Making Money Alert
Asia, Europe and the United States: A Trio of Opportunities
04/21/2010
It seems like no matter what area of the world you look at, the equity markets are on fire. Be it Asia, Europe or the United States, all three have created a trio of opportunities over the past year.
To see just how well each region has done in the past year, we need to look at three charts. The following are 52-week performance charts of the iShares MSCI Pacific Ex-Japan (EPP), the iShares S&P Europe 350 Index (IEV) and the SPDR S&P 500 (SPY).
As you can see, all three of these region-specific exchange-traded funds (ETFs) have seen big gains during the past year, and all three trade at or very close to their respective 52-week highs. The question now, however, is how long will this global bull run in stocks last.
Of course, nobody can say for certain, though I suspect there still may be some upside in all three regions in the short run. Over the long term, however, I think the real growth is going to be in Asia.
China is just too powerful of an economic force to deny, and the growth in stocks based in China and/or that feed the country’s incredible demand for basic materials likely will be the last region standing in the battle for global stock returns over the next few years. As such, we all should be watching the universe of Asian ETFs very closely for signs of new, sustainable investment opportunities.
The Goldman Affair
On Friday, we received news that Wall Street icon Goldman Sachs had come under investigation by the Securities and Exchange Commission (SEC) for allegedly misleading its customers by withholding “vital information” about a synthetic collateralized debt obligation (CDO) named Abacus. The news rocked the market, but in the days following the Friday Goldman sell-off, stocks managed to recover.
I’ve read a lot of news stories and commentary on the Goldman affair and, frankly, I don’t really think anyone has a good sense of what actually took place. The SEC is convinced that Goldman misled customers, and Goldman insists it didn’t. I don’t know which side will come out victorious here, but one thing for certain is that the real loser likely will be you, the investor.
I say this because every time the government tries to curb market activity via new rules aimed to protect investors, a disincentive arises for banks and other firms to take risks. Now, I am not saying that securities laws proposed by regulators are all bad, far from it. But what I am saying is that many times, the proposed solutions to problems -- such as the Obama administration’s push for financial reform -- end up hurting those it’s ostensibly designed to protect.
I hope for all of our sakes that any reaction and/or regulations born out of the Goldman affair are measured and targeted. Sadly, I fear that the politicians in power will take a much more shotgun-like, punitive approach to the situation.
ETF Talk: What Goes up Must Come Down
I expect a short-term market retreat in the near future that could produce a nice opportunity to turn quick profits by taking short positions. Of course, any decision to go short should not be taken lightly, especially when equity markets in general are on the rise. However, when the 50-day and 200-day moving averages that I track start to lag well behind current prices, as is occurring now, equities often pull back. It is precisely that potential dip in the markets that offers a chance to profit if short trades can be timed correctly.
The idea is easier to suggest than to carry out successfully. Market timing is difficult for the best of investors, since so many unforeseen events can occur to change the direction that stocks are heading. One example occurred late last week when Securities and Exchange Commission regulators accused Goldman Sachs of fraud in trading collateralized debt obligations. Couple that news with a considerable drop in the University of Michigan Consumer Sentiment Index, and we have a recipe for a market correction -- especially if further bad news occurs this week.
As equities appear to be stretched to their breaking point, they could snap back much like a rubber band. Fortunately, there are several ETFs that allow you to take advantage of a potential correction in the markets. One ETF that I like is the ProShares UltraShort Oil and Gas (DUG).
This ETF seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas Index. That means that if the Dow Jones U.S. Oil & Gas Index moves down 2%, DUG should climb 4%. The index itself measures the performance of the energy sector of the U.S. equity market. Component companies include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies. Below, you will find the top 10 holdings in DUG, as of April 20, 2010.
If you take a look at a chart of the Dow Jones U.S. Oil & Gas Index, you can see that energy stocks have been turned back at their highs three times now in recent months. In technical terms, this is known as a triple-top. It is a bearish sign for companies such as Exxon Mobil, Chevron and Conoco Philips. Bad news for these companies is good news for DUG, since the fund is designed to rise when the prices of oil companies such as Exxon, Chevron and Conoco fall.
I am not currently recommending an allocation to DUG, but I do believe the ETF trades near a low-risk entry point. If you want advice about buying and selling specific ETFs, including appropriate stop losses, I encourage you to sign up for my ETF Trader service. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
A Very Special Fabian Anniversary Offer
It's hard to believe, but 33 years ago this month, my father, Dick Fabian, wrote the first issue of what was then called the Telephone Switch Newsletter. His approach back then was simple and straightforward; follow the market's trend and you will stay out of trouble.
After living through the bear market of 1973-74, Dick realized that you could not leave it up to your mutual fund manager to keep you out of harm's way. His major innovation was to tell investors that they could exercise their rights, and move their money to cash during periods of major market decline. Back then, this process involved picking up the telephone and switching your holdings between stock funds and money funds -- hence, the name Telephone Switch Newsletter.
Of course, the technology is completely different today, yet the underlying principle remains the same in what is now the Successful Investing newsletter. That principle is your right to take control of your money -- and to put it to work when the markets are in an uptrend, and to get it out of harm's way when stocks are trending lower.
Now, I am pleased to announce that in honor of the 33-year anniversary of our flagship Fabian publication, my publishers have agreed to a special offer for a one-year subscription to Successful Investing for only $77. That's the same rate you would have paid 33 years ago!
Your subscription includes my weekly market commentary sent directly to your email inbox, our monthly newsletter, special reports, timely buy and sell alerts and our one-hour instructional DVD.
If you don't already subscribe to Successful Investing, now is your chance to get our flagship publication for the same price we charged 33 years ago -- so, I encourage you to act right now.
A 'Wynning' Statement on the Economy
Billionaire Steve Wynn is best known for creating the modern Las Vegas mega-hotel. His Mirage resort set a new standard for Las Vegas properties, and the town has never been the same since. Recently, however, Wynn is becoming known for what I think is an even better achievement. Wynn now can be counted on to speak his mind in opposition to government policies.
In a recent interview with Bloomberg, Wynn made the following bold proclamation:
“The governmental policies in the United States of America are a damper, a wet blanket… They retard investment, they retard job formation, they retard the creation of a better life for the citizens in spite of the rhetoric of the president.”
Now, that’s what I call a bold statement, especially considering that it comes from the CEO of a publicly traded company. Will we start to see more CEOs stand up and speak out on what they think of the current administration’s policies? I suspect not, as not too many CEOs are willing to risk public and governmental repercussions.
I do, however, suspect that many CEOs are quietly cheering what Steve Wynn said in that interview -- even though they aren’t likely to follow his intrepid lead.
The Top 10 Income ETFs
In a recent radio show broadcast, I offered my listeners a free special report, “The Top 10 Fixed-Income ETFs for 2010.”
I made this report available for free, because I believe most fixed-income investors are using the wrong investment vehicles to achieve their goals. Many people still are using expensive mutual funds and/or individual bonds to generate a steady income stream but, in my opinion, the best tools for generating income are low-cost ETFs.
To help you identify the best income ETFs out there, I decided to compile a watch list -- and to make it available to my listeners. Now, I’ve taken this offer one step further and I’m making this top 10 income ETF list available to you, the Alert reader, absolutely free.
Unfortunately, the current low interest rate environment has prompted many fixed-income investors to take on more risk than they should, precisely at the wrong time. Most investors have forgotten that fixed-income investments can and do go down significantly, especially during periods of credit distress.
At Fabian Wealth Strategies, we specialize in actively managing fixed-income exchange-traded fund portfolios for our clients. We build portfolios that deliver monthly yield with the protection of a sell discipline on all positions. In addition, we have the capability to own funds that take advantage of a volatile interest rate environment.
Do you want help to assess your fixed-income portfolio’s current position in the market ahead? If you have any questions about the assets you own or strategies to increase your fixed-income exposure, call us right away at 800/391-1118 to schedule a free portfolio analysis.
This offer is available for goal-oriented investors with more than $250,000 in their investment portfolios. Please be prepared to discuss and/or fax us your latest portfolio statements so we can know exactly what holdings you currently own. We look forward to working with you to achieve success in 2010.
NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission registered investment adviser, and is not affiliated with Eagle Publishing.
Private Equals Voluntary, Public Equals Coercion
“The ‘private sector’ of the economy is, in fact, the voluntary sector; and the ‘public sector’ is, in fact, the coercive sector.”
--Henry Hazlitt
The libertarian economist and writer draws a brilliant distinction between the voluntary nature of commerce among men, and the coercive nature of commerce with the government. I suspect Hazlitt would be increasingly perturbed by the current state of commerce between citizen and state, as that commerce continues supplanting the voluntary sector. If you aren’t familiar with Hazlitt’s work, I highly recommend “Economics in One Lesson,” a book that I think should be required reading for all citizens.
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.
Sincerely,
Doug Fabian
P.S. Don’t miss out on the 22nd annual MoneyShow Las Vegas, May 10-13, 2010, at Caesars Palace. This event will be your one-stop resource for the comprehensive education, efficient research, and valuable advice you need to make smart investment decisions in 2010 and beyond. Join me and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities, and options. Also hear about which overseas markets may outperform in the near term. Visit The MoneyShow Las Vegas to register FREE online, or call 800/970-4355 and mention priority code 017444 today!
P.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.