Where is the market going?

In a training class there are some of the few questions I cannot wish away. Let me name a few:

1. What will happen to the market in the next 12 months?

2. When will the market reach 21000 again? (they mean Sensex)

3. Is the fall over? Will it start rising again? When?

Frankly I feel like telling them – “I do not know, and frankly I do not care”. However when I have introduced myself as a CA, ex-member of NSE, etc. THEY ASSUME I am lying! That is the benefit of speaking the truth. People do not believe you! But that is the truth. How much money of mine will be in equities is a matter of my asset allocation, not where the Index is as of today. If I require money for my daughter’s education, it is about 12 years away. I frankly do not see any big outlay before that date.

However I have decided to predict the markets. It takes a brave man to predict knowing that “predicting is risky, especially if it is about the future” – Mark Twain (when in doubt say Mark Twain or Oscar Wilde, it does not matter!). Another interesting quote regarding forecasting is “forecasting is like driving a car blindfold with directions from a passenger who is looking out of the back window” – Werner De Bondt.

The S&P and DJ are too much weighted on the financial services. If a financial services giant (who does not clients sleep) whose shares are quoting at US $ 1.2 a piece sells 40% stake to anybody at current prices it could about 10 years of hard work to generate a meaningful EPS. Also if some of its customers get intelligent (I am betting against this) it may not be able to sell products with 70% upfront commission…so the S&P at 550 may not be impossible!

The amount of ‘paper money’ that the financial services generated in the USA is far too high – 30% of the Index – that will be a killer. Excess printing of notes, attractive bond yields (inspite of inflation worries), flight to safety, etc. money may currently be exiting some stocks and entering some other stocks!

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