Making Money Alert
Dollar Bulls and International Bears
08/20/2008
The greenback is back!
That's right, the value of the U.S. dollar versus rival foreign currencies has surged during the past several weeks, and that surge has caused quite the dust up in the international equity markets.
Just five weeks ago, the dollar had been languishing at record lows against the euro. But last week the dollar hit a six-month high against the euro and a two-year peak against the U.K. pound sterling.
The chart here of the U.S. Dollar Index tells a revealing story.
So, what explains the quick turnaround in the greenback's fortunes?
I think the basic reason is that the economies of Europe are slowing way down. In fact, the eurozone economy now is flirting with recession. To see the evidence of this we need simply to examine the numbers. The 13-nation eurozone economy contracted 0.2% in the second quarter. That was the first decline since before the euro's introduction in 1999, with the economies of Germany, France, and Italy all contracting.
Furthermore, inflation in the eurozone is running at almost double the European Central Bank's (ECB) target rate, which makes it unlikely that the ECB will cut interest rates anytime soon. The result is that both European economies and the euro are likely to fall on hard times for a while.
Of course, the other result of the dollar's surge has been a sharp sell off in international equities. Just look at the recent plunge in one of the biggest international exchange-traded funds (ETFs), the iShares EAFE Index (EFA). Year-to-date, EFA is down 20.9%! Now that's what I call an international bear.
Surprisingly, EFA actually is one of the best-performing international funds so far in 2008. The iShares MSCI Emerging Markets (EEM) has plunged 21.6% this year, and big international markets like China, as measured by the iShares FTSE/Xinhua China 25 Index (FXI), have collapsed 30.6%.
But it's not just international ETFs that have been hit so hard this year. International equity mutual funds also have languished. Three of the biggest international mutual funds are the Oakmark International fund (OAKIX), down 19% for the year; Fidelity Advisor Diversified International (FDVAX), down 20.3%, and the Bernstein International Portfolio (SIMTX), which has fallen 23.1% year-to-date.
Not surprisingly, all three of these funds are on my Lemon List, the list I compile of America's worst-performing mutual funds.
The bottom line is that when the dollar is in a bullish climate, international equities tend to turn bearish.
Fortunately, investors who follow my Successful Investing advisory service escaped the rapid decline in international stocks before this year's steep descent. How did we manage to do this? Simple, we always have a plan in place to protect ourselves from falling markets -- both foreign and domestic.
Want to find out how you can protect yourself from any kind of bear market?
Click here to learn more about Successful Investing.
Home, Home of the Range
This market isn't where the deer and the antelope play. Rather, it's where the bull and the bear play. Lately, the bear has been playing pretty rough.
Yet despite the bear's roughhousing, the bull has managed a few short-term bursts. The chart below of the S&P 500 Index shows us just where we are in terms of this bull vs. bear battle.
The way I see it, we are stuck in a trading range between 1,250 and 1,325, and until we get a sustained move either below 1,250 or above 1,325, we are likely to remain in this "home, home of the range" for some time.
Now for investors, there is nothing more frustrating than trying to make money in this market. Every time the market climbs it comes back down, and the net result is a one-way ticket to Palookaville.
There is one strategy, however, that will allow you to make money right now in stocks. That strategy employs short-term trades using ETFs. Right now, my ETF Trader service is positioned in fast-moving, leveraged ETFs designed to profit from these rapid swings in the market.
Last week, we banked gains in two positions, one for nearly 9% and one for almost 17%!
To find out how you can make money while this market sits at home in a trading range, click here.
ETF Talk: Out of Africa
The headline above may make you recall the classic movie "Out of Africa." But even if you're not a film buff, you need to know that Africa now has become a region with growing appeal for its intriguing investment opportunities. A case can be made that Africa offers vast potential for economic improvement that could reward intrepid investors who are not timid about taking a bit of risk.
One of the newest opportunities for investing in the region is the Van Eck investment firm's recently rolled out fund, Market Vectors Africa (AFK). The ETF, launched during July, tracks the Dow Jones Africa Titans 50 Index. That index is used for companies that derive more than 50% of their revenues from 11 countries in Africa.
The ETF seeks to tap a fast-growing, emerging region that is becoming increasingly sought after by savvy investors who want to diversify their portfolios. The continent of Africa offers diversification by virtue of the array of the countries there. For example, the fund's most heavily weighed companies are in Nigeria, 25%; South Africa, 25%; Egypt, 13%; and Morocco, 11%. But the ETF also includes companies in Canada, Norway, Kuwait and the United Kingdom that conduct most of their business in Equatorial Guinea, Zambia, Angola, Mali, DR Congo, Kenya and Ghana.
Africa presents a unique growth opportunity for those willing to enter a new investment frontier for a chance at heightened returns. Just how big is the growth potential? Well, Africa boasts 15% of the world's total population and 20% of the world's land mass. Yet, the region currently is one of the world's poorest and least developed. Expect that disparity between the developed countries and the developing African nations to change. No, it won't happen overnight. But it will take place in time.
Of course, I will keep my eye on the new Van Eck ETF for possible future investment. However, it currently has a limited track record and falls short of the trading volume of 100,000 shares a day that I like to see before entering a position.
Other reasons why I like the African region for investment exposure include increased trade flows, improved economic leadership, strengthening foreign demand for its goods, economic development initiatives and rising liquidity. At the same time, people in Africa are starting to enjoy increased incomes that will better enable them to buy cell phones, appliances, and cars. In addition, government policies and economic reforms are promoting growth.
The result is that Africa has enjoyed strong growth for much of the past decade. Sub-Saharan Africa's economic growth has averaged 6% per year since 2004. The region also has produced the fastest pace of growth anywhere in the world during the past three decades. Growth during the last decade has been less volatile and more evenly distributed among the region's countries than in the past.
As a result, I consider Africa a place to look to find emerging market investment opportunities -- and the new Van Eck ETF might be one way to do so.
As always, I encourage my readers to send me their ETF questions. If you have one that you want me to answer in an upcoming issue, please click here.
San Francisco Money Show Musings -- See them for Yourself
Two weeks ago, I made my annual pilgrimage to one of the world's greatest cities -- gorgeous San Francisco, Calif., for the Money Show. If you didn't get a chance to make it into town, don't worry. Now you can catch several of my presentations right from your own computer. Simply click here to view my all of my Money Show musings for yourself.
Here's just some of what you'll see when you watch these special Money Show video broadcasts.
ETF Strategies in a Difficult Market
Some pundits are saying that we are in a recession; others call it a mere economic slowdown. The answer, in my opinion, is what difference does this technical distinction make to you? The one thing everyone agrees on, bull or bear, is that we're living in uncertain times. As a result, it is of the utmost importance for us to take a cautious approach. "ETF Strategies in a Difficult Market" will teach you the importance of managing risk, having a sell discipline, and how to benefit from new opportunities.
Structuring a Portfolio for Income and Safety
How do you generate high income without risking your principal? Are you tired of putting your money in poorly paying CDs or money market accounts? I reveal my favorite income-producing tools in this presentation to boost the yield in your portfolio without taking on excessive risk. Learn how to use exchange-traded funds, unit investment trusts, and closed-end funds to properly manage your income assets.
Seven Secrets of Success for ETF Investors
In this presentation, I reveal the seven secrets for successfully managing your portfolio using my favorite investment vehicles, exchange-traded funds. ETFs are simple to understand, easy to use, inexpensive and offer tremendous diversification. Learn how to manage any size portfolio using these proven methods to maximize returns.
To view my video presentations today, click here.
Guaranteed Monthly Income For Life? You Betcha! 3
On Saturday, July 12, I held the latest installment of my retirement income conference call. Big thanks to all of you who called in with your great questions, and big apologies to those who couldn't listen live because the event had reached capacity. Now, if you are one of those who couldn't get through, or if you weren't available to attend the call that day, don't fret. You can watch a FREE replay of the call right now by clicking on the link below.
Click Here to Learn More!In this call, I discuss the many tools and vehicles you can use to produce a monthly income stream, and I show you how some products can offer you a 5% to 6% GUARANTEED return without losing control of your investments. These products are outstanding for taking a portion of your IRA or 401(k) and creating an income stream of $1,000, $2,000 or even $3,000 per month. If you have an existing annuity and want to generate guaranteed income WITHOUT annuitizing your assets, then please listen to the replay of this informative discussion.
Remember, your assets will need to last you 20-30 years. You will need to create an income plan that will last as long as you do. We can help.
It's Miller Time
"Chaos is the score upon which reality is written."
--Henry Miller
I doubt the great novelist had the stock market in mind when he wrote this pearl of wisdom, but nevertheless, his words do hold particularly true when it comes to investing. It's often the case that when chaos reigns supreme, the biggest fortunes can be made. The key to success is to always be smart, always act with conviction, and always have a plan in place designed to help you achieve your specific goals.