06/25/2008

A "Must Hear" Radio Segment 2

Now more than ever it's absolutely essential to get defensive with your exchange-traded fund (ETF) portfolio. In a recent radio show segment, my son David and I discussed how to use three defensive ETFs to help ward off the ravages of a declining market.

I encourage all of you to listen to this segment, and find out which three ETFs can give you the upper hand in your battle to preserve capital and to grow your wealth. To listen to this most-excellent, "must hear" radio segment, click here.

ETF Talk: Braving Frontier Markets

When most American investors hear the word "frontier," they might be more likely to think about the Wild West than their investment portfolios and ETFs. That's why you may be surprised to learn that "the frontier" is not just about unchartered territories, untamed terrains, or uninhabited land. Developing and growth-oriented foreign markets also fit the description. Such investments offer the potential of enticing returns.

Claymore Securities recently launched the first U.S.-listed, "Frontier Market" ETF, the Claymore/BNY Mellon Frontier Markets ETF (FRN). That ETF seeks to replicate the Bank of New York Mellon New Frontier DR Index. FRN, unveiled earlier this month on June 12, invests at least 80% of its total assets in American depositary receipts (ADRs) and global depositary receipts (GDRs) that make up the Index.

You may be wondering what distinguishes a frontier ETF from an emerging market ETF, such as the iShares MSCI Emerging Markets Index (EEM), which launched in 2003. Frontier markets are about a step or two behind more developed, emerging-market ETFs. For example, the top three country weightings for FRN as of May 31, 2008, featured Poland, 24.86%; Chile, 21.01%; and Egypt, 17.73%. Conversely, EEM's top three country weightings during the same time period were Brazil, 14.18%; China, 12.89%; and South Korea, 12.36%.

The top two holdings for FRN, as of June 11, 2008, are companies from Poland, featuring Bank Pekao SA, with 8.09%, and Telekomunikacja Polska, with 6.45%. The fund's third-largest corporate position is Egypt's Orascom Telecom Holding, with 6.20%. The fourth- and fifth-largest corporate holdings for FRA are Peru's Mina Buenaventura ADR Rep 2, with 5.26%, and Kazakhstan's Kazmunaigas, with 5.16%. A list of the top 10 fund holdings, and their weightings, follows.

"Frontier markets have been referred to as the next generation of emerging markets and may potentially offer attractive risk and return ratios, as well as lower correlations to developed and emerging markets," said Christian Magoon, president of Claymore Securities and head of the ETF Group.

One of the big appeals that I see with FRN is that it is expected to have less correlation with the developed stock markets. As a result, this high-risk, high-reward ETF could become a minor part of the portfolio of aggressive investors looking for diversification and international exposure.

This fund has not found a place among the recommendations in any of my trading services, but it definitely bears watching. If you want investment exposure in places such as Poland, Chile, Egypt, Kazakhstan and Peru, this fund could be for you.

If you have any questions about ETFs that you'd like me to answer and that you think might interest the rest of my readers, click here and I may be able to do so in an upcoming ETF Talk feature.

Living Large: A Different Perspective -- Part II

Last week, I told you about an article in the Los Angeles Times that profiled a man who lives frugally but happily on a boat. The article got me thinking about all of the things we could do with much less in our lives in terms of spending, if we wanted to do so.

I came up with a few good ways we can all save money, and the some of the best included:

Now I know there are many more great ways to save, but I wanted you, the Alert reader, to tell me your favorite ways to save.

Here are some of the best -- and most humorous -- reader suggestions to help us all save money:

I really like all of the above suggestions, as they all are great, practical ways to save. From a personal perspective, my two favorite suggestions came to us with a bit of ribald and a bit of politically incorrect humor.

First, the ribald:

• Always shower with a loved one. It reduces your water bill and improves your love life.

And second, the politically incorrect suggestion:

• Stop buying the print editions of liberal newspapers like the Los Angeles Times, New York Times and Washington Post. You'll save money and you'll stop your brain from rotting.

Hey, you gotta love Alert readers!

Thanks one and all for your great suggestions.

Walking Away a Winner

Recently, I had a conversation with a radio show listener that made me think about the housing collapse in a whole new light. The woman I spoke with asked me what I thought about her walking away from her home and letting it go into foreclosure.

Besides asking about the type of mortgage and the amount of her monthly payment, I asked her how much was owed on the home and the present value of the property. Much to my surprise, I discovered that she was “upside down” by more than $400,000, meaning she owed the bank almost half a million dollars more than her home is currently worth.

I was actually mildly shocked by the size of this shortfall. Even if she were able to commit an extra $1,000 per month for the next 100 months (more than 8 ½ years) she would still come up $300,000 short of having any equity in her home. When I mentioned this to Josh Lewis, my mortgage and real estate expert, he confirmed that this number is on the high side. Yet he told me it was not uncommon at all given the current housing environment.

In fact, Josh said that more than a third of the people he speaks with on a daily basis are facing the tough decision about what to do with a home with negative equity. To make matters worse, many of these folks are in loans they can no longer afford.

Needless to say, I made it a priority to provide the answers my audience needs on this critical issue. Even if you are not in trouble, the numbers indicate that you know someone who is. Over the next several weeks Josh and I are going to discuss the key questions, considerations and ramifications of the decision to hand in the keys to your home.

Specifically, we are going to give you:

• A simple way to calculate the key figures
• The options available to anyone who owes more than their home is worth
• How a foreclosure impacts your credit scores
• How long you will need to wait before being able to qualify for a mortgage again
• How a foreclosure impacts the cost of credit for autos, credit cards, etc.

Check back next week for the first installment of this timely series on how to navigate these treacherous housing market waters. If you know someone looking for answers to these tough questions, please do them a favor and share the articles with them.

In the meantime, if you have a specific question regarding real estate with negative equity, shoot us an email, and we'll be sure to provide the answers you need.

Retirement Income Conference Call, Part III -- Register Now! 2

Have you ever had the desire to increase your lifetime income streams? Would you like to have more pension and Social Security-style income in retirement, that is to say, income you cannot outlive?

Join me as I conduct the Retirement Income Conference Call -- Part III. I will speak on the new features of today's annuities that can help you to create those lifetime income streams. I also will address the ridiculous commissions being charged on most index annuities, and how you can avoid them.

If you are in retirement, are close to retirement, or have a loved one in retirement, you need to join me on this FREE call, to be held Saturday, July 12, at 3:00 p.m. Pacific time. And, if you own an existing annuity, you simply must hear what I have to say about the new no-load, no-commission annuities that allow for lifetime income without annuitization.

To register for this call, just click here.

The Literature of Morality

"Every man has reminiscences which he would not tell to everyone but only his friends. He has other matters in his mind which he would not reveal even to his friends, but only to himself, and that in secret. But there are other things which a man is afraid to tell even to himself, and every decent man has a number of such things stored away in his mind."

—Fyodor Dostoyevsky

The great Russian novelist and quintessential author of the darker aspects of human nature reminds us all that every decent man has a number of things he's afraid to tell even himself. I suspect that fears over finances -- and even of becoming destitute -- are some of the fears many of us are afraid to tell even ourselves. The next time you feel worried about your finances, remember that they are well within your control. Yes, it requires conscious effort to make sure your money is safe, but conscious effort is simply a requirement of man's life. Everything we need to survive requires volitional action, and our finances are just another area of life where this law must be obeyed. Embrace your natural Dostoyevskyian fears and conquer them. It is through this volitional act that you will prevail.