Making Money Alert
Ready to Rock, but Prepared to Roll
07/22/2009
By any measure, this market is rockin'. Last week, we saw a 7% gain in the major averages, and this week, we've kept on adding to those gains. I must say that I am both pleased, and somewhat surprised, at the way stocks have been bid up of late.
I am pleased because the move higher in equities has contributed nicely to the positions in my Successful Investing, High Monthly Income and ETF Trader advisory services. But I also am surprised, because what's driving the market higher here has largely been the slew of better-than-expected earnings reports.
Why are higher earnings a surprise? Well, because even though the high-profile earnings reports we've seen have largely bested Wall Street's expectations, they've done so in a rather dubious and potentially unsustainable way. A large number of companies reporting better-than-expected earnings for the second quarter have done so largely by cutting cost, and not by an increase in revenue. That's a danger sign going forward, and it should be read as a mixed message by Wall Street.
But the mixed message being sent by earnings hasn't put a damper on the bullish mood. As we can see here by the following chart of the S&P 500 Index, the market has now broken above both the short-term, 50-day moving average (blue line), and the long-term, 200-day moving average (red line).
I think we could see a nice continuation of this rally based on the technical picture here, but because stocks have run up so far, so fast, you have to be very careful. Sure, you want to be in a position so your portfolio can continue rockin', but you also want to be prepared if the market decides to roll.
To make sure we don't lose any of the gains we've seen over the past several weeks, I've raised my stop losses on a number of equity holdings throughout all of my services. If you have significant positions in the equity market, and if you are currently sitting on some sizeable, unrealized gains, I recommend that you put stop losses on those positions now.
One of the worst feelings in the world is to have a nice, unrealized gain in your portfolio, and then to see it evaporate into the ether. Don't let that happen to you. Protect yourself against a market roll, but keep on letting that portfolio rock.
The Obama Impact on Your Money 2
The 44th president has been in office now for nearly six months, and so far his rather ambitious agenda has me very concerned. Regardless of which side of the political aisle you sit, there's no denying that the president's goals are increased government involvement in the economy. This increased involvement includes more stimulus spending, more deficit financing, more environmental regulation, more involvement in the health care industry, more financial market regulation and, of course, higher taxes -- particularly on the so-called "rich."If you're a Democrat, you may think that the Obama agenda is a good thing. If you're a Republican, you likely think the president is on the wrong track. But regardless of which side you come down on, there's no denying the fact that the president's plans will have a profound effect on the economy, the financial markets and your money. That's why it is up to you to manage your money accordingly.
Now, I must say up front that in my opinion, the policies and legislation being thrust upon us by the president and a sympathetic Congress are not conducive to the economy, and they will not fundamentally help right our economic ship.
In fact, it is my opinion that the unprecedented intrusion in economic affairs proposed by the president will likely do much more harm than good in the years ahead, and that is what you, the well-informed investor, must prepare for now.
Let me turn now to a few key statistics that should put a big fright into the fiscal centers of your gray matter.
- Our annual interest payment on the national debt is $26 billion per month, or $300 billion per year.
- Our deficit so far through the first seven months of 2009 is nearly $1 trillion.
- Projections on the president's budget place annual interest payments at $800 billion by 2019.
- State budgets are $500 billion out of balance this year.
- Government statistics show a national unemployment rate of 9.5%, and the general consensus is that double-digit employment is right around the corner.
Given these alarming statistics, one is forced to conclude five things about our future. First, taxes are going to go up. Second, credit is likely going to become very expensive and/or unavailable. Third, we are going to experience little or no economic growth, and in fact, we could see another serious recession starting as early as next year. Fourth, we could see another wave of falling stock and real estate prices, otherwise known as asset price deflation. And finally, we have the potential for a dollar crisis.
Now, each of these five prognostications are worrisome, but taken together, they add up to one ginormous problem for investors.
So, what now? What do can you do to protect yourself from the Obama impact on your money?
The answers to these questions can be found in my FREE audio special report, appropriately titled, The Obama Impact on Your Money. This one-hour audio presentation includes a complimentary work sheet to help you follow the key points presented.
I strongly encourage you to check this out this FREE audio special report today by clicking here.
ETF Talk: Commodities -- The Population Play
As investors, one of our responsibilities is to pay close attention to the key trends affecting the global economy. One of those trends is an increasing worldwide population.Actual population growth, as well as future projected population growth, will likely spur all kinds of changes, including an increased demand for nearly all commodities.
If we look at the following chart of world population growth, we see massive numbers of new global citizens on the way -- citizens that are going to require essentials such as food, clothing and shelter.
According to the U.S. Census Bureau, world population increased from 3 billion in 1959 to 6 billion by 1999, a doubling that occurred over 40 years. The Census Bureau's latest projections imply that population growth will continue into the 21st century, albeit at a slightly slower pace.
For investors who want to ride this population wave, I offer you the PowerShares DB Commodity Index (DBC), an exchange-traded fund (ETF) that seeks to track the performance of the Deutsche Bank Liquid Commodity index. The fund invests in a portfolio of exchange-traded futures on commodities comprising the index. The index commodities are crude oil, heating oil, aluminum, gold, corn and wheat.
With economies around the world struggling to recover from a global recession, commodity prices as represented by DBC have been kept well below their long-term, 200-day moving average, seen here in the following chart.
However, the protracted pullback in commodities likely will prove to be temporary, and that could mean a very nice buying opportunity in DBC.
DBC revolutionized the ETF market by providing a way to invest in commodities. The fund not only contains popular picks such as gold, but it also includes soft commodities, such as corn, and that makes it different than other commodity funds. DBC has an average trading volume of 2,441,990, well above my preferred minimum trading volume of 100,000 shares.
Here's a rundown of the top holdings in DBC, as of March 31, 2009.
Top Holdings
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Source: PowerShares
Because natural resources offer comparatively low correlation to other asset classes, they can outperform other investments, particularly when the stock market is lagging. An allocation to commodities also can help reduce the overall volatility of a portfolio. Of course, the commodity markets can be very volatile, so be sure you are ready for a roller-coaster ride if you decide to climb aboard the commodity wagon.
If you want specific advice about which ETFs to buy and sell, check out my ETF Trader service by clicking here . As always, I am happy to answer any of your questions about ETFs. To send me your questions, please click here . I will try to respond in a future ETF Talk.
The Manly Wisdom of H.L. Mencken
Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.
--H. L. Mencken
Sometimes you get really fired up about the conditions around you, as the great journalist so tellingly expressed. But rather than hoisting the black flag, the best revenge against injustice is to beat it with logic. Whatever challenges you face in life, the solution is to think your way through them and not to let up until you prevail. Anything less is just a waste of time.
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.