardstick known as the Composite Index is widely reported by the financial media. On the other hand, a subset comprising a hundred giants is the vehicle of choice from a pragmatic stance. The tracking vehicle for the latter touchstone lies in QQQ.

This report examines the special aspects of SPY and QQQ which distinguish their prospects from the outlook for DIA. Moreover a detailed forecast of each of the broader benchmarks is provided.

To sum up, the trio of touchstones for the U.S. bourse will tramp onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other stock markets round the globe.

Although there are plenty of exceptions, the bourses in the budding regions often advance roughly twice as much as the Diamonds or Spyders. In that case, an upswell for DIA should accompany a strapping payoff for the emerging markets.

On a negative note, though, the feisty markets also tend to be the most flighty. To bring up another bogey, the mass of investors remain somewhat skittish. As a result, the international crowd may refrain from moving with gusto into the sprouting markets until the end of the year or even later.

The task of forecasting this year poses a case study of uncommon complexity. For starters, the forces at work include a host of routine drivers as well as wayward factors. An example of a commonplace theme lies in fundamental facets such as business conditions and monetary policies, or technical features as in multiyear trends and seasonal patterns.

To add to the muddle, though, a bunch of issues crop up only once in a few years or even decades. An example of the former is the hefty impact of the political theater on the stock market in the run-up to a Presidential election in the U.S. Meanwhile an instance of the latter is the psychic barrier posed by a towering landmark that emerged in the midst of an epic bubble on the eve of the millennium.

On the upside, the hoopla on the political front will infuse hordes of investors with hopeful views regarding the prospects for the real economy along with the stock market. On the downside, though, a gauntlet of mental roadblocks will hamper the madding herd and prevent the market from gaining its stride.

As we noted earlier, an example lies in a hulking barrier for the Dow index at the 20,000 level. Another sample is a dual blow against the Nasdaq benchmark due to its historic peak at 4,816.35 points formed at the height of the Internet craze, followed by a mental block at the hulky landmark of 5,000 points.

Due to the lineup of blockers, the stock market is destined to thrash around even more than usual during the second half of the year. Along the way the leading benchmarks of the bourse will encounter a flurry of mini-crashes. The repercussions will of course be worse for the minor leagues such as bantam stocks and emerging markets.

From a larger stance, the throng of international investors will continue to fret over the icky conditions in the mature economies. An example involves the quagmire in Europe resulting from the housing bubble, followed by a slew of witless policies ranging from the rescue of braindead banks from their own rabid bets to the riotous spree of money printing by central banks.

As we noted earlier, the buoyant forces that lend an upward tilt to the U.S. bourse will be negated in part by a cluster of mental blocks. For this reason, part of the effervescence should spill over into foreign markets. One beneficiary will be the European market whose dire straits will be offset to some degree by an influx of funds from local investors as well as foreign sources.

Another recipient will be the budding markets that have faltered for half a decade in the wake of the Great Recession. On the upside, the emerging regions generate the bulk of economic growth for the world as a whole. Sooner or later, a tidal wave of money will pour into the lively countries in line with their superior performance in the real economy.

The inrush of mint could well begin this year. In that case, the bourses of the sprouting regions will snap out of the funk of recent years and revert to their usual habit of outpacing the benchmarks in the mature countries.

NOTE: The full report is a document in PDF form. The fresh update of the report, listed as “Forecast of Top Index Funds for Investing in the Stock Market”, may be downloaded from the Library at MintKit Core. 

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Forecast of Top Index Funds for Equities – 2014 and Beyond

 ETF Review and Outlook 

 for 

 DIA, SPY and QQQ 

A review of the top index funds sets the stage for a cogent approach to forecasting and investing in the stock market. For this purpose, the prime vehicles lie in the exchange traded funds for the leading benchmarks: the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. The tracking vehicles for these beacons are found in DIA, SPY and QQQ respectively.

By contrast to popular perception, the real and financial markets are intertwined not only in the future but also the present which in turn springs from the past. Given this backdrop, the adept investor examines the landmarks in the backward direction as well as the conditions in the current environment.

Moreover the outlook over the months to come depends not only on the currents in motion right now but also the contours of the landscape downstream. For this reason the survey at hand draws partly on, and fleshes out, the prospects for this year and beyond.

From a practical stance, the companies listed in the stock market earn their living within the economy at large. That much is true even in the case of virtual firms such as online retailers and brokerage houses. For this reason, the aggregate level of economic output plays a vital role in corporate earnings and thus the price action on the bourse.

In the real economy, the conditions have not changed a great deal over the past few years. On the downside, the politicians of the West have gone out of their way to solidify the distortions in the housing sector in the aftermath of the financial crisis of 2008.

Another boondoggle lay in the prop-up of some of the biggest and most unproductive firms in the economy. In this light, trillions of dollars were wasted in the form of bailouts for a gaggle of gutted banks.

To make matters worse, the struts put in place have prevented the property market from shedding the mountain of blubber it had piled up during the manic bubble in real estate in the run-up to the financial flap. For this reason, the growth rate for the entire economy is destined to be measly well into the 2020s.

In particular, the prospects for the industrial nations are lackluster at best. For this reason, the emerging markets of the world will have to plod along in spite of the general weakness in the wealthy regions.

On a positive note, though, the slowdown in the budding markets has run its course for now. A case in point is China, which will contribute more to the growth of the world economy in 2014 than it did over the past couple of years.

In short, the outlook for the real economy has improved somewhat since the same time last year. On one hand, we can expect the rich nations of the world to putter along and make way by about 2.0 percent after adjusting for the squeeze of inflation based on the official figures bandied about by government agencies.

Meanwhile the emerging regions as a group will contribute the lion’s share of the upturn in global output thanks to an upsurge of 5.6%. As a result, the world economy is slated to expand by some 3.0% over the course of 2014.

Thanks to the patchy but improving conditions in the tangible economy, the stock market is poised to climb higher as well. The cheery outlook shows up in the upward slant of the top index funds over the course of the year.

As an example, the first milestone for DIA – also known as the Diamonds – lies at a price of $140.71. This landmark is likely to be reached by the middle of the year. The milepost in sight lies a modest $13.83 beyond the initial figure of $164.39 chalked up by DIA at the beginning of January. In other words, the Diamonds are slated to rise but not get very far during the first half of the year.

Sadly, the outlook is not much better for the second half. For one thing, the market will likely struggle as usual over the course of the summer. For a second thing, the bourse will enter its weakest stretch of the year as September rolls around.

To add to the damper, the central bank in the U.S. will likely wrap up the latest round of quantitative easing around that time. As the spree of money creation winds down, the torrent of fresh cash flooding into the marketplace will no longer be monstrous but merely massive.

As a result, the bourse is apt to suffer a breakdown of middling size. The slump will likely amount to a halfway trip to the threshold of 15% that marks the low end of a full-blown crash in the U.S. In that case, the setback will result in a knockdown in the ballpark of 7 or 8 percent.

Given the specters on the horizon, the summer and autumn will be a good time for the cautious investor to stay clear of the stock market. On the other hand, the bourse should regain its footing and tramp upward once more during the last quarter of the year.

On a negative note, though, the U.S. bourse is unlikely to rise much beyond its prior peak set earlier in the year. In other words, DIA will struggle to regain its initial milestone in the $178 zone. By way of comparison, the Diamonds closed out 2013 at a price of $165.47. In that case, a high of $178 amounts to a modest increase of 7.6%. Not a great result.

From a different angle, suppose that the trend line over the past couple of years manages to hold up. In that case, the ramp-up over the year is a hike of 21.6% which in turn implies a milepost at $190.91. This second and last marker for 2014 represents a gain of some 15.4% over the price of $165.47 recorded at the end of last year.

The actual figure at the close of this year will of course depend on a slew of factors. A case in point is the amount of money conjured out of thin air by the central bank.

Another sample involves an uptick in the appetite for risk amongst the investing public. Given the huge run-up of the U.S. bourse last year, a horde of investors will pile into the arena. At the same time, the players at the head of the pack will begin to turn their gaze toward far-flung shores in search of greener pastures.

In that case, the lagging markets round the world should turn in a much better performance than they did last year. Examples in this vein run the gamut from from Britain to Korea.

In the financial forum, the leading benchmarks of the bourse tend to move in unison, as in the case of a peak or a trough that crops up at the same time. On the other hand, the magnitude of the moves tends to differ somewhat. More precisely, SPY is prone to head in the same direction as DIA but advance a tad more in relative terms.

The story is similar for QQQ, a tracking fund which also goes by the nickname of Qubes. The main difference lies in the tendency of the latter to display even larger swings in price than its major rivals.

For these reasons, a forecast for SPY – alias the Spyders or Spiders – is largely redundant when a projection is already available for the Diamonds. And likewise for the Qubes.

As the year wears on, the second and last landmark for DIA lies around 15.4% beyond its closing value of $165.47 in 2013. Based on the recent patterns in the marketplace, we can multiply the latter percentage by a stretch factor of 1.107 for the Spyders. The result is an upturn of some 17.0%. That is, the final milestone for SPY in 2014 should lie around 17 percent higher than its closing value at the end of last year.

We can obtain a similar estimate for the Qubes. The product of 15.4% for DIA and a scaling factor of 1.286 for the index fund comes out to 19.8%. As a backdrop, QQQ closed out the year at a price of $87.96. Based on the latter two figures, the last milestone for the tracking fund stands at $105.38.

In comparison to the stunted advance of DIA and SPY, we can also foresee a brighter future for QQQ for a different reason. On one hand, the Spyders and Diamonds have already passed their all-time peaks and are now plowing into unknown terrain. By contrast, the Qubes have ample room to advance before they regain their historic peak notched at the height of the Internet craze.

At the end of 2013, the Nasdaq fund wrapped up the year at a price of $87.96. The latter figure is a far cry from the zenith of $232.88 touched in March 2000. As a counterpoint, though, the latter price has to be halved due to a 2-for-1 stock split in the second half of March 2000. In that case, the corresponding price today turns out to be $116.44.

The latter figure lies within a stone’s throw of the last milestone of $105.38 projected for 2014. In view of the historical record, the mass of investors will do their darnedest to shove the Qubes up to their all-time high. And if the central bank prints up enough money out of the ether in the interim, the madding crowd may well succeed.

As a rule, we can expect the bourses in the budding regions to advance by roughly twice as much as the Diamonds or Spyders. For instance, a gain of 15% for DIA should result in an uplift of 30% or so for the emerging markets.

To sum up, the trio of index funds for the U.S. bourse will tramp onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other stock markets round the globe.

Although there are plenty of exceptions, the bourses in the budding regions often advance roughly twice as much as the Diamonds or Spyders. In that case, an upturn in DIA should result in a healthy gain for the emerging markets.

On a negative note, the feisty markets also tend to be the most volatile. Meanwhile the mass of investors remain somewhat skittish. As a result, the international crowd may hold back on moving in earnest into the sprouting markets until the last quarter of the year.


NOTE: The full report is a document in PDF form. The fresh update of the publication, listed as Version 2 of “Forecast of Top Index Funds for Investing in the Stock Market”, may be downloaded from the Library at MintKit Core.

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Forecast of Top Index Funds for Equities in 2013

 ETF Review and Outlook  

 for DIA, SPY and QQQ 

A review of the top index funds sets the stage for an orderly approach to forecasting and investing in the stock market. For this purpose, the prime vehicles lie in the exchange traded funds for the leading benchmarks in the form of the Dow Jones Industrial Average of 30 giants, the S&P index of 500 heavyweights, and the Nasdaq index of 100 stalwarts. The tracking vehicles for these yardsticks are found in DIA, SPY and QQQ respectively.

By contrast to popular perception, the real and financial markets are intertwined not only in the future but also the present which in turn springs from the past. Given this backdrop, the adroit planner surveys the landmarks in the backward direction as well as the conditions in the current environment.

Moreover the outlook over the months to come depends not only on the winds in motion at this stage but also the waves taking shape for the following year. For this reason the forecast at hand draws partly on, and sketches out, the prospects for 2013 and further beyond.

From a practical stance, the companies listed in the stock market earn their living within the economy at large. That much is true even in the case of virtual outfits such as online retailers and brokerage firms. As a result, the aggregate level of economic output plays a vital role in the turnout of profits and thus the status of the equities listed on the bourse.

In terms of recent trends, the conditions in the marketplace have not changed a great deal over the past few years. On the downside, the politicians of the West have gone out of their way to solidify the distortions in the housing sector in the wake of the financial crisis of 2008.

Another boondoggle involved the prop-up of some of the biggest and most unproductive firms in the economy. For this purpose, trillions of dollars were wasted in the form of bailouts for a gaggle of pulped banks.

To make matters worse, the struts put in place have prevented the property market from shedding the mountain of blubber it accumulated during the manic bubble in real estate prior to the financial blowup. For this reason, the growth rate for the entire economy is destined to be measly well into the 2020s.

On a positive note, however, the slowdown in China appears to have run its course for now. As a result, the Middle Kingdom will contribute more to the progress of the world economy in 2013 than it did last year.

In line with earlier remarks, though, the prospects for the industrial nations are tepid at best. In that case, the emerging countries of the world will have to plod along amid the general weakness in the global marketplace.

In short, the outlook for the real economy has improved a tad since the same time last year. In particular, we can expect the rich nations of the world to putter along and make way by about 2 percent after adjusting for inflation based on official figures published by government agencies.

In gauging the standard of living, however, the upturn in economic output ought to take account of the growth of the population due to net immigration into the wealthy countries. To this end, a representative figure is an increase in head count of 1 percent a year for the U.S. as well as a raft of other countries. In that case, the gain in real output per person comes out to a mere 1 percent or so.

By contrast, feisty countries such as China and India should fare much better. For the spearheads, a ballpark figure involves an advance of 8 percent or so over the course of 2013.

Thanks to the patchy but improving conditions in the global economy, the stock market is poised to climb higher as well. The cheery outlook shows up in the upward slant of the top index funds over the course of the year.

Looking downrange, the next milestone for DIA (also known as the Diamonds) lies at a price of $140.71 per share. The latter landmark is likely to be reached by the middle of the year.

After that stage, DIA will fall back toward its previous peak at the $135 level. Then the index fund is slated to touch the subsequent milepost of $145 by the end of this year.

At the close of 2012, the Diamonds wound up at a price of $130.58. By comparison, the first checkpoint going forward – at $140.71 – lies some 7.8% higher than the year-end value.

Meanwhile the second peak at $145 stands 11.0% beyond the terminal price for 2012. After that stage, the index fund is apt to fall back toward its previous summit.

A wrinkle in the forecast stems from the behavior of SPY (alias Spyders). If the latter vehicle breaks out into virgin terrain, then the Diamonds will naturally follow suit. In this way, the next big move for DIA depends in part on the turnout for SPY.

On one hand, the Spyders are bound to spin their wheels at a historical boundary marked by a chain of prior peaks stretching back to the turn of the millennium. Even so, the index fund will pull free of the quagmire at some point. When the Spyders move beyond the watershed in a decisive fashion, the Diamonds will celebrate the event with a similar thrust.

Over the near range, the first peak for SPY will occur at a price of $155. The latter landmark stands 8.8% beyond the closing level for 2012. The upcoming threshold could well be reached by the summer this year.

After touching this barrier, the index fund will stall and stumble back toward the $147 zone. There it will likely flounder for a few months at least.

The outpost in the $155 zone poses a major block to further progress. As noted earlier, the reason lies in a series of historical peaks at that level. As an example, the Spyders hit a price of $155.53 in July 2007 followed by $157.52 just three months later. The story is similar for a crest at $155.75 in March 2000, followed by an echo of $153.59 half a year onward.

In general, it takes about 3 attempts for a financial vehicle to surmount a newfound peak. As it happens, SPY is now approaching the hulking barrier for the fifth time. On the surface, then, the market is long due for a breakthrough based on its habitual behavior.

On the glum side, though, the highs in 2000 were scaled in the midst of a humongous bubble in the stock market. Although the uproar pumped up the Nasdaq market the most, the frenzy infected every patch of the financial forum as well as the real economy. In a comparable way, the zenith reached by SPY in 2007 arose at the height of the greatest bubble in real estate in modern history.

Given this background, the peaks attained during the sprees of excess since the turn of the century were extreme as well as premature. In other words, we are now approaching the lofty heights at $155 in a sober way for only the first time.

For this reason, the path forward is likely to be rocky as well as slippery. More precisely, SPY is bound to advance and retreat several times before leaving the $155 threshold for good. In this way, the market will thrash around for many months – or more likely a few years – after its next entry into the recurrent zone.

At this stage, we should note that the setup is comparable for the Diamonds. More precisely, DIA will go nowhere fast while SPY flails around at the $155 roadblock.

When the barricade is breached, the next milepost for the Spyders lies in the neighborhood of $170. The latter landmark towers 19.4% beyond the closing value of $142.41 at the end of 2012.

On a negative note, though, the Spyders will be hard-pressed to reach the soaring target this year. Instead, the index fund might have to wait another year or so before attaining the objective.

By contrast to the labored progress of the Spyders and Diamonds, the outlook differs somewhat for QQQ (a.k.a. the Qubes). The Nasdaq fund has a long way to go before it regains its prior peak at the height of the Internet craze.

At the end of 2013, the index fund wrapped up the year at a price of $65.13. The latter figure is a far cry from the apex of $232.88 touched in March 2000.

On one hand, the latter landmark was attained in the throes of the Internet craze. At the time, the deluge of hype and hysteria in the stock market bore scant resemblance to the actual prospects in the real world by way of digital technology and its applications.

Even so, the mad dash to airy heights during the cyber spree has left a lasting imprint. Despite the unhealthy nature of the ascent, the prior spurt has smoothed the way for a fresh stab at scaling the alps.

For this reason, the Qubes will likely trudge ahead even as the Spyders and Diamonds flop around near their respective thresholds over the next couple of years. In other words, QQQ should clamber upward in fits and starts throughout the slippy period when SPY and DIA keep sliding back toward their historical peaks.

The first milestone for the Qubes lies at a price of $73. This target, which stands 12.1% above the closing value for 2012, could be grasped by the summer this year.

The next milepost for the index fund crops up at the $78 level. The objective hovers 19.8% beyond the terminal value for 2012. On a negative note, though, the landmark might not be reached until the turn of the year.

In these ways, the trinity of index funds for the U.S. bourse will tramp onward and upward through a series of zigzags as usual. The story will unfold in a similar fashion for the other stock markets round the world. On the whole, we can expect the bourses of the budding regions to advance roughly twice as much as the Diamonds or Spyders. An an example, a gain of 11% for DIA should produce an uplift of 22% or so for the emerging markets.


NOTE: The full report is a document in PDF form. The publication, listed under the title of “Forecast of Top Index Funds for Investing in the Stock Market”, may be downloaded from the Library at MintKit Core.


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Market Forecasting

Prediction of the

Financial Forum and Real Economy

Forecasting paves the way for a wholesome program of investment, whether in the financial markets or the real economy. To this end, the techniques of prediction run the gamut from the simple and casual to the complex and formal.

On the scale of rigor, the low end of the range includes a hunch by an investor that a newborn technology will create a vibrant market and render obsolete a mature industry. Meanwhile the opposite end of the spectrum is showcased by a software agent that predicts the price of a stock and learns from its mistakes in order to improve its performance over time.

An investor who wants to divine a market of any sort faces a daunting task. The stumbling blocks include the whims of human actors and the flukes of natural forces. A case in point is a ramp-up of the stock market to ditsy heights by a horde of berserk traders. Another sample involves the smackdown of a regional economy by a monstrous earthquake that knocks out a swath of manufacturing plants and power grids.

In a world racked by chance and chaos, the hapless investor is hard-pressed to peer into the future with any measure of confidence. Even so, the lack of clarity does not mean that anything goes. On the contrary, anyone with a smidgen of sense knows that some things are more likely to crop up than others.

In that case, a glimpse of the future is a matter of degree rather than category. For this reason, the meaningful question is not whether prediction is feasible, but to what extent the task can be achieved.

In a way, the forecaster encounters the same type of challenge in selecting a technique for prediction. More precisely, the apt approach happens to be relative rather than absolute. The best choice of method depends on a bunch of factors including the skills of the user and the thrust of the application.

To begin with, each approach has its strengths and drawbacks. Moreover a given method may work like a charm in the hands of one user but not another. For these and other reasons, the shrewd player weighs a variety of techniques before deciding on the right tool for the job in forecasting a market of any sort.

Read more on Market Forecasting.

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