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Get out and Vote for Your Money

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10/27/2010

We are less than a week away from what could be the most important midterm election in recent memory. Certainly, I think this is the most important election that I can remember. I think it’s much more important than the midterm election of 1994, and that election turned out to be hugely important.

If I may get a bit political here, I think that after nearly two years of what essentially amounts to one-party rule, the American people are ready for a change. I also think that the need for a change in Congress to an opposition party is something that the American people have embraced, and certainly the pre-election polls suggest that Republicans have a very good chance of regaining control of the House of Representatives, if not also the Senate.

Now, regardless of which political party you belong to or where in the political spectrum your views are, there’s no denying that the political makeup in the Congress and the White House have implications for the market. I actually think that one of the reasons why we’ve seen such a big spike higher in stocks recently is due to the perception that Republicans will regain control of at least the House of Representatives.

One true precept about the market and politics is that Wall Street loves gridlock. Another way of putting it is that the less that gets done, the better it is for Wall Street. Now, you may think this isn’t how things should work, but what “ought to be” and “what is” are two very different things on Wall Street.

This simple notion brings me to today’s admonition, and that is to get out and cast your vote in favor of your money. Moreover, I say that if you want to vote in favor of your money, then you should cast a vote for divided government.

I think that if we do get a divided government in the next Congress, it will mean an opening of the capital floodgates for companies and for many investors. Companies are likely to start spending some of the cash they’ve accumulated during the past year or so, and investors are likely to come back into stocks, just based on the perception that there will be more obstacles to any big, new federal programs.

Keep in mind that we already know that stocks tend to perform better during certain times in a presidential cycle. Our research shows that during the first and/or second year after a presidential election, markets are most apt to make notable corrections. Certainly we’ve seen that right after President Obama took office. Data from the Stock Trader’s Almanac confirm this theory, stating that, “In the last eleven midterm election years, bear markets began or were in progress nine times.”

Interestingly, the Stock Trader’s Almanac data also show, “Since 1914, the Dow has gained 50% on average from its midterm election year low to its subsequent high in the following pre-election year.” This is the key statistic for us, as we already may have seen this midterm election year low.

Finally, whichever way you decide to vote next week, make sure you exercise your civic privilege and make your choice. Our system is far from perfect, but it’s just about the best system that’s ever been created. So, don’t just be a spectator in America -- be a player!

A Wait-and-See Market

The market basically has slowed down during the past week. Though there’s been some small degree of volatility in stocks since last Wednesday’s Alert, it certainly appears as though the markets are hitting the pause button before next week’s crucial midterm election.

As you can see by the chart here of the S&P 500 Index, stocks basically have stalled out during the past week. Part of that is no doubt due to the wait-and-see posture traders have adopted in front of the election, but part of that is the natural pause in the upward trajectory of stocks that tends to follow big runs higher.

Stocks have come up huge since falling to their August lows. In fact, the S&P 500 has surged some 12% since its August nadir, and that means stocks are way overdue for a bit of a slowdown.

If we see some kind of unexpected elections results -- either a blowout win for Republicans or a better-than-expected showing from Democrats that keeps them in control of both the House and the Senate -- then expect to see some serious price movement in disparate directions next week.

Until then, however, I think we’ll see more wait-and-see trading for the rest of the week and into the early part of next week.

The Election's Over -- Now What Do I Do with My Money?

On Saturday, Nov. 6, at 12 p.m. Pacific Time, I will be hosting the most important investor teleconference of the year. I’ve titled this presentation, “The Election’s Over --Now What Do I Do with My Money?” As the title suggests, we’ll be looking at the new makeup of the incoming Congress to see just how the political landscape looks. More importantly, we’ll look at how best to navigate this landscape with your investments.

No matter what the new Congress looks like, you can bet that the Federal Reserve will continue printing money in an effort to pump up the economy. Hey, we all know that the economy is facing some of the most serious challenges that it has endured since the whole financial crisis began. That makes now, perhaps, the most important time to make sure your money is working for you.

In this teleconference, we’ll take a look at:


“The Election’s Over -- Now What Do I Do with My Money,” will help you to devise a strategy that uses targeted ETFs to help you achieve both the growth and the income your portfolio deserves.

This event will sell out, as attendance is limited to the first 800 registrants.

Sign up today and guarantee yourself a spot in the most important teleconference of the year.

ETF Talk: Is China Ripe for Investment Again?

China is one of the most tempting markets in the world but it also carries big risk. The country’s enormous population of more than 1.3 billion people and gross domestic product growth of close to 10% make it an appealing place to invest. However, it also is an emerging market that still operates under tight government control. For these reasons, it is somewhat of an investment enigma. Nonetheless, Market Vectors China ETF (PEK) is a new exchange-traded fund (ETF) that has been launched as a bullish play on China.

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the CSI 300 Index. That diversified index consists of 300 A-Share stocks listed on the Shenzen or Shanghai stock exchanges. The fund does not invest directly in A-Shares. Instead, it invests in swaps and other types of derivative instruments that have economic characteristics substantially identical to those of China A-Share stocks. By investing in swaps, the fund may need to reset its holdings on a regular basis and thereby increase the likelihood that it will produce short-term capital gains and/or ordinary income. That situation likely will cause higher taxes for the fund’s investors.

Another factor to consider is that China’s total equity market accounts for 33% of the emerging market universe, based on market capitalization. But the opportunity largely was inaccessible to non-Chinese investors who were prohibited by the Chinese government from buying A-Shares. Instead, only a small portion of Chinese equities were available to foreign investors through B-Shares, H-Shares, N-Shares, L-Shares, S-Shares and Red Chips. That subset of non-A-Shares is only 28% of China’s total equity market, based on market capitalization.

In recent years, the Chinese government has made an exception for foreign investors who are approved as Qualified Foreign Institutional Investors to access the A-Share market. The Market Vectors China ETF is the first U.S.-registered, open-end ETF to offer performance exposure to the local Chinese A-Share market. Many companies listed on the Shenzhen and Shanghai stock exchanges are not listed on other international exchanges. Thus, it has been difficult for U.S. and other foreign investors to access Chinese stocks that have been driving much of the market’s performance.

Since the new fund only began trading on Oct. 13, I am not ready to recommend it. I like to see a fund become established by generating a consistent 100,000 average daily trading volume to ensure it is liquid enough to buy and sell easily at a fair price when needed. But if you are an investor who has been frustrated in the past from an inability to access the A-Shares market in China, PEK now offers a way to do so.

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 do not hesitate to contact me if you have one. To send your question to me, simply click here. You may just see your question answered in a future ETF Talk.

Get Your Precious Metals Watch List

The ETF universe now is teeming with more than 1,000 funds. Yet there is one asset class, particularly this year, that really has captured everyone’s attention -- and that’s precious metals.

Precious metals, like stocks and bonds, are an asset class which represents a great deal of risk along with the potential for big rewards. One of the biggest challenges confronting precious metals investors is dealing with the tremendous volatility in the sector.

We’ve seen this volatility in the premier precious metal, gold, since the value of the yellow metal has gyrated wildly over the past 12 months. Because gold and other precious metals generally are non-stock, non-bond correlated investments, they’ve become very attractive to individual investors, despite their propensity for volatility. This low market correlation is a crucial component for investors who seek diversification within their portfolios.

In our latest special report, “The Fabian Precious Metals Watch List,” we’ve identified 20 precious metals ETFs that give you access to both the bullion and mining segments of the best precious metals available to investors today. To get your free report, simply click here.

On Man's Noble Nature

“Whatever their future, at the dawn of their lives, men seek a noble vision of man’s nature and of life’s potential.”

--Ayn Rand, “The Fountainhead”

This noble sense of mankind in novelist/philosopher Ayn Rand’s work is a not-too-common line of thinking in the history of literature and thought. Perhaps it’s why some of the greatest heroes that ever graced the printed page are found in her masterworks “The Fountainhead” and “Atlas Shrugged.” I am a big advocate of people maximizing their potential in life, and one way to do this is to see the world as a noble place where the achievement of values is indeed possible.

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.

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