Making Money Alert
Intermediate Bull, Immediate Bear
09/08/2010
During the last couple of weeks, my research team and I have been keenly focused on ways to make our clients, and our readers, big money in the remainder of 2010 and right on into 2011. What I’m actually finding is, and this is much to my surprise, that there are a lot of reasons to be bullish going into 2011.
Yes, for many months now I have been recommending a high cash position to not only my Fabian Wealth Strategies clients, but also to subscribers of my investment advisory newsletters. Frankly, I am quite proud of the fact that for the most part, we managed to emerge free from any damage after the horrifically volatile summer of 2010. Of course, we took a few exits along the way, but we also caught a few big waves that we’re still riding high.
The way I see it, we have seen a slowdown in most domestic economic metrics (GDP, housing numbers, employment). Yet despite the slowing, we are by no means seeing a collapse in the U.S. economy. Sure, there still are big problems with European debt and the deleveraging that needs to take place in that region. U.S. debt levels also are troublesome, as are individual state and even individual consumer debt burdens.
Given all this, why am I optimistic here? Well, I guess you could say my optimism can be described as being an intermediate-term bull and a short-term bear. I do think we have some kinks to work out in the global economy, and until we do so, we are liable to see stocks sell off at the hint of any downbeat news that confirms the bearish thesis. That being said, the contrarian in me feels that when everyone is too bearish, it’s time to be a bull.
I suspect that we could get a nice fall season bounce in stocks, perhaps as strong as the bounce we witnessed back in March 2009. Now, I know this runs against the doom-and-gloom merchants peddling fear and loathing of the economy and our markets, but I think it’s high time we ignore the naysayers and get ready to pounce on some low-risk buying opportunities.
So, while I am not ready to pour my heart out and fall in love with equities just yet (remember, I am a short-term bear), I do think that a nice buying opportunity could come soon -- particularly if there’s a changing of the guard in Congress come November.
If you’d like to find out how you can get your portfolio ready for the intermediate-term bull, then I invite you to check out my Successful Investing advisory service today.
Charting the Trends
Although I think we may be overdue for a nice bounce in the markets relatively soon, the technical picture in the market tells me that we still are mired in a rather persistent trading range. Let’s take a look at the chart below of the S&P 500 to see what I mean.
As you can see, stocks have been trading lately between about 1025 on the low end and 1130 on the high end since early July. There’s been a lot of action between these lines, but right now, we are in the middle of that range. We also are trading right in the middle of the short-term, 50-day moving average and the long-term, 200-day moving average.
Now, contrast the domestic markets with the emerging markets, and the story is a lot more bullish. Take a look at the chart below of the iShares MSCI Emerging Markets (EEM), an exchange-traded fund (ETF) pegged to the fortunes of the emerging markets of the world.
As you can see, there has been a lot of volatility in EEM since July, but this market segment now is firmly above both short- and long-term moving averages. That means the bulls definitely have become more inclined to move their capital into these frontier markets.
Finally, we have the chart below of long-term Treasury bond yields. As you can see, it’s been a veritable freefall for yields (i.e., spike in bond prices) since about April. That’s when the fear factor really kicked into high gear and sent bond prices soaring (and bond yields plummeting).
But like equity prices, we are starting to see a changing of the guard here with respect to bond prices. Yields actually have started to make their way higher, and yields now are well off of their September lows. Is this the start of a bursting bond bubble? Maybe not yet, but if bond prices continue to slide -- along with a concomitant rise in bond yields -- it could trigger a bond sell-off and a shift back into undervalued equities.
ETF Talk: Benefiting from Mergers and Acquisitions
I love when a stock that I own soars in value because an announcement has just been made that it will be acquired by a deep-pocketed new owner. Of course, such situations only occur rarely for individual investors, if they happen at all. I have found one way to increase your odds of benefitting from mergers and acquisitions (M&A) through the purchase of an exchange-traded fund (ETF). The fund that I have identified is the IQ Merger Arbitrage ETF (MNA).
In the wake of a recession, it should come as no surprise that high-profile deals now are occurring. It makes sense because many corporations have been hoarding cash rather than take big risks when the economy was sputtering. With certain industries and regions of the world recovering, opportunities are arising to deploy those funds.
One of the latest attention-grabbing merger deals occurred Sept. 2 when personal computer maker Hewlett-Packard (HPQ) announced that it would purchase data-storage company 3PAR Inc. (PAR) for $33 a share in cash, or an enterprise value of $2.35 billion. That transaction, which forced HP to outbid rival PC manufacturer Dell (DELL), gained approval from the boards of directors at both companies.
Another example was semiconductor behemoth Intel (INTC) bidding $7.67 in cash for security software maker McAfee (MFE). In addition, global mining company BHP Billiton (BHP) floated an unsolicited offer to acquire Canadian agricultural chemical firm Potash Corp. of Saskatchewan (POT).
IQ Merger Arbitrage ETF (MNA) offers an alternative to a hedge fund that aims to provide investors with exposure to the disparities caused in the share prices of companies involved in M&A activity. MNA is intended to let investors reap rewards from corporate M&A deals. Here’s how it works.
The ETF generates capital appreciation for its investors by buying the shares of companies that publicly have become takeover targets for potential acquirers. This strategy, called merger arbitrage, seeks to profit from the price differential between the current trading price of a stock and the price it ultimately trades at upon completion of a merger. MNA’s investment team’s goal is to buy stocks below the final, often higher price of a prospective M&A deal. If the merger closes at or above the target price, MNA profits, along with its investors.
Here’s a snapshot of MNA’s five biggest holdings, as of Sept. 7: cash, 14.41% available to invest for future deals; telecommunications firm Qwest Communications (Q), 8.52%; Potash (POT), 7.75%; McAfee Inc. (MFE), 7.65%; and human resources firm Hewitt Associates (HEW), 7.30%.
Since the ETF only began operating in November 2009, the merger arbitrage strategy was not easily available to individual investors. Now, the risk takers among you have that option through this innovative ETF.
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.
The Next BIG Opportunity: High Yield
No doubt you have been reading the negative news on the economy. How can you not, it’s everywhere!
We just witnessed a slowdown in economic growth, and recently we saw second-quarter GDP revised downward. No doubt you have seen the downbeat news on the housing front, as overall sales and home prices are once again headed south. No doubt you’ve been talking to friends who are worried about the falling value of their stock portfolios, and about the direction our country is headed. And there is likely no doubt that you have your own concerns about what to do with your investment nest egg.
Well, I have good news for you! In my opinion, 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. All you have to do is join me for an informative teleseminar on Saturday, Sept. 11, at 12:00 p.m. Pacific Time. I’m calling this seminar “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 join me on Saturday, Sept. 11, at noon Pacific Time.
During this one-hour teleseminar, I will share with you these key points:
• 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 receive my complete “High-Yield Watch List.”
Our previous teleseminars have been very popular with radio show listeners, newsletter subscribers and Fabian Wealth Strategies clients. For this seminar, we have room for just 800 attendees. This event is absolutely FREE if you attend on Saturday, Sept. 11, at 12 p.m. Pacific Time. There will be a nominal charge for listening to the replay of this event, so make sure you register for the live event by right now by clicking here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Radio Show Update: Bucking Up for a Busted Bond Bubble
Our most recent radio show focused on how yield-seeking investors can find the right investments for their individual portfolios. We also talked about how you can protect yourself from the bursting of the bond bubble. If you didn’t get a chance to listen to the show, then that’s okay, because 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, at your convenience.
This week, we’ll be getting into more details on how you can prepare for the bursting of the bond bubble. We’ll cover both municipal bonds and Treasury bonds, so be sure to tune in for all of the latest market survival strategies. Of course, as always, we’ll be taking your phone calls.
To listen to the show live each Saturday morning from 10 a.m.-11 a.m. Pacific Time, just go our website.
Buffett on Vision
“In the business world, the rearview mirror is always clearer than the windshield.”
--Warren Buffett
Arguably the world’s greatest investor, Warren Buffett, has seen his share of rearview mirrors and tainted windshields. That makes the analogy here even more apt. Always remember that it’s easy to know something in hindsight, and much tougher to make that call into the abyss of the future. Yes, we can learn from history, but ultimately all of our decisions are based on incomplete information. The best we can do is act with conviction, and on the best information available to us right now.
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.