Making Money Alert
FinReg and Your Money
07/21/2010
Earlier today, President Obama signed into law the Dodd-Frank financial overhaul bill. The new law, known as FinReg, is designed to protect the public from financial malfeasance on the part of financial institutions. Ostensibly, the bill deals with macro concepts such as “systemic risk” and “too big to fail.” Yet, I am willing to bet that most investors don’t think the new FinReg will affect their portfolios in any substantive way.
However, if you thought FinReg will have no bearing on your money, a brilliant article in today’s Wall Street Journal points out that you should think again.
In this most-excellent piece, written by reporter Eleanor Laise, you’ll find details on the myriad ways the new regulations could affect your investment accounts. Some of the ways the new legislation affects investors are positive, and others are negative.
For example, the legislation could make brokers more accountable to their clients, which is a good thing. However, the new FinRegs may put the kibosh on many financial instruments commonly found in 401(k)s, hedge funds and even regular margin accounts that are used at nearly every brokerage.
The bottom line here is that if you thought FinReg was solely about keeping tighter reins on the big financial horses, then you had better reevaluate that assessment. Even you, the little investor pony, will feel the reverberations from the nearly 800 pages of new regulations.
I strongly recommend that you read this article, as it goes into great detail about just how extensive these new regulations really are.
Nearly 90 Days in the Hole
When I was a kid, there was a popular song titled, “30 Days in the Hole,” by the rock band Humble Pie. Well, when looking at this market, I got to thinking about that song. That’s because stocks have been in the hole for sometime now.
In fact, by my calculations, it’s been nearly 90 days since the market’s top on April 23. That’s a long time to be in the hole. I think the longer we continue trading below long-term technical trend lines, the greater the probability that we’ll slip into another bear market.
As you can see by the chart here of the S&P 500, with the exception of a brief breach of the 200-day moving average in June, stocks have essentially been below the 200-day moving average since mid-May.
To add insult to injury, the most recent quarter’s domestic and international equity market returns were brutal. Many domestic indices were down more than 10%, and many more international equity indices were down far more.
Yet, I suspect the real pain of the second quarter’s pitiful performance can be seen in so many 401(k) statements that recently hit investors’ mailboxes. I’ve looked at many investor statements during the past couple of weeks, and I can tell you that a huge percentage of the people I’ve spoken with have lost some serious money in the past three months.
I feel fortunate, as my family’s 401(k) actually is allocated to bonds and cash, and thus we achieved some nice upside during the tough second quarter. In my opinion, the high risk of investing in equities here has by no means subsided. There still are many economic and political uncertainties out there as we head into the remainder of this wild 2010. Until we see more upside visibility in stocks, I will continue managing my money with the objective of mitigating risk. I recommend that you do the same.
ETF Talk: Finding Profits in Thailand
Even though equities have been retreating in much of the world, there are markets in Asia that have fared well so far in 2010. Not only have I noticed the trend, but I have my eye on several country-specific exchange-traded funds (ETFs) in that region. This ETF Talk is the second of a three-part series that will focus on one of those Asian funds each week in the Making Money Alert.
Thailand is on my radar screen as a profitable market, particularly when so many others have pulled back this year. That’s why I am looking at the iShares MSCI Thailand Investable Market Index Fund (THD). I like to use ETFs to invest in a specific country’s stock market to gain the advantages of diversification, reduced risk and low fees. In the case of THD, this is an ETF that offers such an opportunity by seeking investment results that correspond to the price and yield performance, before fees and expenses, of the MSCI Thailand Investable Market Index. The index seeks to match the performance of the Thai equity market.
The fund is up 12.16% so far this year to produce an especially impressive performance when you consider that the Dow Jones Industrial Average has fallen 1.92% during the same timespan. A key reason is that Thailand’s economy is growing much faster than in most other places around the world.
Indeed, Thailand’s Finance Ministry raised its 2010 forecast for economic growth to between 5% and 6% in June to mark the second such upward revision in the past three months. The government had projected 2010 gross domestic product growth of 4% last December and 5% during March. Rarely are any countries these days predicting increased economic growth but Thailand clearly is a most welcome exception. To keep the economy growing, the nation’s central bank has held interest rates at 1.25%, its lowest level since July 2004.
Thailand’s economic recovery is notable, since other countries, such as the United States, have pursued low interest-rate policies to spur economic growth but have failed to achieve the same results. Thailand is one of Southeast Asia’s largest economies -- second only to Indonesia. And, the Thai economy expanded 12% during Q1 2010 from the same quarter in 2009. Increased exports largely fueled the nation’s Q1 2010 economic growth. To that end, the government raised its 2010 export growth forecast in late June to 22.5%, up from the 18% that it had projected in March.
Another plus is that Thailand’s economic freedom score of 64.1 is 1.1 points better than last year, as the country improved in five of the 10 categories used by the Heritage Foundation to assess economic freedom. Areas of improvement include freedom from corruption and investment freedom. Thailand’s economic freedom score ranked 10th out of 41 countries in the Asia–Pacific region, and its score is higher than the world and regional averages.
Although Thailand has endured political unrest, it boasts one of the world’s top equity performances so far this year. The factors that led to its improvement in the first half of 2010 appear to be sustainable throughout the year, so if you want to diversify your holdings, THD is a fund that you may want to consider for a small portion of your portfolio.
To obtain my latest ETF advice and my stop prices for each recommendation, I encourage you to subscribe to my ETF Trader service. As always, I am pleased to answer any of 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.
The Lemony Taste of Mutual Funds
It’s summer, and the weather is heating up all across America. To cool off, many people will pour themselves a tall glass of ice-cold lemonade. Hey, I think it’s fine if your lemons get squeezed into lemonade, but what isn’t fine is if you have lemons in your investment portfolio.
The lemons I’m talking about here are underperforming mutual funds -- funds that have earned a spot on the infamous Mutual Fund Lemon List, the list of the worst-performing mutual funds. To be classified as a lemon, the fund must pass strict screening criteria: it must underperform its peer group average for the last 12 months, as well as for the last three- and five-year periods.
Here’s a list of this quarter’s 10 sourest offenders, ranked by assets.
This quarter’s Lemon List includes 1,584 mutual funds totaling $715 billion in assets, and if one of the funds you own is on the list, you need to squeeze that lemon from your holdings.
To see the latest edition of the Lemon List, and to get your FREE update each quarter, just go to the Mutual Fund Lemon List website today.
Hey, all you have to lose is that sour taste in your portfolio.
Fabian Teleseminar: Mid-Year Review and Market Outlook 7/21/2010
On Saturday, July 10, we held our latest teleseminar covering the rapidly changing 2010 financial markets. The teleseminar, titled “Mid-Year Review and Market Outlook,” dealt with how you should position your portfolio for what promises to be a tumultuous second half of 2010.
As you’ve likely noticed, things are very volatile in the stock market. We saw stocks fall below their long-term moving average in May, an event that hasn’t happened since January 2008. The major indices now are firmly in negative territory for the year, but last week’s buying has brought the bulls out of their pen.
So, what’s next? Find out by listening to an audio replay of this FREE teleseminar.
During this one-hour event, we covered:
• The financial markets in the first half of 2010. What’s worked, and what hasn’t.
• How to read the price trends in the markets, and what they’re telling us.
• What investment themes I believe represent the best opportunities in the second half of 2010.
• A glimpse of my ETF watch list for the rest of the year.
• Most importantly -- how to evaluate your current investment positions so that you don’t get hurt again.
To listen to your FREE replay of this informative teleseminar, just point your mouse here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Radio Show Update: Lemons and Financial Reform
Last week, we were back once again in Phoenix, and I want to thank all of my Arizona listeners for welcoming me with such open arms. Remember that the show is now on every Saturday, 10 a.m. Pacific, on KFNN 1510, Arizona’s premier financial radio network. So, if you live within listening range of KFNN 1510, then be sure to tune in.
During last week’s show, we talked about mutual funds. We pointed out some of the biggest lemon funds, i.e., some of the worst-performing mutual funds around today. If you missed last week’s show, or any of our shows, don’t worry. As an Alert reader, you have FREE access to my Radio Show archive, and all you have to do is go to the website and listen for yourself, whenever you have time.
This week, we’ll continue our discussion on lemon mutual funds, and we’ll get into more detail on the effect that the new Congressional financial regulations are going to have on your money. Plus, as always, we answer your questions.
To listen to the show live each Saturday morning from 10 a.m.-11 a.m. Pacific Time, just go our website.
The Inconveniences of Liberty
“I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.”
--Thomas Jefferson
Yes, liberty isn’t all fun and games. In fact, the more liberty you have, the more responsibility you must take for your own life. Yet as Jefferson so nicely points out, though the care and feeding of your liberty may come with a few inconveniences -- the alternative is unthinkable.
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. It’s not too early to start making plans to join me at the MoneyShow in San Francisco, August 19-21. This year’s event will be held at The Marriott Marquis and will feature 50 of the world’s smartest investors, traders and analysts. To join me in San Francisco, you can register FREE of charge by calling 800/970-4355 and mentioning priority code 018509 or by visiting the MoneyShow’s website at The MoneyShow San Francisco!
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.