Making Money Alert
Don't Be a Sucker
03/11/2009
Tuesday's huge, and I do mean huge, buying spree on Wall Street was a welcome relief from all of the losses we've seen this year. And while I think it's great to see that buyers are still willing to step in and do their thing, what we have to realize is that one big up day does not make a trend.
When you consider that despite Tuesday's surge, the market is still way below both its short-term, 50-day and long-term, 200-day moving averages, you realize that we still have a very long way to go before we can say that the bear is headed back to the lair.
With that in mind, I strongly urge you not to be suckered in by Tuesday's rally. I know many investors have been itching to go long this market, but I think that if you do, it will be at your own peril.
In the chart below of the S&P 500 Index, you can see just how much pain we've lived through over the past 12 months.
As you can see, things aren't looking too buyer-friendly these days. What's more, the problems in our economy, our banking system and our credit markets are still well away from being solved -- or even significantly improved.
Of course, the perennial question: "What do I do with my money now?" still exists. My answer here is that what you do now depends largely upon where you currently sit.
If you have followed my advice over the past year or so, you should now be sitting with a very high cash position, somewhere near the 80% level. If this describes you, then continue maintaining that high cash allocation and be patient. Don't worry that you missed out on one big day. When the market makes a series of big days, and when a clear trend has been established, that's when it will be safe again to start building equity positions.
If you still have a big equity allocation, and/or if you have less than a 50% cash allocation, then you need to consider selling your worst-performing stocks the next time we see one of these big market up days. Take advantage of the bullish bounces to lighten up your exposure to equities and to build up your cash, because when the real buying opportunity comes, you'll need that cash on hand to enter into stocks at very attractive levels.
Now I know that many of you aren't too sure about when that great buying opportunity will come, or when the right time will be to jump back into these market waters. Fortunately, knowing when it's safe to get back in the market is the primary goal of my Successful Investing advisory service.
For over three decades, Successful Investing has helped investors get their money in the market when the going is good, and more importantly, the service has helped investors steer clear of the market in times of turmoil.
Want to know when it's time to safely buy stocks again? Click here
Old-School Positivity -- Viva Napoleon!
"Fears are nothing more than a state of mind."
-- Napoleon Hill
For my money, one of the best motivational theorists ever is Napoleon Hill, author of the seminal work, "Think and Grow Rich." If you haven't read this book yet, I strongly urge you to do so immediately. You see, now more than ever it's important to stay positive and to re-evaluate and re-focus your personal efforts on the goals you've set for yourself and your family.
I have been focusing my own personal efforts on cultivating and building a strong, positive state of mind in the face of the overwhelmingly negative barrage of economic news. In fact, it's my belief that people are watching, listening and reading way too much negative news. Understandably, this isn't hard to do. It is difficult to find a whole lot of positivity out there with respect to the market and the economy.
That's why I am dedicating a portion of the Alert each week to what I'm calling, my "positivity offensive." I started this offensive last week, and I'm continuing it today in my video message (see above). I consider this positivity offensive a much-needed antidote to all of the doom and gloom that comes from the mainstream media.
In my opinion, wallowing in pain and suffering is akin to an alcoholic who wants to cure his drunkenness by taking another drink. This is exactly the wrong solution. The right solution is to focus on the positive, and to cultivate the kind of positive mentality set forth by old-school positivity gurus such as Dale Carnegie and Napoleon Hill.
Here's what I am doing right now to make my life the best it can be.
- I am focusing on both my short- and long-term life goals.
- I am making an effort to always focus on the positives.
- I am spending time with positive people, and I am sequestering negative people.
- I have stopped focusing on negative news.
- I am reading more, and reading material that enriches my life.
By taking these steps, I have created a virtual barrier between myself and a negative world intent on bringing down even the strongest-willed among us. Whatever you do, please don't let the negativity out there get to you. Get positive, get focused -- and get out there and conquer your world.
The Spirit of Radio -- 10 Years and Counting 2
Invisible airwaves
Crackle with life
Bright antennae bristle
With the energy
-- Rush, "The Spirit of Radio"
On Saturday, March 7, I had the pleasure of celebrating 10 years of doing my radio show, " Doug Fabian's Wealth Strategies". The show was really fun, and many of you have written in to tell me how much you've enjoyed it.
Here's one of my favorite e-mails from a listener named John:
"Hi Doug, I used to listen to your radio show every Saturday morning back when you were on 97.1 FM Talk in Los Angeles. I took a lot of your lessons to heart and still employ your strategies to this day. In fact, I am writing to thank you for saving me from the recent market downturn. When the market slid below the 200-day moving average back in February/March 2008, I started steadily selling my funds over the next several months. I am currently 85% cash and 15% in stock mutual funds and could not be more happy or relieved."
This is the kind of e-mail that makes me brim with gratification, so thank you, John, and all I can say is that I am glad you and so many others listen to the show every week.
If you'd like to listen to my 10-year radio anniversary broadcast, click here.
ETF Talk: Are We Seeing a New, Economic Iron Curtain?
If you watch CNN, MSNBC and other news channels regularly, you might think that the American economy was on the brink of total collapse. As bad as the 3.8% contraction of the U.S. economy in the fourth quarter of 2008 may seem, the economic slide in Central and Eastern Europe was far worse.
Much like the rest of the Western world, this region was living way beyond its means earlier in the decade. After countries such as Poland, Hungary, Latvia and Lithuania gained acceptance into the European Union, most Western European banks opened their then-bountiful coffers to finance businesses and mortgages in those emerging markets. This capital fueled double-digit percentage economic growth in the region during the bull market years of 2005 and 2006. Unfortunately, that mini-boom was financed in large part by subprime lending. When the credit crunch hit, most of these economies began shrinking.
This unsettling situation has caused exchange-traded funds (ETFs) that focus on the region to take big hits. Here's an example. The SPDR S&P Emerging Europe (GUR), an ETF which closely follows Eastern European stock indices, dropped nearly 65% in 2008 -- almost double the fall of the Dow. Its exposure includes the following countries: Turkey, 13.8%; Poland, 12.2%; the Czech Republic, 7.4%; and Hungary, 5%.
Another such ETF that tracks the region is the Claymore/BNY Mellon Frontier Markets (FRN), which is down 60% since its inception in June 2008, and 18.5% so far in 2009.
The main hope for a regional economic recovery -- a multibillion euro bailout plan -- was flat-out rejected by the richer (and more powerful) members of the European Union just a couple of weeks ago. The prime minister of Hungary had asked for nearly $240 billion to bail out the region, although some observers estimated that the total should be closer to $380 billion. Government officials in Germany and the Netherlands, however, countered that billions of dollars in aid went to the region last year and a new stimulus package is not needed. The risk for investors is that Europe's already fragile financial health could be threatened further.
One consequence of the current economic turmoil is that the value of currencies in Central and Eastern European countries have been falling. As a result, the challenge of repayment for the borrowers is worsened because so many of them accepted loans in euros. With their domestic currencies sliding in value compared to the euro, the debt obligations are becoming even more onerous for the borrowers.
Europe now is at the proverbial fork in the road. If the economically stronger countries can muster a bailout for their Central and Eastern European counterparts, a buying opportunity may arise when emerging markets start to recover. But if a new, economic iron curtain develops, the result could be the financial collapse of emerging market European countries. With the region's economic condition so tenuous right now, you may want to protect your money and avoid the risk altogether.
If you want further guidance about which ETFs to trade, check out my ETF Trader service by clicking here. As always, I am pleased to answer any questions that you have about ETFs. To send your questions to me, simply click here. I will try to follow up in a future ETF Talk.
New-School Positivity -- Viva Superchick!
Some people you can never please
You might as well just let them be
They mock everything not their own
From their imaginary throne
But I won't bow down
Even if the whole world thinks I'm crazy…
Why kiss the feet of the people who kick you?
When you can be anything that you want to?
-- Superchick, "Hey, Hey"
We've already heard from the old-school positivity camp, but here I wanted to show you that even an all-girl rock band can provide some excellent new-school wisdom. This quote, courtesy of the group Superchick and their song, "Hey, Hey," reminds us all that we have to act in our own self-interest first, and not primarily for the sake of those who probably won't be pleased regardless of what you do. As the song says, you can be anything that you want, so don't be timid -- just go for it!
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.