Thursday, May 25, 2017

Rewards of Investing in Real Estate through Index Funds, Not Actual Properties

Higher Payoff with Less Effort

Real estate represents the greatest store of wealth for the bulk of the human population. With the exception of owning a home for personal use, however, holding a property for the purpose of investment usually entails a raft of headaches. The nettlers of this kind run the gamut from emergency repairs and maintenance costs to problematic tenants and sporadic vacancies. As a result, the net earnings usually fall a goodly amount below the gross returns reckoned in terms of the monthly rent.

On the upside, though, holding an index fund in the financial forum tends to pose far less headaches than renting out actual dwellings in the real economy. Granted, the experience of any given person could differ from that of another. Even so, many an investor enjoys a higher rate of return through an index fund for real estate than the mass of landlords can eke out by renting out actual properties in the marketplace.

NOTE: The briefing is available under the following title: “Rewards of Investing in Real Estate through Index Funds, Not Actual Properties”. The PDF document may be downloaded from MintKit Library. In addition, a capsule in the form of an infographic poster is available at MintKit Gist.

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Wednesday, March 1, 2017

Trillion Dollar Agenda for Global Growth through Social Capital

For the economy to grow, the actors in the marketplace need to expand the overall output rather than jostle each other for bigger shares of the available output. To this end, the productivity level may be boosted through a comprehensive program of social capital.

Based on the experience of the 20th century, the rich countries of the world could afford to commit US$1 trillion per year for a couple of decades. According to a compelling scenario, the total investment of $20 trillion in nominal terms will comprise $13.6 trillion in current dollars since the funds will be disbursed over time rather than spent at once.

Using conservative estimates, the present value of the benefits will exceed $3.39 quadrillion which represents a payback of 249 times the original investment. In this way, the windfall from a global program of social capital should far surpass the outlay required for its implementation.

NOTE. The full report is available under the following title: “On the Economic Returns from a Global Program of Social Capital”. The document, available in PDF form, may be downloaded from the Library at MintKit.

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Friday, January 27, 2017

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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