Wednesday, March 27

How to play the expectations game

How to play the expectations game
| By Jim Jubak

Embedded expectations of stock prices. Here are ways you by going with or staking a contrarian point of view on the market today can make money.

What to expect Sie-and millions of other investors – for the global economy and the stock markets in the next six months?

This can be a dysfunctional Congress, the Government shut down for lack of a budget?

The European Heads of State and heads of Government of the cave and bail-out Cyprus with taxpayer money?

That Japan, pushed the yen by almost 16% against the US dollar since Dec. 1, it will be down another 15% from the Government of Shinzo Abe, press says "Arigato Gozaimasu"?

Frankly, if I were looking for predictions, I would advise more my magic 8-ball. No offense, but my experience shows that the wisdom of the crowd is so unlikely that the future right call as the wisdom of the gurus. There is a reason to advise the cynics in the profession of the guru, "forecast early and often."

But if you are looking to a guide, as the market over the next month (or two or three) moves, I don't think that you can do much better than by the payment to the investor-aufmerksam-in its entirety - expect.

Because expectations stock prices is embedded. Prices to anticipate, not what will - happen no one really knows what happened- but what investors think will happen.

Jim Jubak

When thinking to the mass of investors that an economic cooling in China provoke rising inflation, this expectation will be reflected in the price of Chinese shares. And stronger, Erwartung--the more investors know that– - other prizes this expectation statement will look at. If everyone that the Cyprus crisis will take down euro thinks, then this view in the price of Italian bonds, French equities and euro are embedded. If any, that an other debts think battle ceiling suggests the US credit, then this expectation sends Treasury yields up and stock prices down.

What to do with these expectations shares investors in bustling store. Are looking for trend-following investors with expectations to go, as they are expressed in diagrams and momentum indicators. Contrarians are attempting to discover false expectations and before the turn according to out.

Me? I'm agnostic. If the trend is strong enough and the expectation of likely - at least for a Weile--must be supported by the mail flow, you go with the trend, I say. Check out expectations are probably disappointed, then say I, his contrarian and bet against the market's expectations.

And always, always keep in mind think that in most cases, you probably not with a useful security can tell if the trend will continue or specifically reversed enough in each period to be profitable. Are most of the time, you better not try to guess whether confirmed or mixed expectations. (That is of course, the core belief of another school of investors, who say only basics count.)

Most of the time. But not all the time.

In some markets have clear anticipation of trends that you can follow. And clear message flows, saying, the expectations of the market are both correct as also probably enough for a while.

Some markets are so volatile that run expectations quickly to extreme. In these markets, are likely to Erwartungen--good and schlechte--to escape actual events. That suggests, is that in these markets there are made money by going against the grain.

Let me a recent example of each moment consider and propose you, read how you could benefit from this market expectations in these two cases: Japan and the United States. And then I'm going with a short argument for why Chinese and European markets very well to this approach now are not finish.

Everyone knows that the Government Abe, chosen is determined by Shinzo in December, in order to weaken the yen. The Prime Minister ran for Office on a platform that demanded a weak yen as a way to get Japanese to stimulate exports and Japan's economy. Yen began to fall even before Abe was against the dollar elected, and despite a few rallies if the euro crisis led to a flight into safe, which on the yen, the trend pushed to down since then.

Is it a trend-following value? Finally, expected that the yen will fall any further.

Yes, but I consider the level of commitment of the Government to a really weak yen not up to my expectations yet. New Governor who of Japan, took Bank Haruhiko Kuroda, the podium Thursday with 3 1/2-year low is already the yen on one, in the vicinity of 96 Yen to the dollar. Before the speech, some analysts had suggested that Kuroda everything than head of the Japanese Central Bank would not radical in his first appearance. But he promised all the means to take the Bank of Japan in the new target of 2% inflation pushed (based on the old gate of 1% and a big step in the direction of stimulus into an economy that tended toward deflation over the past two decades.)

Early talk that the yen was up 100 dollars, weaknesses the once extreme end of expectations, is now at the end of conservative. At 105 or even temporarily is a Yen at 110 dollars within the current discussion. The yen gets up to 105, I believe it's time to rethink, to ride this expectation how much longer. But from 96 Yen to the dollar, I think that is the trend toward a weaker yen, a weaker than expected.

And that suggests that there are still gains from holding on to shares of Japanese exporters such as Toyota Motor (TM)-a share to the my Jubak picks portfolio on Jan. 5 added to be carried out.

If you now want to add exposure Japan to your portfolio, I would suggest the iShares MSCI Japan Index ETF (EWJ), New York's ADR (American depositary receipt) of banks traded huge Mitsubishi UFJ financial group (MTU), or, if you trade in Tokyo, the shares of the exporter as Office machine manufacturer Ricoh (7752.JP) or carbon fiber maker Toray Industries (3402.JP.) (None of these stocks is enough volume in New York City for me to recommend, to buy this market.)

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