Making Money Alert
Of Large Caps and Small Caps
11/11/2009
This market once again has proven that it's in full bull mode, with the Dow Jones Industrial Average hitting yet another 52-week high. To say that this has been an impressive run higher since we hit the March lows would be the understatement of the year. A better way to describe this market recovery is just downright amazing. Now, however, we are faced with the task of trying to determine what's next.
If we look at the chart below of the Dow, we can see that it's trading firmly above its short-term, 50-day moving average (blue line), as well as its long-term, 200-day moving average (red line).
The fact that the Dow bounced off of its 50-day moving average in early October, and then again in early November, tells me there is a really big appetite for large-cap stocks anytime the market even hints at pulling back. In this kind of market environment, you want to be long on large-cap stocks.
One area of this market that's been a little less resilient of late is small-cap stocks. As you can see by the chart below of the iShares Russell 2000 (IWM), a fund that represents the small-cap segment of the market, these stocks have yet to break above their 50-day average.
In fact, small caps haven't yet climbed back to their October high. I think we need to see this segment of the market confirm the large-cap segment's breakout before you put any money to work in smaller stocks.
I do think there is opportunity here, especially as the market prepares for what I think could be a strong year-end rally. However, when it comes to small caps, they are usually much more volatile than large caps, and that means if you are going to venture into small-cap waters, be sure you protect yourself with strict stop losses.
Defining Today's Biggest Risk
By John Doan, president, Miracle Mortgage
The stock market falls. The stock market rises. But real estate values continue to plummet and governments at every level continue amassing unsustainable amounts of debt. Meanwhile, consumers are scared and foreign governments shutter over the absurdly low value of the U.S. dollar. And yet, these are not the biggest risks confronting most of us today.
To truly locate the risk that presents the greatest peril for most of us, all you need to do is simply look within.
The fact is we cannot control whether a stock will rise or fall in a given day, or if our home or investment property will increase in value. But what we do have complete control over is what we choose to do about it. And remember, doing nothing is itself a choice.
Many of us were very comfortable with our holdings in the summer of 2008, but by Christmas we were all wondering if there would be any assets left to worry about. Ask yourself this, did you do all you could to protect yourself and fully assess your situation?
What happened to your assets and what kind of shape are they in today? What more could you have done? Always remember that advisors, consultants and other intermediaries work for you. You make the final decision, and that means it's your responsibility to do so on your own behalf.
If you made some big mistakes in the past, I urge you not to make those same mistakes again.
You may not be aware that one in 10 mortgages will have their rates adjust over the next two years. With rates near historic lows, there is nowhere to go but up, and when they go up, they may go up at an alarmingly fast pace.
Understand that mortgage rates are not driven by the short-term, government-controlled "prime rate," but rather by longer-term, market-driven rates that typically closely correlate with Treasury bond yields.
As an example of how fast these rates can climb, take a look at the chart below.
You can see what happened to Treasury yields between December 2008 and June 2009. Rates nearly doubled in less than six months, and market conditions suggest these rates can rise at a very rapid pace, and at virtually any time.
If you have any risk at all of a rate change in your mortgage at any time during the life of your loan, then you need to make sure you've dealt with this potentially big risk.
At Miracle Lending, we can give you a free assessment of your current mortgage, and we can review what options may be available to you. Remember, the risk of rising rates or declining home prices is not the main issue facing mortgage holders today. Rather, it's the risk of inaction in the face of these circumstances that could carry severe long-term consequences. The good news, however, is mitigating this risk is something you can control, and your first step in doing so is to contact Miracle Lending today.
If you'd like more information on how you can get your free mortgage assessment, go to mymiraclelending.com, or call us at 888.536.3453. You also can email me at directly by clicking here.
ETF Talk: 'Pure Play' Funds Target Texas and Oklahoma
The term "pure play" commonly is used to describe investing in an individual sector or a region. Two new funds, rolled out in the past couple of weeks, give investors a chance to target the energy-rich states of Texas and Oklahoma, respectively.
The new funds simplify such targeted investing. The Oklahoma fund (OOK) took flight on Oct. 29, just two days before Halloween, while the Texas fund (TXF) launched last Wednesday, Nov. 4.
Each fund is about two-thirds concentrated in the energy sector, with banking and other industries comprising the other third. Both states also feature lower unemployment and faster growth than the broader U.S. economy. As a result, the public companies in each state have outperformed the S&P 500 going back to 2000, said Gary Pinkston, chief operating officer of Geary Advisors, of Oklahoma City, Okla., which launched and manages the funds.
Since the ETFs opened for initial trading within the past two weeks, neither has had much of a chance to build the kind of volume that I like to see before I consider recommending a fund. Daily trading volume is "low" so far for each fund, said Oklahoma native Pinkston. He also acknowledged that the fund's expense of roughly 85 basis points is a bit high for an ETF.
Clearly, you really would need to love the outlook for the energy sector and the economies of either Texas or Oklahoma to buy one of these funds. However, I would not be surprised if both funds find a niche market of investors from Texas and Oklahoma who like the idea of investing in the public companies of each state.
The genesis of the funds occurred when a grandfather expressed an interest in buying a number of Oklahoma stocks for his grandchildren, without the hassle of needing to individually purchase shares in each company. The investment firm's leaders followed up by creating an ETF just for Oklahoma stocks to simplify the process. The same thinking was behind the investment firm's creation of an ETF for Texas stocks.
Each fund tracks an index of Oklahoma and Texas stocks. The Texas fund specifically focuses on the state's largest companies. In the future, mid-sized companies and small companies in Texas could be featured in new funds that might be introduced, Pinkston said.
Two years ago, the firm offered a pre-Christmas promotion that waived commissions if people bought shares of Oklahoma companies as gifts. Many customers bought shares for their children and grandchildren. Instead of buying a gift for just one season, the investment firm pitched the idea to its customers of purchasing something that might appreciate in value and last a long time. I certainly agree with that line of thinking. The firm also prints a certificate that a gift giver can present to the recipient.
Keep in mind that the economies of many states in America are as big as smaller countries. Oklahoma's economy is just about the size of Hungary's. No one company can dominate either fund because there is a concentration limit of 7.5% for any one stock in the Oklahoma fund, and a 5% limit for any position in the Texas fund.
College football fans may think of Texas and Oklahoma as fierce rivals for the Big Eight and national titles each season. Both universities play an annual football game every fall in Dallas that provides a neutral site halfway between the two schools and draws the devoted fans of each. Geary Advisors is looking to tap some of that in-state loyalty to build up an investment base for both funds.
If you want my advice about which ETFs to buy and sell, check out my ETF Trader service by clicking here. Remember, I am happy to answer your questions about ETFs. To send me a question, simply click here. You may just see your question covered in a future ETF Talk.
The Obama Impact on Your Money -- Part III
Last Saturday, I conducted my third installment of the five-part series titled, The Obama Impact on Your Money. In my presentation, I share three simple strategies you can use to grow and protect your wealth using exchange-traded funds. The world of ETFs keeps getting better and better. We now can invest in almost any asset class, currency or country in the world with just a few clicks of a mouse. But in order to use ETFs properly, you have to learn a few key concepts.
Here are three important concepts you'll learn in this audio presentation:
- How to get defensive with your stocks and mutual funds
- How to prepare for rising interest rates and how to profit from them
- Which commodity ETF deserves your attention right now
During the past several months, I have been sharing my views on how to manage your portfolio in these unprecedented economic times via this teleconference series . If you missed our recent "live" call, or if you haven't yet had a chance to listen to this FREE presentation, then you're in luck.
To listen to all three installments of The Obama Impact on Your Money series, simply click here.
I guarantee you'll come away with a solid grasp of how ETFs can play an integral role in your future financial success.
I Think, Therefore I Win
While the enemy sleeps,
I lay awake
While he licks his wounds,
I taste his scars
As he waits for me to strike,
I define my attack
I will out think my enemy,
Therefore I will win
--Jim Woods, "I Think, Therefore I Win"
This provocative poem is just one of many in the soon-to-be published collection by my friend and financial journalist Jim Woods. But I warn you, this isn't your usual flowery poetry read, as the title of this work -- Balls, Nuts, & Stones -- Poems to prevail in a difficult world -- suggests. If you want to read some gritty verse that will touch your mind, body and soul in the most aggressive, yet tender ways, then you'll want to read this work.
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.
Sincerely,
Doug Fabian