Making Money Alert
Pulling Back to Health
06/17/2009
This week, we saw the first signs of a pullback in the equity markets. Stocks fell hard on Monday, and again on Tuesday. Now, if you're a bull, you shouldn't be too worried about the latest pullback in stocks. I think this pullback is healthy, and it's certainly to be expected after the huge and near-uninterrupted surge we've seen since early March.
In the chart below of the S&P 500, we can see that stocks have fallen back to their long-term, 200-day moving average (red line).
From a technical perspective, I think the real line in the sand for the S&P 500 is right around 850. If the market continues pulling back to this level, we could be in for a sustained downtrend. If, however, stocks consolidate here at the 900 level, then we could be setting the stage for higher highs in the months ahead.
Despite the sell-off early this week, I don't think we've seen the last of the buying out there, and that means more gains are likely just around the corner.
What is an ETF?
I am constantly being bombarded with questions about exchange-traded funds (ETFs). Basic inquiries such as just what ETFs are, how they work and how they can be used in an investment portfolio are some of the most common I deal with each week.
Because I want to be sure that you know all of the basics about these fabulous investment vehicles, I've decided to do a short video presentation explaining exactly how ETFs work, their history, and how they can be a huge benefit to your portfolio.
I believe that ETFs are the greatest, wealth-building tools for your portfolio because of their diversity, low cost and transparency, and you owe it to yourself to make sure you know just how great ETFs can be.
To find out more about ETFs, and to watch my presentation, click here.
The Mike Huckabee Interview
It's not often that you get to interview a former governor, former presidential candidate and radio and TV talk show host all at the same time, but that's just what I had the privilege of doing recently when I interviewed Mike Huckabee for my radio show.
Gov. Huckabee is a very gracious gentleman, who is also an extremely well informed, quite well spoken and, I must say, a very entertaining guest.
In our interview, we discussed such topics as the mounting U.S. debt and what it means for the economy going forward. We also discussed the current national zeitgeist toward bigger and more invasive government, and what if anything can be done about it. Of particular interest to California residents will be Huckabee's insights on the state's budget mess and more importantly, how we can get fix the current fiscal fiasco.
I highly recommend that you spend a little of your free time and listen to my interview with Mike Huckabee. Afterward, I think you'll agree it was time well spent.
To listen, click here.
A Win for Los Angeles, and Not Just on the Basketball Court
By Jim Woods
Some people love sports, and some people love politics. I happen to love both, although my sports predilections lean toward those involving internal combustion engines rather than inflated balls. As a long-time resident of Southern California, I almost can't help but be a Lakers' fan -- especially when the team captures its 15th NBA Championship.
Yes, Lakers fans have good reason to celebrate the team's achievement, but even if you hate basketball, there's another reason to celebrate. That reason is the way the city has handled the financing of the Lakers' celebratory parade.
Traditionally, a hometown sports team's victory comes complete with a parade through downtown city streets. But in a city as big as Los Angeles, that celebration comes complete with a hefty price tag. Some estimates pegged the cost of today's parade at just shy of the $2 million mark. For a city that's running a severe budget deficit, the shelling out of $2 million to celebrate a basketball team's victory was widely viewed as an obscene expenditure.
Fortunately for the Los Angeles taxpayers, the victory party won't cost them a dime.
Thanks to the combined efforts of the Lakers organization and an array of well-heeled private donors, the money to pay for the additional police, fire and city street services required to make the parade a reality will be completely funded by the private sector, and not via public coffers.
I think this is a fantastic example of how the private sector can, and should, pay for services that it wants and/or needs. If those involved want to put on a parade, then those who want it most should voluntarily donate the funds to make it possible.
As a Los Angeles County taxpayer, I would have found it an outrage to be forced to pay for a Lakers' celebration. As a free-market, small "l" libertarian, I don't think the government should be paying for anything other than the police and the courts.
But even if you don't agree with my laissez-faire ideals, I think conservative, libertarian and liberal alike would probably agree that paying for a basketball team's party doesn't rank very high in the hierarchy of government responsibilities. I also think most would agree that paying $2 million to hold a parade isn't the best use of taxpayer dollars.
It is my hope that Los Angeles taxpayers, and taxpayers around the country, take this situation and extrapolate an important lesson from it. That lesson is that if citizens want something badly enough, there will always be those willing to fund it of their own freewill.
There is no need for coercive taxation, even if that taxation is slated for revelry.
Jim Woods is a freelance journalist specializing in the economy, the markets and politics. He is a frequent contributor to Doug Fabian's Alert, as well as many other publications. He welcomes your comments, and can be contacted by clicking here.
On Optimism and Realism
If you're like me, you're probably feeling pretty good about the strength we've seen in stocks during the past couple of months. After such a dismal fall and winter, the equity spring has proven to be a sight for some very sore, bearish eyes.
Now, before we get too overjoyed about the market, we must always keep in mind that strong rallies -- be they bear market rallies or new bull markets -- are often replete with so-called "fits and starts." These are occasions where stock prices re-test their lows before moving higher. The latest rally, which began March 9, is certainly one of those starts. But now the concern is whether the market will go back to throwing a fit.
It's just a fact that markets tend to fake investors out sometimes, and this can cause the uncomfortable "whipsaw," which forces you into, and quickly out of, the market before you see any real gains. Unfortunately, this has happened to me in the past. While I always have sell rules in place to make sure I don't take any significant losses, the possibility of a whipsaw is a reality that I must acknowledge.
In addition to market flux, the other area of concern that I have comes from exogenous sources. I am still very worried about conditions in the economy, on the political front and in battered sectors like housing, banking and automobiles.
Perhaps worst of all is the country's still very serious employment problem. President Obama recently speculated that the nation's unemployment rate could climb to 10%. That's a scary figure, and the repercussions of approximately half a million job losses per month could be a real chink in this recovery's armor.
Now, speaking of the president, another big concern I have is what political economist Robert Higgs calls, "Regime Uncertainty." Higgs' theory, originally proffered in 1997, advanced the idea that investment inactivity could be attributed to reasonable fear on the part of investors that government meddling will distort capital and equity markets. Well, we've certainly seen plenty of government meddling in the economy since President Obama took office.
I suspect that even if you think the president is on the right track, you would be hard-pressed to disagree with the fact that the hand of government has become a massive factor in the capital, equity and real estate markets -- and by extension, nearly every corner of the economy.
Finally, I want to make sure you understand that even with these concerns, I am optimistic about the future of both the markets and the economy. Having said this, I also am very realistic about the potential hazards to be found on the road ahead. Yes, it could be a bumpy ride forward, but with the help of expert navigation, we all can reach our investing goals.
It's Just a Theory -- Yeah, Right
"I am afraid that the experiments you quote, Mr. Pasteur, will turn against you. The world into which you wish to take us is really too fantastic."
--La Presse, 1860
The great scientist Louis Pasteur was often vilified in public for his challenging theories, but rather than give up and succumb to ignorant opinions, Pasteur was determined to defend what he thought was true. Through irrefutable and meticulous experimentation, Pasteur was able to prove his theories on the microbial cause of disease. In my opinion, this is the kind of courage, persistence and intellectual honesty the world needs to solve all sorts of problems, not the least of which are economic.
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 that you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.