Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The primary focus of the research is concentrated on the drivers and characteristics of secular stock market cycles, the impact of inflation and interest rates on the stock and bond markets, and the conceptual approach toward investment strategy applicable to the current market environment.
The intention of the research and its publication on this site is to present rational perspectives based upon a diligent analysis of historical data. Through organizing the data logically, information is created. Through understanding and developing perspectives on the information, knowledge is generated. With knowledge, one can then start to make informed decisions.
Crestmont’s research is intended to be observation-based rather than prediction-oriented. It intends to provide information and perspectives to assist in rational decisions. The research does not provide predictions or recommendations on investment alternatives, although you may find the implications quite compelling.
Harry Markowitz, Nobel Prize co-recipient for Modern Portfolio Theory and the Capital Asset Pricing Model, published “Portfolio Selection” in The Journal of Finance during 1952. He led with: “The process of selecting a portfolio may be divided into two stages. The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of the portfolio. This paper is concerned with the second stage.” As Markowitz emphasizes, it is the investor’s responsibility to use “observation and experience” to develop “beliefs about the future performances.” Crestmont’s research is developed to provide practical insights for investors that don’t have 75 to 100 years to wait for historical average returns.
Highlights from each section include:
The overall market is highly volatile and affected by generally long secular cycles. You may wonder “Is it worth the risk?”. As well, returns in the stock market depend upon the level of and trend for inflation. You’ll gain insights toward the obvious question “What can we expect from here?”.
Ten, twenty, or even thirty years is not enough to ensure successful returns in the stock market. From current and recent levels in the P/E ratio, expected returns will be disappointing for many investors. Pundits are professing: “Returns will improve when the economy begins to recover!”. Hope is not a strategy.
Though traditional wisdom relates P/E ratios to interest rates, that relationship only works in periods of positive inflation. With the risk of inflation or deflation on the horizon, the analysis titled “P/E Ratios & Inflation” will clarify that P/E’s are driven by inflation. As well, see “Stock Market Returns & Volatility” for a surprisingly strong relationship between the level of volatility in the stock market and its direction.
Financial Physics represents the interconnected relationships among several key elements in the economy and the financial markets that determine the stock market’s overall direction. This presentation will provide a highly provocative and insightful perspective on the relationship of the economy (‘the source of wealth’) and the equity markets (‘the measure of equity wealth’). Whereas other presentations present analyses of historical data to provide perspectives, this analysis is dedicated to exploring the fundamental factors and economic relationships that drive trends and valuations in the financial markets.
Short-term interest rates (one year or less) are generally determined by the Federal Reserve; long-term interest rate yields are driven by inflation or inflation expectations in the economy. The relationship between interest rates and inflation was not evident before the 1960′s. The research and dynamic model begin to develop perspectives toward “What are the implications into the future?”.
Our prediction (notwithstanding that there are occasional, yet very limited, periods that breaks The 6/50 Rule): “Interest rates will change by at least 50 basis points (0.5%) within the next 6 months!” There’s over 40 years of history-virtually without exception-in our favor. Chances are that it will be a good bit more than that, too. See the details and charts titled “The 6/50 Rule.”
Uncertainties about the economy pose a unique crossroad for the current decade and beyond. Further research and analysis is needed to assess conventional wisdom for myth and insight.
Understanding Secular Stock Market Cycles
Before you read any how-to investment books or seek financial advice, read Unexpected Returns, the essential resource for investors and investment professionals who want to understand how and why the financial markets are not the same now as they were in 1980s and 1990s. In addition to explaining the fundamentals, this award winning book takes you on a graphic journey through seasons of the market, tying together economics and finance to explain the stock market’s cycles. Using comprehensive full-color charts and graphs, it offers an in-depth exploration of what has changed over the past five years – and what you can do about it to avoid disappointment with your investments. This unique combination of investment science and investment art will enable you to differentiate between irrational hope and a rational view of the current financial markets. Based on years of meticulous research, Unexpected Returns provides the sensible conclusions that will drive your future investment choices and give you the confidence to rely on your investment outlook, whatever your financial strategy.
Secular Stock Market Insights
Probable Outcomes continues the Crestmont Research tradition of extensive full-color charts and graphs that enable investors and advisors to differentiate between irrational hope and a rational view of the stock market. This book’s empowering insights prepare you to take action during the current period of below-average returns. The unique combination of investment science and investment art explores the market from several perspectives and addresses the significant implications for a broad range of investors. Beyond concepts, Ed Easterling delivers a dramatic analysis of the likely course for the stock market over the 2010 decade. Investors and advisors will benefit from this timely outlook and its message of reasonable expectations and value-added investing. This essential resource offers a compelling understanding of the key fundamental principles that drive the stock market. Derived from years of meticulous research, Probable Outcomes provides sensible conclusions that will guide your future investment choices and allow you to invest with confidence, whatever your financial strategy.
Crestmont Research primarily develops and publishes research in the form of charts and graphs to provide investors and market spectators with poignant perspectives on the financial markets. The objective is to impart insights about the reality of the markets. Occasionally, articles are written when graphics would not be appropriate or when requested by specific publications or clients. Crestmont has retained all rights to the following articles and welcomes inquiries regarding publication in periodicals and newsletters.
We solicit your insights, whether supporting or contradicting our presentations. They will assist in furthering our research. Contact us at Info[at]CrestmontResearch.com, or use this Contact Form.