2 Econometric models predicting 20%+ gains

Discussion in 'Economics' started by Covertibility, May 27, 2010.

  1. Longer term in focus

    Consider an econometric model maintained by Sam Eisenstadt, the former research chairman at Value Line, Inc. the author of the famed Value Line stock-ranking system, and a rigorous statistical student of the stock market for over 60 years. He reports that his model sports an impressive track record back to 1952 in forecasting six-month returns. (Its r-squared, for the statisticians among you, is 0.3).

    Or consider another econometric model with similar statistical success devised by Norman Fosback, editor of Fosback's Fund Forecaster and formerly head of the Institute for Econometric Research. His primary trend model focuses on the market's returns one to five years into the future, but makes no predictions about the market's shorter-term movements.

    What are these two models saying right now?

    Interestingly, both are quite bullish. Eisenstadt tells me that his model is currently forecasting a 20% return for the S&P 500 index over the next six months. Fosback reports in the latest issue of his newsletter that his model is forecasting a 26% total return for the stock market over the next year and a 75% five-year return (equivalent to around 12% annualized).

    Note carefully that, just because these models have good track records, there is no guarantee that they will be right. An r-squared of 0.3, for example, even though statistically quite impressive, still means that the bulk of the stock market's returns over any given six-month period cannot be explained or predicted by the model.


    Googling Sam Eisenstadt provides this article from December of '09, Sam Eisenstadt Sees Market 20% Higher In 2010 which he said to expect the market to rally 11% in the first half. That somewhat happened although the market took it all back. Although I view the pullback to be more of a pricing in of Euro weakness into Q2 earnings for the multinationals than another apocalypse.

    Something of interest, AAII is showing:

    Bullish 29.8%
    Neutral 19.3%
    Bearish 50.9%

    50.9% !?!? That's too high for this selloff to continue. And if Roubini says the market is going to drop another 20% from here over the next couple of months, then this is a guaranteed bottom.
  2. Econometrics is an aberration. Nothing to do with economics.

    Good luck
  3. 1) What did those models say two years ago at this time?
    2) The 50.9% "number" may merely be only opinion and not opinion backed up by "real money on the short-side of the market".
    3) There can be a Summer Rally and a Fall Meltdown. We'll see. :eek: :cool: