Where Will the Stock Market Go Tomorrow?


What will the stock market do tomorrow?

Many investors are asking this today after the big drops took place last Friday and yesterday.

This is the wrong question.

A better question is “what will the stock market do in a year or two or three or four and how will this affect my liquidity needs”?

Before we look at what the recent correction might mean, let’s review seven of the 50 Golden Rules of Investing (that I have accumulated from investing in shares for 50 years).

#1: There is always something we do not know.   Anyone who says they know what shares will do tomorrow is fooling you (or themselves) .  All correct predictions will be luck or educated guessing at best.

#2: Periods of high performance are followed by periods of low performance and vice versa.  We do know this, but do not know exactly when the performance will be high or low.

#3: Markets move short term based on emotion and are unpredictable.  Markets move long term based on value and are predictable.

#4: Do not panic.  Turn on the auto pilot and normally add to your position.  You can do this when you have built a portfolio based on your liquidity needs and good value.

#5: Do not let feelings influence you too much.  This is easier said than done… which is why I have rushed this note to you.

#6: Do not care too much about day to day volatility.  The short term process of buying and selling takes too much time and costs to much in fees.  If the market falls… the drop is creating better value.

#7: Place a higher priority on numbers rather than good stories.  So let’s look at some numbers.

First, the chart below shows the entire real-time forecasting history of Keppler Asset Management Inc. for the KAM Equally Weighted World Index, starting at the end of 1993.  We have tracked Keppler for oever 20 years.  They are among the best statisticians.

These numbers are based on relationships between price and value over the previous fifteen years moving forward in monthly increments and thus adjusting steadily to an ever-changing norm.

The chart includes two remarkable episodes: The five-year period (1997-2001) during which the KAM Equally Weighted World Index stayed above the upper forecast band, and the period starting in October 2008 when it fell below the lower forecast band, where it stayed through April 2014 (5 years and 7 months).

Since then, the Index (red line) has fallen slightly below the lower forecast band again twice in the first half of 2016.  In the past, index levels below or slightly above the lower forecast band turned out to be attractive entry points for long-term investors.

kepler

This analysis indicates that global markets are most likely to rise a compound annual total return estimate of 3.3 % in local currencies from the beginning of 2018 through the beginning of 2022.

Taking into account the chances of deviation at 20% up or down, the upper-band estimate is that by 2022 the compound annual total return could be as high as 8.1%  or as low as a compound annual total return of -2.3 %.

In other words if an investor holds on to a portfolio of global shares, based on the MSCI World Index, they should expect to see as much as 8.1% a year profit or a 2.3% per annum loss.

However this portfolio can be enhanced by holding shares in good value markets.

Keppler’s analysis shows that the good value developed markets are a much better value (1.58 price to book) versus the world index (2.43 price to book).

keppler

However my portfolio that holds ETFs invested in these good value markets (held at online broker at Motif.com)  shows that value markets are not immune from the correction either.  MY portfolio dropped 3.7% in the day.

motif

This short term drop in terms of a trend line means nothing.   We not only invest in good value market ETFS, but WE track the trend of each market with Tradestops.com.  Today the Stock State Indicator of each share in the portfolio (each a country ETF that invests in a good value market), remains green.  In other words  the trend of each market is still up.  This two day correction has not yet indicated a true downwards shift.

tradestops.com

We also track the analysis of ENR Asset Management and ENR’s CEO sent us this note today.

The Dow and other U.S. stock markets crashed late this afternoon in a dramatic 1,175-point plunge for the Dow Jones Industrials Average or 4.6% in one day. The S&P 500 Index plunged over 4%. I expect this panic selling to extend overnight in Asia and spill over into European trading tomorrow before the dust settles over the next several days.

Global markets have now erased their gains for 2018 after a stunning start in January. For our purposes, our growth portfolios (ENR Global Contrarian and ENR Aggressive Growth) are also down after today but not fully invested and still holding some hedges. Even our conservative portfolios, holding 30% in cash, were hit today. However, we are not net short and certainly still exposed to risk in mostly high-quality stocks worldwide. I’m watching the market action carefully and won’t hesitate to apply short or reverse stock index ETFs if I think there’s another big leg down. But at this point, the panic has already occurred. Markets are now either oversold or almost oversold. You don’t start buying market protection AFTER a crash. If anything, you sit tight, and maybe make fresh purchases. For us, it’s wait and see for now.

The big risk lies in the aftershocks. I imagine certain leveraged hedge funds might collapse or some systematic traders forced to liquidate based on computer models. Make no mistake: today saw panic-selling towards the end of the day and probably triggered some sort of Flash Crash whereby computers exacerbated the drop. There’s no doubt in my mind that one or several very big program trading systems triggered this mini-crash today.

The macro picture remains bullish from a growth perspective. The global economy is growing, inflation is rising but not rapidly in the United States and remains very low everywhere else in the major economies. Interest rates have risen sharply over the past few weeks, but as long as corporate earnings are growing and the rest of the macro picture is benign, I’m not bearish. The USD is also generally weak and that’s a plus for risk assets.

We are not dumping our stocks. I don’t think the markets will bounce back tomorrow; rather some sort of rally is going to occur over a several-day period or a gradual recovery off these levels. After hitting a 4-year high, the ten-year Treasury bond rallied sharply today — a sign of safe haven buying amid all the excitement. Lower bond yields will help market sentiment provided the bond market is not discounting a recession. I don’t think this is the case.

Rest assured we are following world markets very closely. I’ll keep you posted if market events continue to deteriorate and inform you of what we intend to do in the event of a possible economic recession, which may or may not be in the process of being discounted since Friday’s market action.  Thank you.

Eric Roseman  ENR Asset Management

For more details about how ENR Asset Management can help your portfolio contact Thomas Fischer at Thomas@enrasset.com

In other words, right now, all the systems we track, all based on math rather than stories, suggest that investors should hold on and look for buying opportunities.

Golden rule of investing number four seems to apply right now… #4: Do not panic.  Turn on the auto pilot and normally add to your position.  You can do this when you have built a portfolio based on your liquidity needs and good value.

Gary

The Only 3 Reasons to Invest

garyheadshot

The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and elimination of stress!

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 19 shares and this position has hardly changed in three years.  During this time we have been steadily accumulating the same 19 shares and have traded only three times.

A model portfolio that dates back to 1969 has dramatically outperformed almost every stock market in the world.

keppler

A hundred US dollars invested in that portfolio in 1969 is now worth $44833 compared to $100 invested in an equity weighted world index being worth $11,548.

This portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.

This portfolio more or less matched the S&P 500 until May 2018.  Then a stronger US dollar made the portfolio look like it was falling behind.   This currency illusion creates a special opportunity we’ll view in a moment.

This portfolio above is based on stock price to value analysis built around 91 years of stock market data.

The value analysis is used to create a portfolio of MSCI Country Benchmark Index ETFs that cover  stock markets that are undervalued.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage over $2.5 billion of funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) and most of his funds registered for the European Union, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael about 25 years ago, so I am one of the few Americans who receive this data and you will not find his information readily available in the US.

In a moment you’ll see how to remedy this fact.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  Then Keppler takes market’s history into account.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael’s analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2020.   There have been no changes since.

70% is diversified into Keppler’s good value (BUY rated) developed markets: China, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the MSCI indicies of the good value BUY markets.

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund is at all times invested at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for every market in our Pifolio.

This year I celebrated my 52nd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

How you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past three years, two more reports on investing (described below) and an online Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.This year I celebrated my 51st anniversary of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

keppler

The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $102 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years,  right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the reports as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $99 a year from now, but you can cancel at any time.

Gary