Making Money Alert
Is the Rally Over?
07/08/2009
Back in March, at the very beginning of what became a huge run higher for stocks, I was skeptical that the market could mount a sustainable rally. As the months went by, I remained skeptical; however, the market proved that it could indeed make a protracted move higher that lasted for several months.
Now the question becomes, is that rally over? Are we now staring down the barrel of a potentially protracted decline in equities?
If we take a look at the chart below of the S&P 500 Index, we can see that we are now trading below both the 50- (blue line) and 200-day (red line) moving averages.
As regular readers of the Alert likely know, when stocks fall below their key 200-day moving average, it's a very bearish signal going forward. Now, does this mean the market rally is over, or can stocks make another push higher over the summer months?
I think there's a solid possibility for a move higher by the fall, but unfortunately, I think there's also a strong possibility that we move lower from here. Now, if that seems a bit wishy-washy, let me assure you, it really isn't. It's merely a realization that we are at a critical juncture here with respect to the future direction of stocks over the short term.
If you've invested money in this market over the past few months, then my advice to you is to make sure you have an exit strategy if the recent market pullback turns vicious. You don't want to be caught holding on to losses after the big run we've seen in stocks over the past four months.
Have your sell disciplines in place, and don't be afraid to embrace cash when the going gets tough. Remember that you care about your money more than anyone else ever will, and that means you are responsible for making sure you shepherd your portfolio safely through hazardous market fields.
Federal Law Mandates 15,900% Growth for a Biofuel That Only a Handful of Firms Can Produce
Alternative energy has become a top priority for the Obama Administration, but what exactly might that mean for investors, and how can they make money from the slew of government mandates in this field? To help answer these questions, we've elicited the help of our friends at StreetAuthority.com. I hope you enjoy this piece as much as I did.
-- By Andy Obermueller
There's one piece of legislation George W. Bush signed into law that President Obama likes. Included in its provisions is an aggressive federal timetable for the use of cellulosic ethanol. The law calls for 16 billion gallons of this biofuel to be produced by 2022.
We're not producing any of it right now. Only a few companies even know how. And as these federal mandates take effect, the handful of companies that control this technology are going to watch as demand grows 15,900% and their revenue follows suit.
Hurdles Ethanol Must Jump to be Profitable
In 1976, a businessman in North Central Kansas commissioned a CPA firm to do a feasibility study. At issue was the financial viability of a commercial-scale ethanol plant. This particular businessman and his partner owned farmland and grew a little corn, and the ethanol concept that had gained currency in the post-oil embargo 1970s piqued their interest.When the feasibility study came in, though, the answer was abundantly clear. The technology wasn't there and the project didn't seem to be financially viable. So, the businessman, my father, concentrated on other ventures. It turned out to be a wise move, as most of the people who invested in ethanol in those years lost money.
Though ethanol has since grown to be a significant element of our national energy strategy, the financial viability of the fuel never grew stronger than when Dad first investigated the venture. Ethanol, in fact, never has existed without significant federal support in the form of subsidies and import tariffs.
Today, bolstered by billions of dollars in federal largesse, the nation produces about 10 billion gallons a year of corn-based ethanol. That's on track with federal targets for its production, which peak in 2015 at 15 billion gallons. How you view that depends on your perspective. It creates a ceiling on the domestic market, sure. But lots of companies would love for a 50% increase in their market to be written into federal law.
That federal law is the Energy Independence and Security Act of 2007, and it requires the country to use a total of 36 billion gallons of biofuel by 2022. The law went into effect on January 1, 2009.
The rub is that only 15 billion gallons can come from corn-based ethanol. The lion's share of the 36 billion gallon total -- 21 billion gallons, or 58.3% -- must come from "advanced biofuels" that are 50% cleaner than gasoline. Of that total, 16 billion gallons must come from something called "cellulosic" biofuel.
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The Sugar Solution Making Ethanol a Viable Energy Solution
Cellulose is a compound found in all plants, from hardwood trees to the grass in your yard. It's the most common organic compound on Earth. Chemically, it's a sugar -- that's what the "-ose" ending on the word indicates -- and that means it can easily be fermented into ethanol.And while corn-based ethanol does have modest growth prospects over the next few years, cellulosic ethanol's trajectory -- which, again, is written into federal law -- just blows corn out of the water. That's because the United States doesn't produce much cellulosic ethanol right now, mostly because the technology is still being refined.
That being said, the technology is very, very close to coming online. Several demonstration-scale plants are operational. After scientists nail down the process, the United States is going to watch the biofuel industry go from producing basically zero gallons of cellulosic ethanol to production of 16 billion gallons. That's a 15,900% increase in only a dozen years.
A 50% gain is nice. You invest $10,000; you walk away with $15,000. But a 15,900% gain is something else altogether: It turns $10,000 into $1.6 million. Now, how do you think that rate of growth is going to translate to corporate earnings in this industry? Let me spell it out for you. The investors who get in on these companies are going to be putting high-test cellulosic ethanol fuel into their Ferraris.
-- Andy Obermueller
Chief Investment Strategist
Government-Driven Investing
P.S. The biofuel revolution is here. The debate is over. The bill has been passed. The president signed it into law and the law has duly taken effect. The only question is whether you will put biofuel into your car or whether you will deposit biofuel profits into your bank accounts. I can show you how to do both.
I've discovered the only publicly traded company positioned to capture 15,900% government-mandated growth in the cellulose biofuel space. Click here to see how this stock can make early investors a fortune.
My Top 3 Themes for the Individual Investor
On Saturday, June 20, I had the pleasure of making a presentation to a local chapter of the American Association of Individual Investors, or AAII. I always like speaking to this group, as their enthusiasm and intelligent questions help me get a real sense of what investors are most concerned with. My presentation to the group covered my top three investment themes for the individual investor.The first of my themes was the current bull raging in the emerging markets. Now, those of you who subscribe to my Successful Investing advisory service know that I've been recommending one ETF designed to move higher along with the emerging markets. I think there is real economic growth going on in the world, but unfortunately, that growth isn't taking place here at home. It is, however, taking place in countries like China, India and other emerging markets. For investors, this economic growth means your gain -- if you know where to invest.
The second of my themes is the rising cost of commodities. Because the aforementioned emerging markets have such a strong appetite for agricultural products, we are likely to see a rise in commodity prices going forward. Fortunately, taking advantage of this trend is easy, as subscribers to my ETF Trader advisory service can attest.
Finally, my third strategy for individual investors revolves around new and innovative ways to generate income in their portfolios. Thanks to the burgeoning ETF market, income investors have more ways than ever to gain exposure to dividend-paying equities, bonds and other income-generating assets. Subscribers to my High Monthly Income advisory service know firsthand about many of these funds, but I want all of my Alert readers to know about them, too.
If you'd like to get a copy of my AAII presentation, all you have to do is send us an email. I will email you back a copy of my presentation, which includes a discussion of the specific ETFs that can help you achieve your financial goals.
To get your copy of the presentation, click here
ETF Talk: Is It Time for the Nuclear Option?
For 30 years, no shovelful of soil was turned to construct a nuclear plant in the United States until 2006, when groundbreaking occurred for the National Enrichment facility in New Mexico. With elected officials calling to reduce U.S. dependence on carbon-based fuel, interest in nuclear power could reignite. Since President Obama has declared that nuclear energy will be a huge part of an effective energy policy, now may be the time for investors to consider an exchange-traded fund (ETF) that focuses on alternative energy sources.With environmentalists protesting that global warming threatens the planet, interest in nuclear energy and other non-carbon based fuel is on the rise. Although alternative energy sources such as solar and wind seem safer and trendier, neither of those technologies is capable of replacing coal or natural gas in the foreseeable future.
Despite the current recession, energy demand remains reasonably strong. Global electricity consumption is expected to double in the next 25 years. With a projected fossil fuel shortage to meet such long-term demand, experts believe that nearly 50 new nuclear plants will be constructed around the world by 2020. More than half of those are expected to be in the emerging markets of China, India and Russia.
Countries such as France already have 80% of their energy supplied by nuclear power. In addition, one of the biggest advantages of nuclear reactors is that once these plants are completed, they usually operate for decades and provide a steady revenue stream. So, how do you profit from this surge in the sector? Well, there is a way to "go nuclear."
The Market Vectors Nuclear Energy ETF (NLR) is a fund designed to give investors exposure to public companies in the nuclear energy sector. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business.
As solar and wind energy still are years away from developing a sustainable and cheap product, all signs point towards going nuclear. With the massive surge in the construction of nuclear plants around the world, this sector is a must for any investor's watch list.
If you'd like to learn more about "going nuclear," or if you have any questions about ETFs that you want me to answer in an upcoming ETF Talk feature, please click here.
Tellerian Wisdom
"A fact is a simple statement that everyone believes. It is innocent, unless found guilty. A hypothesis is a novel suggestion that no one wants to believe. It is guilty, until found effective."
--Edward Teller
Like so many great scientists, the wisdom of Edward Teller is both underappreciated and less well-known than it should be. In his quote, Teller demonstrates peoples' attitudes toward facts and hypotheses. We like facts, until they conflict with our world view. And, we reject new ideas until they prove to be useful. When you're managing your money, remember that facts are what they are, and no amount of wishing will make them different. And, if a hypothesis is effective, embrace 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 that you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.