Making Money Alert
Is This the Start of Something Big?
01/27/2010
It was the first really rough week in over 10 months. Yes, I’m talking about the nearly across-the-board selling we witnessed in stocks last week -- a sell-off that slammed the major market indices approximately 4% lower. The S&P 500 Index actually broke below its short-term, 50-day moving average last week, a clear sign that the mood of this market has shifted.
Now, could this most recent decline be the start of something big? Or, in other words, are we about to see a sharper sell-off? While it is too early to tell for certain, one thing that is certain is that in order to protect yourself on the downside, you must set a stop loss on all of your invested positions.
Subscribers to Successful Investing, High Monthly Income and ETF Trader advisory services all have preset stop losses on every invested position, and just recently, we were stopped out of several positions with some very nice gains.
Finally, today we received word from the Federal Reserve that interest rates will remain at near zero. The Fed vowed to keep rates at their current levels for a while in an effort to stimulate economic growth.
Interestingly, the vote to hold rates at current levels wasn’t unanimous. One Open Market Committee member, Kansas City Federal Reserve Bank President Thomas Hoenig, actually voted against keeping interest rates where they are. Mr. Hoenig wanted the central bank to eliminate a phrase in the language vowing to keep rates exceptionally low for an extended period.
Could this be the start of something big in terms of a change in Fed policy? It certainly could be, and this is a development I’ll be watching very closely in the months to come.
Obama, Bernanke and Geithner on the Hot Seat
It’s not easy being in power when the electorate is riled up. President Obama certainly found that out last week in Massachusetts, where the election of Republican Scott Brown to the vacant seat of the late Ted Kennedy shattered his party’s filibuster-proof supermajority in the U.S. Senate.
This week, another political luminary found out that not everyone approves of the job he’s doing. I am speaking here about Federal Reserve Chairman Ben Bernanke. Although it looks increasingly as though Mr. Bernanke will be confirmed for a second term as head of the central bank, many in the Senate -- Democrats and Republicans --have expressed their lack of confidence in the way the Fed chairman managed the financial crisis.
And finally, we have Treasury Secretary Timothy Geithner, who came under fire today from Democrats and Republicans in Congress for his role in the $180-billion-plus taxpayer bailout of insurance giant American International Group (AIG). Geithner claims he played no role in withholding information about AIG deals with business partners, but in a hearing held today on Capitol Hill, one member after another expressed anger over the sordid situation.
Rep. Stephen Lynch, D-Mass., told Geithner: “It just stinks to the high heaven what happened here. The disclosure was not there at the proper time to tell the American people and tell this Congress what was going on.”
In tonight’s State of the Union address, we’re likely to find out just how aggressive President Obama is in combating the tough week he and his administration have had. Already, we know that the president is going to come out swinging on big banks and Wall Street firms, with new proposed legislation to limit the size and scope of financial institutions.
Hey, when you’re down and out, why not beat up on America’s favorite whipping boy -- business? Unfortunately for the president, I think he’s barking up the wrong tree. In fact, I think he’d be better served by redirecting that anger inward.
ETF Talk: Not Your Father’s Precious Metals -- Part I
Precious metals such as gold and silver have enjoyed a strong move higher in recent months, so the roll out of two new funds focused on other precious metals is worth highlighting. I like funds to establish a minimum volume before I recommend them, so I simply will keep an eye on these funds for now. But they both are gaining trading volume quickly and they warrant watching closely.
This week, I will feature ETFS Physical Platinum Shares (PPLT), a trust that is designed for use by investors who want a cost-effective way to gain exposure to physical platinum. The shares are issued by ETFS Platinum Trust and are intended to reflect the price of platinum, less the trust’s expenses. It is similar to the high-profile SPDR Gold Shares (GLD), since each actually holds bullion bars of the precious metal that it represents.
PPLT began trading Jan. 8 and it already is racking up a daily trading volume that is averaging close to 300,000 shares a day. It is an impressive start for a new fund. Platinum jumped in value 56% last year. However, PPLT itself is down 2.84% between its opening price on its first day of trading and its closing price on Jan. 26. If the retreat continues for awhile, it would offer you a reduced entry price for buying PPLT. The ETF also is appealing because it has a modest expense ratio of just .60%.
An investment in PPLT is not the only way that you can place a bet on platinum. Exchange-traded notes (ETNs) tied to platinum can be purchased through UBS E-TRACS Long Platinum TR ETN (PTM) and iPath Dow Jones AIG Platinum TR Sub-Index ETN (PGM). However, PPLT stands out as the first platinum investment instrument to be launched on the U.S. exchange-traded fund (ETF) market. As any reader of my ETF Talk columns quickly learns, I love ETFs for their cost-effectiveness and diversification, among other advantages.
Your father and others of his generation may not have gone any further in buying precious metals other than investing in gold or silver. Gold and silver are as exotic as most investors probably will ever get in buying precious metals. But with the stock market still looking volatile and inflation potentially on the rise as many governments around the world run up big deficits, you may want to include more than just gold and silver in your portfolio to help protect your money. Ever since medieval times, metals have proven their worth as sturdy shields.
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.
Mutual Funds Are Hazardous to Your Wealth 4
From peak to trough, the S&P 500 Index fell more than 5% last week. This kind of rapid descent has me very concerned for investors holding large allocations to domestic, international and high-yield mutual funds.
What we could be seeing here is the start of a more prolonged correction in the markets. The end of this market rally -- what I call the equity endgame -- is one of the 2010 investment themes that I have been talking about recently on my radio show.
Now more than ever, I believe it’s crucial that you take a hard look at your portfolio to determine which of your mutual funds are most susceptible to a widespread market decline.
Remember, it was just over a year ago that most investors sustained serious damage to their wealth -- damage that, in many cases, will be extremely difficult to recover from. Certainly, Wall Street titans, reckless lenders and irresponsible home buyers all deserve their share of the blame for the market’s meltdown. But one part of the financial world that hasn’t received much scrutiny for its role in that evaporation of investor wealth is the mutual fund industry.
In my latest special report, “Mutual Funds are Hazardous to Your Wealth,” I expose the five serious flaws that are inherent in these investment vehicles. I also tell you why exchange-traded funds (ETFs) are far superior alternatives to traditional mutual funds.
Some of the reasons why I love ETFs are their low cost, diversification and transparency -- virtues that are the key to any successful portfolio. For most people looking to grow their serious money over the long term, ETFs are quite simply the best investment vehicles available today.
To get your FREE special report, “Mutual Funds are Hazardous to Your Wealth,” simply click here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
It's Time to Squeeze Some Lemons -- Q4, 2009
It’s time again for our quarterly lemon-squeezing ritual. That’s right, it’s time for us to expose the worst-performing mutual funds for what they really are -- sour investment vehicles that will make your portfolio pucker.
For Q4, 2009, the Mutual Fund Lemon List contains 1,566 mutual funds totaling $651 billion in assets! Now, 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.
Incredibly, out of this quarter’s universe of 1,566 lemon funds, over 38% (a total of 605) actually had negative annualized returns over the past five years.
It’s becoming increasingly clear to me that investors need to wake up to the reality that many mutual funds just can’t perform as well as those exchange-traded funds (ETFs) with the same investment objective. Sadly, the result is that many investors are losing money that they really cannot afford to lose.
There really is no reason to continue investing in under-performing mutual funds. To find out if you own a lemon fund, simply click here.
The Great F.A. Hayek
“If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion.”
--Friedrich August von Hayek
The great Austrian School economist provides us with some much-needed words of caution, particularly in light of the current notion that government needs to provide jobs, health care, a retirement plan, etc. All of these things are desirable, but none merit the coercion of one group of citizens in servitude to another group.
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.
P.P.S. With the help of global financial stimulus, a number of global markets have rallied from their lows of 2008, providing investors who were invested in the right markets at the right time with healthy returns. Although the question remains -- how do you become one of those investors? For an answer, I encourage you to attend The World MoneyShow in Orlando, February 3-6, 2010, at The Gaylord Palms Hotel and Convention Center, to hear more than 60 leading experts. They will be on hand to provide you with insights and recommendations to help you identify emerging opportunities around the globe. I hope that you will join me there! Visit The World MoneyShow Orlando to register FREE today!