Making Money Alert
A Golden Canary in the Coal Mine
09/15/2010
The big buzz in the markets of late is the resurgence of gold prices. Gold just breached a new all-time high, and the incredible run higher in the price of the SPDR Gold Trust (GLD) in 2010 has made gold a shining city on the hill for investors. GLD is up more than 15% so far this year, and the value of the yellow metal continues trading well above both short- and long-term trend lines.
Some have cited the volatility in global currencies such as the yen and the U.S. dollar as the chief reason why gold prices are on the rise. Former Fed Chairman Alan Greenspan agrees with this thesis. He thinks that rising gold prices actually are a sign that investors are getting very, very nervous about the global economy.
Greenspan recently said that gold still represents the “ultimate means of payment” and that if there are serious problems in the currency markets, gold will be the currency to hold. Greenspan also warned that a jump in gold prices could be “the canary in the coal mine to keep an eye on.”
Interestingly, the rise in gold prices also comes amid rising equity values. Take a look at the chart below of the S&P 500 Index. Here we see stocks mounting a rally off of their August lows, and above both short- and long-term moving averages. The rally in stocks and the concomitant rally in gold is not usually the case. Usually we see a sell-off in gold when stocks are rising.
I think the rise in both gold and stocks is something investors need to keep a careful eye on, as it means that we could either be headed for a big correction in gold prices or a big correction in stocks.
If you are long both stocks and gold right now, then it’s time you made sure you have stop-loss orders in place on both positions to protect yourself from a potential downturn in one of these market segments. In my opinion, the recent price action in both gold and stocks is unsustainable. That means a correction could be close and, as such, you’ll want to make sure your money is protected.
What's the Deal with Long-Term Interest Rates?
Long-term interest rates, i.e., yields on the 30-year Treasury Bond, have been at distress levels since they began their big downturn in April. That decline continued virtually uninterrupted right through the end of August. Yet, since hitting those August lows, long-term interest rates have spiked nearly 12%. The chart below shows that yields now are close to breaching their short-term, 50-day moving average.
So, what’s the deal with yields? Well, I think the biggest factor is that long-term Treasury bonds have just become too overbought of late, and that means a slight correction in bond prices (i.e., a rise in bond yields) is well overdue.
Now, I don’t think the recent spike in yields quite signals the bursting of the bond bubble just yet. I do, however, think that the spike in yields is something bond owners need to be acutely aware of. You don’t want to get caught on the back end of a mass exodus from bonds and, as such, I think all long-term Treasury bond holders (as well as holders of bond funds) need to keep careful watch on all of their bond positions.
ETF Talk: Eyeing a Sweet New Kiwi Fund
I have a new fund to share with you today. It is the iShares MSCI New Zealand Investable Market Index Fund (ENZL), the first-ever pure play exchange-traded fund (ETF) offering exposure to New Zealand. Launched Sept. 1, the fund is just starting to build a daily trading volume, but it already has caught my attention.
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI New Zealand Investable Market Index. The index is a free-float, adjusted-market capitalization weighted index that is designed to measure the performance of equity securities listed on stock exchanges in New Zealand. As of July 31, 2010, the index held 23 securities with its heaviest weightings in three sectors: materials, 23.17%; telecommunication services, 16.25%; and consumer discretionary, 14.05%. Its top three holdings at the time were Fletcher Building Ltd, 19.85%; Telecom Corp of New Zealand, 16.25%; and Auckland Intl Airport Ltd., 7.78%.
As you likely know, this year has been a real roller-coaster ride for equity investors. For that reason, you understandably may feel frustrated and skittish about where exactly to put your money. Amid the uncertainty, one positive sign that I have noticed is that commodity-producing economies have been able to weather financial storms fairly well this year due to their vast natural resources. One such commodity-rich country that has received relatively little attention is New Zealand.
Despite New Zealand’s low profile among fertile territories for investing, the World Economic Forum just released its Annual Global Competitiveness Report and ranked the country 23rd out of 139 countries for its business climate. The criteria for the rankings include macroeconomic policies; the strength of public and private institutions; the quality of education and infrastructure; and the efficiency of markets for goods, labor and capital. New Zealand ranked especially well in strength of investor protection, ethical behavior of firms, and health and primary education. Those attributes should help to assure you and other investors that the country is a good place to put your money.
Without a track record of performance, the fund may not be a place where you want to invest your money right now, but I think it’s worthy of tracking. If the fund shows early promise and the market increasingly rewards commodity investments, the new fund could do well.
If you want advice from me about which ETFs to buy and to sell, I encourage you to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send your question to me, simply click here. You may just see your question answered in a future ETF Talk.
The Next BIG Opportunity: High Yield --- Listen Now, FREE!
The negative news on the economy is everywhere, but I have a newsflash for you. The world is NOT coming to an end. America will not slip back into a recession anytime soon, and a big Congressional victory by conservatives in November could set us up for a fantastic buying opportunity -- if you know where to invest your money.
Throughout most of this year, I have been warning investors about the risks of owning mutual funds and about the mindless strategy of buy and hold that most stockbrokers and advisors constantly advocate. Throughout most of 2010, the best strategy has been a high cash position combined with a healthy dose of patience. Now, however, my research is pointing to opportunity.
Taking advantage of this opportunity is easy. In fact, all you have to do is listen to a replay of my recent teleseminar, “The Next Big Opportunity: High Yield.”
As the title suggests, we believe there is a HUGE opportunity coming for investors seeking high-yield investments. High-yield investing comes with its own set of risks and rewards, and we’ll be focusing on these risks and rewards in this teleseminar. If you’re an investor who wants to increase the income generated from your assets, then you’ll want to listen to this seminar.
During this one-hour teleseminar, we share our thoughts on:
• How to build a high-yield portfolio fit for these chaotic economic times
• Which high-yield securities are appropriate for your portfolio
• How you can plan for, and protect yourself from, the bubble now forming in bonds
• How stocks are likely to perform in a slow-growth economy
In addition, you’ll also receive our complete “High-Yield Watch List.”
The audio for this teleseminar is absolutely FREE. To listen to the replay now, all you have to do is click here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Radio Show Update: Young Guns and High Yields
In last week’s show, we discussed how you can prepare for what could be a big bust in the bond market. If your portfolio is heavily exposed to bonds, then you definitely need to check out this broadcast. To listen to last week’s radio show, as well as any of our past broadcasts, just go to my Radio Show archive. The best part is that all of our shows are absolutely FREE to all Alert readers.
This week’s show is all about young guns and high yields. That’s because the young guns taking over the show for me this week are my sons, David and Michael. They’ll be talking about the seven lessons all income investors need to learn. I’m really looking forward to this broadcast, and rest assured I’ll be listening along with everyone else, so let’s all be sure to tune in Saturday!
To listen to the show live each Saturday morning from 10 a.m.-11 a.m. Pacific Time, just go to our website.
The Wisdom of Johnny Cash
“Success is having to worry about every damn thing in the world, except money.”
--Johnny Cash
The iconic musician puts the prospect of success into keen light in the above quote. Sure, having financial success is great, and I highly recommend the pursuit. But financial success doesn’t mean your problems disappear. That’s why you always should have a balanced approach to life that includes other essential values besides money. Remember, a life well lived is a life of balance.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.