Making Money Alert
The Best Obama Investment
01/21/2009
The market didn't hand President Obama a very good inaugural trading day. While the nation celebrated the peaceful transition of power on Tuesday, the power brokers on Wall Street sent stocks into a downward spiral.
The S&P 500 is now trading just above the 800 level, and that's more than 100 points below where it was at the beginning of the year. Let's take a quick look at a chart of the S&P 500, as the picture tells the tale of woe much better than mere words.
As you can see, we now are trading well below both the 50-day (blue line) and 200-day (red line) moving averages. In fact, the recent plunge in stocks could pull us down to a retesting of the November lows.
So, what's causing this market to decline so much? Well, the short answer is the turmoil in the financial sector. On Tuesday, financial stocks plunged, as evidenced by the new lows made in the Financials Select Sector SPDR (XLF).
The chart above shows the severe pain inflicted on the sector. I think this is perhaps the worst decline I've seen in a major sector in my three-plus decades as a market observer. If we see more pain on this front, I really fear the worst.
So, what is the best way to invest as we enter the Obama era? I think the answer is to have a very high cash position.
A high cash position ensures that you will be protected from any further declines in the market. More importantly, a high cash position enables you to get back into stocks when the market turns.
Right now, that market turn might seem a distant proposition, but the winds of change often blow in fast and furiously. But to take advantage of that change when it comes, you have to be ready and waiting on the sidelines with a high cash position.
I know that after some years of always wanting to be invested in the market, it can be hard to just wait things out on the sidelines. But if there's one thing I can assure you, it is this -- when it comes to investing, sometimes patience is the greatest virtue.
My advice to all of you is to exercise control and discipline, and not to rush into any investment foolishly. Remember that the beauty of a high cash position is that it puts time on your side -- as long as you exercise the virtue of patience.
ETF Talk: Why I Love Exchange-Traded Funds 2
Subscribers to my investment newsletters and trading services know about my passion for exchange-traded funds (ETFs). During the past several months, I have provided you with features relevant to investors who are looking to improve their portfolios with a variety of funds that are both diversified and cost efficient. Now, I want to get back to the basics of ETF investing with today's write-up, "Why I love Exchange-Traded Funds."
Before I get started, if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature, please click here. Today's ETF Talk feature was inspired by a presentation I made last May at the 20th Annual Money Show in Las Vegas. This presentation, which I titled, ETF Strategies in a Difficult Market, highlighted why I love ETFs.
One of the top reasons I love ETFs is their modest cost. ETFs offer low expense ratios, and annual expenses typically are deducted from dividends. ETFs also produce fewer capital gains and are more tax efficient than mutual funds.
In addition, ETFs offer diversification that reduces risk. The funds typically track indexes that are made up of a basket of stocks. Investors can find ETFs that cover every major index, asset class, and sector. Whether you favor commodities, healthcare, technology or real estate, there is a diversified ETF available to you.
ETFs also are transparent, since they are required to disclose their exact holdings and the percentage of each asset that a fund owns. Because ETFs are traded on exchanges just like stocks, the funds provide liquidity to investors who want to buy and sell them in the open market. But remember to be sure a fund's trading volumes are adequate to provide liquidity. While not a strict rule of mine, I generally do not recommend ETFs that have an average volume of less than 100,000 shares a day.
Finally, I love the simplicity and variety of ETFs. You usually can find a bull market someplace, no matter what markets elsewhere are doing. The challenge is choosing the sector or the region that investors will begin to favor next.
In my advisory services, I analyze the moving averages of sectors and different stock markets to help determine the best places to invest. It is a system that has served three generations of the Fabian family well. Once you combine our trend-following approach with the instant diversification offered by ETFs, you gain the dual benefits of a proven strategy and one of the most attractive investment instruments to be introduced in years.
20 Questions to Ask Your Advisor 4
I recently came across a statistic published by the SEC's Office of Investor Education, which stated that more than 50% of investors seek the advice of some type of advisor when making financial decisions.
But the problem here, as I see it, is that most investors really don't know the right questions to ask their advisors. How do you know that your interests are being served by your advisor? How do you know if your goals comport with the kind of investments your advisor recommends? The only way to know is to ask the right questions.
Unfortunately, it's just a fact that most investors aren't as financially literate as they need to be, and this is a situation I won't stand for any longer.
To help you better understand your financial relationships, I have compiled my list of 20 questions to ask your advisor. A complete list of questions can be found by clicking here.
If you find your advisor unable or unwilling to give you satisfactory answers to any of these questions, you may want to rethink your relationship.
Could Munis be the Next Bull Market? 2
As the economy slows, one reasonably safe sector that you may want to consider is municipal "muni" bonds. Muni bonds are issued by cities, states and other local governments to raise money for all kinds of public sector construction initiatives, such as schools, roads and bridges.
The competitive yields now offered by muni bonds make them extremely attractive to investors. Since the interest yielded on these bonds is usually exempt from federal taxes -- and maybe even state and local taxes if the investor is a resident of the state or city that issues the bonds -- you have an investment offering a one-two punch of solid yields and excellent tax savings.
To find out more about the muni bond landscape, I called in one of the country's foremost experts on the subject, SNW Asset Management portfolio manager Anthony Baruffi.
If you'd like to find out more about the current state of the muni bond market, as well as the outlook for the sector in 2009, then you need to listen to my interview with Anthony.
To listen now, click here.
ETF Report 2008 -- The Final Results Aren’t Pretty
As you might expect, the final performance results for most ETFs in 2008 wasn't very pretty. In fact, it was downright coyote ugly!
Interestingly, despite the tremendous bear market in 2008, the number of new ETFs that came to market during the year was remarkable. There were 764 total ETF offerings by year's end, which is 154 ETFs more than there were at the end of 2007.
Notable new trends in the ETF landscape include new triple-levered funds, new currency oriented funds, and new international market funds.
I know it might not be a comfortable task, but if you want to remind yourself of how bad things were in 2008, then take a peek at the year-end ETF Report by clicking here
Why You Should Read the Alert Every Week 3
During one of the holiday parties I attended recently, I had a man ask me a curious question. He asked me why it was so important to read the Alert every week. I never really thought about this before, but when forced to answer I came up with what I think was a great set of responses.
This man must have thought they were good responses too, as he promptly gave me his e-mail address and asked me to add him to the list of Alert subscribers. Here are a few of my off-the-cuff reasons why he -- and you -- should read the Alert every week.
- Our bear market call in 2008. Yes, we got it right, and we got it right early. Nearly a year ago, we told you that this market was getting ugly, and to make sure you had stop losses in place and a high cash position. I think the reality that followed vindicated this call beautifully.
- Ongoing ETF education. Each week, we give you invaluable information about what's happening with the hottest, and in my view, best investment tool in your arsenal, exchange-traded funds.
- Pinpointing dangerous sectors. There are a lot of minefields out there, and we've proven that we can keep you away from the most perilous. A case in point was our recommendation to steer clear of financial stocks early on in 2008.
- Empowering you with analysis. The purpose of the Alert is not only to educate, but to empower. By knowing about the market, and by applying rational analysis to a sometimes irrational business, you can put reason on your side. And reason, held firmly in her seat, empowers everyone.
I hope this clears up any issues regarding the why of this publication.
ETF Trader Ranked No. 4 in 20011
The Hulbert Financial Digest recently published its list of the Top 10 performing newsletters of 2008, and I am proud to report that my ETF Trader advisory service came in fourth overall!
Our total return of +13.2% bested nearly 200 other newsletters and trading services to capture the number four spot on the prestigious list. In terms of dedicated ETF services, ours topped the list. To read the MarketWatch article, click here.
I must admit that this is an enormous source of pride for team and me. In a year when the S&P 500 was down nearly 40%, and in one of the toughest market environments in history, double-digit percentage returns are almost unheard of. Yet that's what we managed to accomplish with a little sound judgment, some tight stop losses, and some great timing.
In this oh-so-difficult year, it's nice to be recognized for thinking unconventionally, and for some solid money-making moves.
If you'd like to find out how to make money using my ETF Trader advisory service, simply click here.
Visionary Wisdom
"If we have learned one thing from the history of invention and discovery, it is that, in the long run -- and often in the short one -- the most daring prophecies seem laughably conservative."
--Arthur C. Clarke
The great science fiction writer nailed it with this prescient observation. Think about it, just two decades ago it was hard to imagine the ubiquity of everyday things like computers and cellular phones. My point here is that as long as people are free to innovate, there will be great achievements. Those great achievements will cause great opportunity for investors -- provided you have the foresight to look around and recognize them.