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What do you -- and millions of other investors -- expect for the global economy and stock markets over the next six months?

That a dysfunctional U.S. Congress will let the government shut down for lack of a budget?

That European leaders will cave in and bail out Cyprus with taxpayer money?

That Japan, having already pushed the yen down almost 16% against the U.S. dollar since Dec. 1, will push it down another 15% before the government of Shinzo Abe says "Arigato gozaimasu"?

Quite frankly, if I were looking for predictions, I'd rather consult my Magic 8-Ball. No offense, but my experience suggests that the wisdom of crowds is as unlikely to call the future right as the wisdom of gurus is. There's a reason cynics in the guru profession advise, "Forecast early and often."

But if you're looking for a guide to how the market will move over the next month (or two or three), I don't think you can do much better than by paying close attention to what investors -- in the aggregate -- expect.

That's because expectations get embedded in stock prices. Prices anticipate not what is going to happen -- no one actually knows what is going to happen -- but what investors think is going to happen.

Jim Jubak

Jim Jubak

If the mass of investors thinks rising inflation will provoke an economic slowdown in China, that expectation will be reflected in the price of Chinese stocks. And the stronger that expectation -- the more investors share that view -- the more prices will take that expectation into account. If everyone thinks the Cyprus crisis will take down the euro, then that view will be embedded in the price of Italian bonds, French stocks and the euro. If everyone thinks that another debt ceiling battle will hit the U.S. credit rating, then that expectation will send Treasury yields up and stock prices down.

Trend followers and contrarians

What to do with these expectations divides investors into roaring camps. Trend-following investors seek to go with expectations as they're expressed in charts and momentum indicators. Contrarians try to discover misguided expectations and get out in front of the turn in opinion.

Me? I'm agnostic. If the trend is strong enough and the expectation looks likely to be supported -- at least for a while -- by the flow of news, go with the trend, I say. If expectations look likely to be disappointed, then, I say, be contrarian and bet against the expectations of the market.

And always, always remember that in a majority of cases, you probably can't tell with a useful degree of certainty if the trend will continue or reverse in any time period specific enough to be profitable. Most of the time, you're better off not trying to guess whether expectations will be confirmed or confounded. (That is, of course, the core belief of another school of investors who say only fundamentals count.)

Most of the time. But not all of the time.

Some markets have clear expectation trends that you can follow. And clear news flows that say the expectations in the market are both correct and likely to last for a while.

Some markets are so volatile that expectations run quickly to extremes. In these markets, expectations -- good and bad -- are likely to outrun actual events. That suggests that in these markets there's money to be made by going against the flow.

Profit from reading market expectations

Let me look at one current example of each right now and suggest how you might profit from reading market expectations in these two cases: Japan and the United States. And then I'll finish with a brief argument for why Chinese and European markets aren't very well suited to this approach right now.

Everybody knows that the government of Shinzo Abe, elected in December, is determined to weaken the yen. The prime minister ran for office on a platform that called for a weak yen as a way to stimulate Japanese exports and the Japanese economy. The yen started to fall against the dollar even before Abe was elected and, despite a few rallies when the euro crisis led to a flight to safety that pushed up the yen, the trend has been down ever since.

Is this a trend worth following? After all, everyone expects the yen to drop further.

Yes, but I don't think expectations yet take into account the degree of the government's commitment to a really weak yen. The Bank of Japan's new governor, Haruhiko Kuroda, took the podium Thursday with the yen already at a 3 1/2-year low, near 96 yen to the dollar. Before the speech, some analysts had suggested that Kuroda wouldn't do anything radical in his first outing as the head of Japan's central bank. But he vowed to take all means available to push the Bank of Japan toward its new goal of 2% inflation (up from the old goal of 1% and a big move toward stimulus in an economy that has tended toward deflation in the last two decades.)

Earlier talk that the yen could weaken to 100 to the dollar, which was once the extreme end of expectations, is now at the conservative end. A yen at 105 or even, temporarily, at 110 to the dollar is within the current discussion. If the yen gets to 105, I think it would be time to revisit how much longer to ride this expectation. But from 96 yen to the dollar, I think the trend is indeed toward a weaker yen, one weaker than expected.

And that suggests that there are still gains to be made from holding on to the shares of Japanese exporters such as Toyota Motor (TM) -- a stock I added to my Jubak's Picks portfolio on Feb. 5.

If you want to add Japan exposure to your portfolio now, I'd suggest the iShares MSCI Japan Index ETF (EWJ), the New York traded ADRs (American depositary receipts) of banking giant Mitsubishi UFJ Financial Group (MTU) or, if you can trade in Tokyo, the shares of an exporter such as office-machine maker Ricoh (7752.JP) or carbon-fiber manufacturer Toray Industries (3402.JP.) (Neither of these stocks trades with enough volume in New York for me to recommend buying them on that market.)

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