As it has for so many weeks now, negotiations about the fiscal cliff continue to dominate the trading landscape. Will there be a deal, or will there be no deal? At this point, the equity markets are betting that a deal will get done. I take that view because during the past week we've seen buyers return to equities, bidding stocks up nicely on Monday and Tuesday.
As of this writing, there are about 12 days before we go off the cliff. But practically speaking, a deal will probably have to be in place by this Friday. I suspect that the market will be pleased to have a deal in place, if we do get a deal done. However, the key going forward will be how the market reacts to the details of a deal.
Like the old adage goes, the devil is in the details, and this deal likely will be full of devils -- particularly if you are among the most successful wage earners, or if you have a lot of capital gains and investment income.
Now, away from the politically charged markets here at home, there's been a quiet yet very strong bull market taking shape in the Asian markets. Stocks in China continue to perform well, with the iShares FTSE China 25 Index (FXI) soaring since its September low.
This fund, which tracks the 25 largest stocks traded on the Shanghai Exchange, is up 12.7% during the past three months. That performance crushes that of the S&P 500, which is down about 1% in the same period.
In the "other" Asian country, Japan, there are big changes taking place.
On Sunday, the Japanese people overwhelmingly elected Shinzo Abe as the new prime minister. Abe campaigned on an economic policy that would have the Bank of Japan (BoJ) increase its inflation target to 2% or 3% from its current 1%. This move is designed essentially to devalue the yen, and to stimulate the economy similar to the way the Federal Reserve has done here in the United States.
A weaker yen would be good for Japanese exporters, and it likely will be good for the biggest companies traded on the Tokyo Stock Exchange. I think Japan is another Asian giant to watch in 2013. Along with China, both of these sectors could provide alpha-hungry investors a place to feast in the months ahead. If you'd like to find out more about how, and when, you can take advantage of this awakening Asian giant, I invite you to check out my Successful Investing advisory service today.
ETF Talk: U.S. Banks Could Climb after Fiscal Cliff Resolution
Bank stocks have risen during the past year and they still may have further gains ahead. But a major factor impeding continued growth is the uncertainty of the still-unresolved fiscal cliff. Once that uncertainty is resolved, though, look for U.S. banks to rise strongly. With this potential bullishness on banks in mind, now would be a good time to prepare to take action when Washington lawmakers address the fiscal cliff. One bank exchange-traded fund (ETF) that I want to bring to your attention is SPDR S&P Bank ETF (KBE).
This non-diversified fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Banks Select Industry Index, which tracks the performance of publicly traded national money center and leading regional banks. KBE generally invests at least 80% of its total assets in the securities that comprise the index.
Even with the fiscal cliff looming, KBE is up 18.8% year-to-date. The worldwide rebound from the crash of a few years ago likely is responsible for a least a portion of this growth. However, banks also have benefitted from an improved housing market this year. When politicians settle on what to do about the fiscal cliff, the uncertainty regarding the resolution will disappear. At that point, bank stocks like those in KBE could begin to resume their climb.
Predictably for an ETF with "Bank" in its title, KBE is 100% invested in the financial sector. And 99.77% of its holdings are stocks. However, no individual stock comprises more than 4% of KBE's total investments. In fact, only the top holding, Ocwen Financial Corporation, with 3.60%, consists of more than 3% of the fund's overall portfolio. The next four top KBE holdings, followed by their percentage of the fund's total assets, are: CapitalSource Inc Common Stock, 2.96%; Popular, Inc., 2.90%; Bank of America Corporation Com, 2.83%; and M&T Bank Corporation Common Stock, also with 2.83%. The top ten holdings, totaled, only make up 28.92% of KBE's assets.
Recent trends indicate that the financial sector will continue to improve. Once the fiscal cliff is resolved, expect U.S. banks and bank funds, such as KBE, to be in a good position to continue trading higher.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy 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.
I Need Your Input on the Radio
From time to time, I like to make sure I am doing what my readers and listeners want. This is true of the content of my newsletters, the content here in the Alert, and it's especially true of my Monday Morning Market Outlook podcast.
As a new year approaches, now is a great time for me to ask you, the listeners, what you want to hear when I do my podcast each Monday. Would you like more macro-economic news, or would you prefer I get a bit more political? Or, would you like me to concentrate on specific stocks and ETFs? Or, maybe you want me to do more personal finance segments?
Whatever suggestions you have, I would love to hear them. Just drop me a note here and let me know what's on your mind. And if you aren't already a listener, then please check out my Monday Morning Market Outlook podcast today!
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Aristotle and the Tragedy of the Commons
"What is common to many is least taken care of, for all men have greater regard for what is their own than what they possess in common with others."
The greatest of all philosophers knew the folly of what in economics is known as the tragedy of the commons. You see, when we all own something, nobody owns it, and therefore nobody feels compelled to take care of it. I just wish the folks in Washington read some Aristotle once in a while.
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 audio podcast, newsletters, seminars or anything else. Click here to ask Doug.
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