Making Money Alert
Let's Call it the "C" Word
10/08/2008
I don't like to employ hyperbole when describing financial markets, but sometimes words once-considered hyperbolic are all-too accurate.
The word here that comes to mind is "Crash." This market "C" word is simply a reality now. I mean, what else do you call a 20% market drop in just over two weeks?
To see the severe damage that this crash has done to our financial markets -- not only here in the United States, but also around the globe -- all we need do is glance at a few charts.
The following four charts -- the S&P 500, the iShares Japan, the EAFE index and the iShares Emerging Markets -- tell the tale of a global market crash.
There's no decoupling going on here, folks. In fact, the downward spiral looks virtually the same in nearly all corners of the globe.
Europe looks like it just got hit by World War III, as does Japan and the emerging markets. The S&P 500 chart looks even worse than it did in the weeks immediately following the 9/11 terrorist attacks.
There's no doubt that if you are worried and scared about the future of the equity markets, your fear is indeed justified. And while I still am generally optimistic about the future of the world's financial infrastructure, I am very worried about the short-term prospects for the global financial system. As wealth evaporates around the globe, faith in capital markets will continue to teeter on the brink of the abyss.
In terms of what to do now, I think you sell into any rally in this market. That's assuming, of course, that you still own equities. The better strategy would be to already be completely out of stocks the way subscribers to my Successful Investing advisory service have been throughout the majority of this tough market year.
Want to find out more about how to survive this "C"-word market? Click here.
Debate Disappointment
I suspect that most of you watched last night's presidential debate. If you're like me, the first word that comes to mind is -- disappointment.
After what I thought was a dismal performance by Sen. McCain, I think the race is increasingly headed toward a Sen. Obama victory. I mean, how pathetic was McCain's idea that the government should start to actually purchase mortgages directly?
Unfortunately for the economy at large, and especially for entrepreneurs and investors, I don't see how Obama's tax-and-spend philosophy gets our financial ship headed in the right direction.
I'll have much more to say about the next president and his influence on the economy after the winner is decided, but it's suffice to say that from an investor perspective, neither of the two major party candidates gives me reason to smile.
ETF Talk: Hot Shorts and Cold Longs
Every quarter the Fabian team updates the performance of the existing exchange-traded funds (ETFs) and the most recent results are bleak. The latest findings through Sept. 30 indicate that the ETFs performing the best so far this year are shorting the equity markets. Also in positive territory are funds investing in U.S. government bonds. As subscribers of my paid services know, those have been two of my favorite strategies this year.
With the arrival of third-quarter performance numbers, my warnings about the dicey conditions in the equity markets have proven accurate. I'll let the numbers tell the story. I encourage you to check out our latest ETF Update.
Before I go any further, I understand that these are anxious times for many of you with the market's recent drops, including a plunge of more than 5% in the Dow Jones industrial average yesterday. Remember that if you have any questions about ETFs, please let me know and I'll try to answer them for you in a future ETF Talk feature. If you have a question, please contact me by clicking here.
It has been difficult -- but not impossible -- to avoid deep losses so far this year. Listed below are two dozen ETFs that have been profitable in 2008. A number of them were unprofitable for parts of the year but they have absorbed the rough market conditions far better than the norm. You only have to glance at the list to see that the biggest winners in 2008 are shorting the markets. The ProShares UltraShort Semiconductor (SSG) ETF shined the brightest by rising 66.90% through the first nine months of the year.
As of 9/30/08
TICKER | Name | Price | 4WK% | 8WK% | 12WK% | YTD% | |
SHY | iShares Lehman 1-3 Year Treasury | 83.56 | 0.65 | 1.00 | 0.84 | 1.67 | |
IEI | iShares Lehman 3-7 Year Treasury | 108.53 | 0.65 | 1.89 | 1.60 | 3.14 | |
IEF | iShares Lehman 7-10 Year Treas | 89.00 | -0.64 | 1.63 | 0.75 | 2.29 | |
TLH | iShares Lehman 10-20 Year Treas | 106.62 | -0.56 | 2.47 | 0.99 | 1.53 | |
TLT | iShares Lehman 20+ Year Treas | 94.88 | 0.54 | 4.67 | 1.92 | 1.97 | |
ITE | SPDR Lehman Intermediate Term | 56.12 | 0.20 | 1.28 | 1.08 | 2.17 | |
TLO | SPDR Lehman Long Term Treasury | 54.40 | -0.31 | 3.21 | 1.34 | 1.40 | |
SKF | ProShares UltraShort Financials | 100.99 | -10.93 | -9.93 | -33.00 | 1.11 | |
IBB | iShares Nasdaq Biotechnology | 81.36 | -4.48 | -8.58 | 1.12 | 0.22 | |
HHE | HealthShares Cardio Devices | 28.41 | 0.34 | 3.91 | 16.24 | 14.10 | |
RXD | ProShares UltraShort Healthcare | 80.91 | 12.45 | 13.02 | 0.86 | 23.34 | |
SMN | ProShares UltraShort Basic Mater | 53.25 | 40.17 | 40.54 | 56.76 | 31.00 | |
DUG | ProShares UltraShort Oil and Gas | 38.85 | 2.21 | 1.30 | 25.40 | 7.98 | |
SDP | ProShares UltraShort Utilities | 74.79 | 19.91 | 18.34 | 39.04 | 47.54 | |
DBE | PowerShares DB Energy Fund | 39.66 | -7.62 | -12.43 | -24.93 | 12.35 | |
DBO | PowerShares DB Oil Fund | 38.42 | -10.46 | -13.78 | -25.89 | 10.69 | |
DGL | PowerShares DB Gold Fund | 32.17 | 7.51 | -1.20 | -6.02 | 1.86 | |
IAU | iShares COMEX Gold Trust | 85.47 | 8.08 | -0.86 | 6.04 | 3.66 | |
SCC | ProShares UltraShort Consumer | 100.90 | 18.23 | 9.55 | -0.10 | 17.87 | |
SZK | ProShares UltraShort Consumer | 72.00 | 2.83 | 1.12 | -9.41 | 13.85 | |
REW | ProShares UltraShort Technology | 79.30 | 23.30 | 23.96 | 21.33 | 47.43 | |
SSG | ProShares UltraShort Semiconduct | 93.88 | 36.04 | 36.28 | 29.29 | 66.90 | |
SIJ | ProShares UltraShort Industrials | 77.70 | 24.67 | 22.80 | 14.16 | 38.03 | |
PSQ | ProShares Short QQQ | 65.73 | 12.88 | 13.61 | 12.84 | 23.53 | |
Our quarter-ending analysis found few sectors unscathed from the falling market. Dividend-paying equity ETFs, including financial stocks that typically pay dividends, took a pounding amid the ongoing credit crisis. The broad-based ETF categories that we reviewed featured: dividend payers; conservative growth; moderate growth; aggressive growth; actively managed; bonds; global; regional; international; country-specific; finance; health care; basic materials; energy; alternative energy; commodities; real estate; consumer/cyclical; technology; industrials; utilities; bear market; leveraged; and currency. So far this year, almost every sector is down by double-digit percentages. The pain clearly is widespread.
If you are reading this ETF Talk, you likely are among the investors who have suffered financial damage to your portfolios. Retirement funds, 401(k) accounts, personal investment accounts, trusts and education savings accounts all have shared in the barrage of bad results. Other than taking the risky approach of shorting stocks or the conservative path of buying government funds, there was no place else to escape the financial fallout except cash.
I encourage you to use the ETF Report that I developed to compare the performance of low-cost ETFs with your mutual funds. I will bet that your comparable mutual funds are down even further than the ETFs in the same categories.
As I have been advising subscribers of my investment newsletters and trading services, this year has been a time to stay defensive. However, markets that fall also ultimately rise. If you are young enough to ride out the bumps and maintain a long-term focus, you still can achieve your financial goals. Yes, it would have been great to make all of the correct moves with your money but not even the world's best investors can meet that standard.
Watch for my next Quarterly Update of ETFs in January 2009 when the fourth quarter has wrapped up. I encourage you to look carefully at ETFs that fit into your investment plans and take advantage of their comparatively low cost structure. Sometimes it takes a crisis to spur us into action, and I'd say what we are experiencing now fits that description.
Estate Planning Mistakes: No Wealth Transfer Strategies
During the past six weeks we've discussed the seven biggest estate planning mistakes made by investors. In week one, we reviewed each of the seven. But in case you missed it, here's a quick list of each of these big mistakes:
- Not having an estate plan
- Not reviewing your plan annually
- Not placing your assets in your trust
- Not having the liquidity your estate needs to pay estate taxes
- Delaying decisions and planning due to tax policy uncertainty
- Not taking advantage of tax planning and wealth transfer strategies
- Failure to properly utilize life insurance as a planning and liquidity tool
Last week, we discussed the problems that can occur when you delay your estate planning decisions. This week, I want to talk a bit about failing to take advantage of tax planning and wealth transfer strategies.
Right now, you can set up your estate plan to both minimize your tax liability and to protect your wealth for future generations. Unfortunately, many people with estate plans fail to make tax liability and/or wealth transfer a priority. This is a critical mistake, and one you just cannot afford to make.
If you have substantial assets, you need to have the right mix of liquid assets in place within your estate plan. Fortunately, my friend and colleague Kevin Yurkus, president of Fairway Capital, is an expert at helping high-net-worth investors manage their estate plans. Fairway Capital is a sponsor of my weekly radio show, and one reason why is because I trust Kevin's judgment when it comes to all things estate planning.
If you have assets over $2 million, you MUST listen to my new audio special report. In this report, we cover each of the seven biggest estate planning mistakes, and we explain how easy it is to correct each one.
To listen to this FREE audio special report, click here.
A Simple Solution for Today's Volatile Markets 3
Today's stock market beast is not the same animal it was a decade ago. In fact, the pace of change has been relentless in recent years, and even the most conscientious individual investor has had a tough time keeping up with all of the financial market upheaval.
If you're managing your own money, are you getting the results you think you should? If your answer is no, then you need to make a change, and a good place to start is by checking out Fabian Wealth Strategies today. All you have to do is click on this link for your introduction to our money management services.
As I always say, the only thing you have to gain is the life you desire.
No Price for Being Wrong
"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong."
--Thomas Sowell
Once again, this week's quote comes from the great economist and thinker Thomas Sowell. His words echo my sentiment that this whole bailout boondoggle will be a long-term negative for the markets. Why? Well, because these decisions are being made by those without a real stake in the matter, and by those who are essentially shielded from any punishment if they are wrong. In the real world, when private citizens mess up we pay the price for being wrong. But when the government makes a mess of something, their solution is to get more money and more power so that it can "fix" its mess. No price for being wrong, indeed.
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.