02/01/2006
Yesterday the Federal Reserve raised interest rates another quarter percentage point, pushing borrowing costs to their highest point in five years. More importantly, the central bank also hinted that another rate hike was very possible when it meets again at the end of March. I always suspected that the Fed had two more rate hikes in it before yesterday, so hopefully we've got one down and just one to go. Stocks reacted to the Fed's moves with a predictable selloff, but that's not surprising after seeing the market move up solidly in the first month of the year.
Now the conventional wisdom on Wall Street, or at least the talking points given by your average stockbroker trying to get you to buy what he or she is selling, is that once the Fed puts on the brakes stocks will go through the proverbial roof. Well, if history is any indication, this is simply not true.
In fact, according to data compiled by the firm Ned Davis Research, since 1929 the S&P 500 was actually lower six months after the last rate increase in a tightening cycle 71% of the time, and down 64% of the time 12 months later! So if history is any prognosticator, there is a much better chance of a down market in 2006 even after the Fed stops raising interest rates. Don't believe all the hype about clear sailing after the Fed is done hiking rates. History simply does not bear this thesis out.
Now don't get me wrong, I am not predicting that we'll have a bear market in 2006, nor am I predicting that everything will be rosy in the year ahead. Nobody out there can be sure. So why listen to me? Because no matter what happens with stocks, my Successful Investing, VIP Investor and High Monthly Income services are prepared to profit regardless of market conditions.
Based on a time-tested (nearly 30 years), trend-following methodology, my services tell you when to be in, and just as importantly, when to be out of the market. It's no secret that our system has beaten the market nearly every year since we began. The key here is to employ a strict sell discipline when things are start to get tough, and move all your chips in the pot when the cards are in your favor.
For more on how it all works, I invite you to take a closer look at my services. For just 50 cents a day, you get a direct pipeline to the trend-following trading plan in my flagship service, Successful Investing, a service that I am proud to say has made thousands and thousands of subscribers richer than they ever dreamed possible. And with my monthly newsletter, weekly updates, and special buy and sell bulletins, you'll always know where and when to put your money. Getting in on all the action is just a simple click away. Find out how now:
http://www.fabianssuccessfulinvesting.com/order.php?offer=12
Finally, we must say goodbye to a seminal figure in our industry. Yesterday was Alan Greenspan's final day as chairman of the Federal Reserve, a position the "maestro" had occupied for nearly 19 years. Always the subject of intense scrutiny, the often praised and sometimes intensely maligned chief of the central bank presided over the greatest expansion of stock market wealth the world has ever seen. He did so with grace, class and an understated charm that made him the fascinating figure that he was. I didn't always agree with Mr. Greenspan's moves on monetary policy, but I always respected his decisions because I knew they were thought out from every possible angle. The only exception here is when he allowed interest rates to fall to rock bottom levels, which forced people to abandon traditional savings accounts and take more risk with their savings. This bad decision was also responsible for the mortgage refinance boom and housing bubble that could get ugly soon. Greenspan's successor, Ben Bernanke, will almost certainly have to deal with the dubious consequences of this black mark on an otherwise solid legacy.
"We will never retreat from evil." That's the kind of tough talk that epitomizes President Bush, and you've gotta love it! The president's refusal to acquiesce to the dark forces that threaten the entire civilized world is by far his greatest attribute, and in my view, his most admirable quality. The world needs more of this uncompromising mindset, especially in the face of future threats from a nuclear-armed Iran, a Palestinian Authority that wants to see Israel wiped off the face of the earth, and of course, the ever-present threat of radical Islam and its pernicious spread throughout the world.
The president also made some interesting comments on the economic front, urging Congress to make his tax cuts permanent, and saying that we are still on track to cut the deficit in half by 2009. Mr. Bush also stressed that the country is going to have to deal with rampant entitlement spending, which threatens to rise to nearly 60% of the federal budget by 2030. His proposal on this was to appoint a commission to study these "baby boom" financial issues and come up with some proposals for a fix. I guess it's understandable from a political perspective, given the defeat of last year's attempt to reform Social Security, but come on, a commission? That's Washington's way of blowing an issue off.
Well, I've set up my own commission on how to deal with financial issues for the future, and it doesn't involve any politicians. The only person it involves is you. And, if you'd like, a little help from me. You see, no matter how good their intentions, politicians rarely tell you the truth about economic issues that will affect you. That's just the nature of the beast.
Fortunately, your financial future is not up to the politicians. And it's not up to your financial advisor, family, friends or even me. The only person responsible for your future security is you. Of course, I want to be there for you as your retirement advisor, helping you to properly take care of your "Serious Money" as opposed to your "Mad Money." And that's the real focus of my radio show, seminars and advisory services, helping you to take control of your own destiny.
I know for some of you taking charge of your money is a scary proposition, but it doesn't have to be. All you have to do is make the decision to take control of your financial life. That means arming yourself with the best information available on all things that affect your money. And while information is the start, it's meaningless without a plan of action. If you want to achieve the kind of success that's open to everyone in this country, you've simply got to have a plan that allows you to profit when conditions are right and protect your wealth when times are tough. Teaching people how to win the war against financial mediocrity is my mission, and as the president might say, "We will not fail."
Those of you familiar with my radio show, newsletters and investment advisory services already know what a big fan I am of the new investing tools that have come out in recent years. I am speaking here of my affinity for Exchange Traded Funds (ETFs). ETFs are "baskets of stocks" that are constructed to mirror the performance of either a major market index (Dow Industrials, S&P 500) or a market sector such as technology, healthcare or even the stock markets of foreign countries.
I love ETFs, and have used them extensively over the past few years in all my services. Why? Because compared to mutual funds, ETFs are less costly to own, much easier to trade, are transparent (i.e., you know exactly what you are buying) and are objectively managed, meaning you don't have to rely on the "skill" of a mutual fund manager. I say "skill" because it is a sad fact that most mutual fund managers fail to beat their benchmarks indexes, and they deliver this underperformance at great cost to their shareholders. ETFs give you all of the benefits of mutual fund ownership without the downside of high costs, poor management and restrictive holding periods.
In a few days I will be speaking at The Annual World Money Show in Orlando, FL. At this show I will discuss strategies on how to build your own mutual fund using ETFs. I will demonstrate how ETFs can get you positioned to take advantage of the hottest market segments, without the risk associated with owning individual stocks. I will also show you how owning ETFs is much more cost and tax efficient than owning actively managed mutual funds.
Worried about a down market? You needn't be. Armed with ETFs and other unique investment tools, you can still profit when the market is heading south. In my upcoming Money Show seminar, I will tell you how to use unique bear-market funds, international funds and ETFs to construct your own personal bear-market portfolio. With so many tools now available to the individual investor, there is no reason why, with a little information and guidance, you can't take advantage of any market condition. If you are in or around the Florida area this weekend, please come by and tell me you read about this event in the Making Money Alert. I will be glad to chat with you personally about your financial situation, so come prepared with questions!
The World Money Show
Gaylord Palms Resort, Orlando, Florida
Thursday, February 1 through Saturday, February 4.
Doug Fabian will host two FREE discussions at the World Money Show in Orlando, Florida, Saturday, February 4.
8:00 a.m. - From Mutual Fund Mess to ETF Success
11:35 a.m. - Worry No More About a Down Stock Market
For more information on this event log on to http://www.moneyshow.com or call 800-970-4355, and ask about specially discounted room rates for World Money Show participants. Seating for Doug Fabian's presentations is limited and will be available on a first come first serve basis.
"Competition is an active, not a passive, noun. It implies the necessity of taking action to affect the conditions of the market in one's own favor."
--Alan Greenspan
Isn't it time we all took the necessary action to affect the conditions in our own lives, both financial and otherwise?