I'm frequently asked for a prediction of where the is market headed. I track a variety of economic indicators, create historical charts of market behavior, and post updates on a broad array of market and economic topics. However, lacking a Crystal Ball function in Excel (Bill Gates, that's a hint), I don't know where the market will be six months from now, or six years from now — or six days from now.

But for anyone trying to decipher the markets and the seemingly dysfunctional relationship between the economy and the markets, there are two books I would highly recommend, both by Ed Easterling:

• Unexpected Returns: Understanding Secular Stock Market Cycles (Cypress House, 2005)
  
  
• Probable Outcomes: Secular Stock Market Insights (Cypress House, 2011)

Ed Easterling, the founder of Crestmont Research, has developed a system of Financial Physics, Crestmont Research's model to explain the complex relationship between economics and finance that drives stock market returns over time. He identifies three economic elements (Real GDP, Inflation and Nominal GDP) and two elements from finance (P/E Ratio and Earnings Per Share) and expresses their relationship in a mathematical formula to arrive at an estimate for the stock market. Solving the equation is complicated by the fact that one of the key elements, Real GDP, is known while the other key element, the direction of inflation, is unknown.

Ultimately, of course, "Financial Physics" is not the impossible Excel Crystal Ball function I fantasize about. But it provides an analytical method that significantly limits the range of probable outcomes for the market based on the data inputs for the five elements. In fact, in his Probable Outcomes book, Easterling uses a brilliant pair of matrices to show four probable outcomes for the current market over current secular time frame. What the future holds for the market will largely depend on two major uncertainties: 1) economic growth and 2) inflation.

In the near term, market behavior is anybody's guess. But Crestmont Research has created a fascinating methodology for estimating longer-term future returns and helps us focus attention on the critical variables that will determine our economic future.

My advice? Read both books and bookmark the www.crestmontresearch.com website.