Making Money Alert
European Smackdown, Round Two?
09/29/2010
Just when you thought that Wall Street was safe from European protestors, the Old World streets get flooded again with protestors who fear they won’t continue receiving as much government largess as they were expecting. Both U.S. and European markets fell in early Wednesday’s trading as protests against potential new austerity measures in Belgium, Ireland and Spain brought back memories of those springtime riots in Greece.
Today’s protests raised some major concerns that fiscally challenged countries like Spain will have a hard time mustering the political will to implement much-needed austerity measures. Now, recall that early this year, stocks got knocked for a loop after news that Greece and Portugal were on the verge of fiscal implosion. Since then, the European Central Bank and other major financial players around the globe largely have come to the rescue, but now with political worries reignited, we could be staring at European smackdown, round two.
If we do see Europe’s woes manifest into a more sinister situation, it could mean the end of the recent bull run in both domestic and European stocks. A look above at the charts of the S&P 500 Index and the iShares Europe 350 fund (IEV) clearly show two markets on a rocket run higher -- yet eminently ripe for a pullback.
If you have equity exposure to domestic and/or European stocks (and I certainly do), it behooves you to make sure your stop-loss prices are in place and set to capture gains on any hint of a significant pullback. Let’s face it, stock market gains in 2010 have become much too hard-fought to let slip away, so make sure you’ve determined all of your sell points before protestors in Europe erase your stock market winnings.
Financial Stock Follies
One area of the market that’s starting to worry me quite a lot is financial stocks. To be certain, financials have been one of the most volatile sectors in the market this year. Right now, we are at an inflection point. As you can see here by the chart of the Financials Select Sector SPDR (XLF), the fund trades right in the middle of its 50- and 200-day moving averages.
What this tells me is that we could be in for either a major rebound in the segment, or a significant pullback to, perhaps, the August lows. If financial stocks tank, we will see the value of the S&P 500 plunge as well, as financials services companies make up nearly 17% of the index.
I put the chances of a big move in financials very high right now, and primarily because of the volatile swings we’ve seen throughout 2010. Of course, given the schizophrenic nature of this market, the next move for financials could go either way. The way I approach this sector is to look at it as a sort of barometer for the wider market’s next move. If we see financials break back above their 200-day average, we can declare a continuation of the bull market. If, however, we see a concerted move south, it could mean that the bear’s about to come out of his den.
ETF Talk: A Preferred Way to Profit
The stock market’s recent rise has me watching an equity fund that invests in preferred stocks. The S&P U.S. Preferred Stock Index Fund (PFF) seeks investment results that track the S&P Preferred Stock Index. That index measures the performance of selected groups of preferred stocks that individually have a market capitalization of more than $100,000. I want to tell you about the fund, in case you decide to consider it as a potential investment in the coming weeks and months.
Preferred shares are unique investment instruments. They give investors a fixed dividend from a company's earnings and those payments are made before any dividends are available to common shareholders. As a result, preferred shares are senior to common shares in priority for receiving dividend payments. By investing in a preferred stock fund, you gain the benefit of any capital appreciation that occurs when its share price rises and you also receive additional income from dividend payments, thereby boosting your total return on the investment. A big advantage of PFF is that it gives you two ways to profit.
As with many dividend-paying funds, PFF is heavily concentrated on the financial sector. In fact, as of Sept. 27, 86.31% of the fund’s holdings were invested in financial stocks. The next two highest holdings, also on that date, were well below that level and featured consumer discretionary, 4.99%, and consumer staples, 2.07%. The companies that composed the five largest holdings in the fund on that date were: Ford Capital Trust, 3.82%; Barclays Bank PLC, 3.67%; Wells Fargo & Co., 3.14%; Bank of America Corp., 2.62%; and JPMorgan Chase Capital, 2.48%. So, keep in mind that the fund is heavily dependent on financial stocks. If you think that sector is ripe to rise, PFF may entice you. If you expect financial stocks to take a further beating, you may prefer to avoid the fund for now.
As the chart below shows, PFF has been on a recent uptrend. It is not one of my current recommendations but if the market pulls back and gives us a chance to jump back into equities at a reduced price, PFF is one of the funds that I am watching closely.
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 please do not hesitate to contact me if you have one. To send your question to me, click here. You may 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: Fourth-Quarter Buy Setups
Last Saturday, we talked about the current conditions in the market, and how best to position your money to take advantage of what I suspect will be some nice buy setups taking shape in the near future. If you weren’t able to hear last week’s show live, then don’t worry. As an Alert reader you have FREE access to all of my past shows, and all you have to do is go to my Radio Show archive.
This week, I’ll be expanding on my discussion of the current conditions, and we’ll explore more ways to position your money to take advantage of what I suspect will be a big buying opportunity as we head into the final quarter of the year.
To listen to the show live each Saturday from 10 a.m.-11 a.m. Pacific Time, just go to our website.
Dali on Ambition
“Intelligence without ambition is a bird without wings.”
--Salvador Dali
One of the 20th century’s most influential artists, Salvador Dali, also is known for some rather artfully put wisdom. Here the painter/sculpture reminds us that you aren’t likely to achieve much in life by relying on intelligence alone. Sure, intelligence helps, but ultimately, it is goal-oriented ambition and drive that truly get things accomplished.
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.