Making Money Alert
The Dollar Kerfuffle
10/07/2009
The big buzz in the market this week was the rumored demise of the U.S. dollar. The dollar dipped sharply in Tuesday's trade on chatter that oil prices may be pegged to the euro rather than the greenback. According to my sources, this rumor wasn't just a rumor. There was, in fact, a grain of truth to the theory that some in the international banking community would like to see the dollar take a backseat to another world currency.
I suspect that the lack of confidence in the dollar has a lot to do with the lack of confidence the world has in our current political leadership. In fact, it doesn't surprise me at all that since the new presidential administration embarked on its stimulus spending path, the value of the U.S. dollar has taken a virtual nosedive.
The evidence is right here in the above chart of the US Dollar Index, a measure of the value of the greenback versus rival foreign currencies. As you can see, the dollar is well below both its long-term, 200-day moving average (red line) as well as the short-term, 50-day moving average (blue line).
But despite the greenback's recent woes, I still think the future looks bright for the dollar. When we step back and look at the currency situation from a wider perspective, I think we see that despite the ugly headlines and rumors, the dollar still is the go-to currency when it comes to safety, liquidity and sheer volume.
The bottom line here is that despite the recent woes in the greenback, and despite all of its naysayers, when push comes to shove, the dollar still is the currency that you want to have in times of crisis. So, my advice is to hold off on writing the buck's obituary just yet.
Are You High?
During the past several weeks, we've been keeping a watchful eye on three specific charts. Those charts are the S&P 500 Index, China and crude oil. For the past couple of weeks, the S&P 500 managed to move into new 52-week high territory. Yet, right after hitting that high, the market sold off.
China also hit a new 52-week high a couple of weeks back, but since then the iShares FTSE/Xinhua China 25 (FXI) also has come well off of its highs.
In the case of crude oil, here we see that despite a nice run higher off of the July lows, oil prices are nowhere near their 52-week high.
So, what does this all mean? Well, I think it means that we finally could be seeing a chink in this rally's armor. The evidence of profit taking is indisputable and, if this selling trend continues, it could mean a wider sell-off heading our way.
My advice here is to make sure that you have stop losses on all of your invested positions to ensure that you don't lose out on the gains you've made in 2009. If you still are waiting on the sidelines for a pullback, then you may want to wait a little longer before taking the plunge. I suspect this market will sort itself out during the next couple of weeks. But whichever way things go, you owe it to your wealth to be prepared.
ETF Talk: Watching the Dip in Biotech
An open question is what effect President Obama's health-care plan will have on biotechnology companies. There are no guarantees that provisions of the proposal that aim to increase research funding and the number of people covered by insurance will be approved. Nor is it assured that biotechnology companies will see their sales and profits rise from such legislation. That uncertainty not only raises the risk of investing in the biotechnology sector, but it also brings about potential rewards.
As doubts have arisen in recent weeks about whether much of the Obama plan will become law, the biotechnology sector has pulled back. But the sector also could rally once the ultimate fate of the Obama health plan comes into view. The president certainly is putting his political capital on the line to pass some form of the plan. However, what ultimately happens also will hinge on Congress and the influence of voters, including the significant number of them who have attended town hall meetings across the country to voice their concerns.
If you are willing to be a little patient, the biotechnology sector's outlook could sharpen in the coming weeks and months. For those of you who are interested in biotechnology investments, here are two exchange-traded funds (ETFs) that you may want to check out.
One of them is iShares NASDAQ Biotechnology (IBB), a fund that seeks investment results that correspond to the price and yield performance, before fees and expenses, of companies that are represented by the NASDAQ Biotechnology Index. This is a well-established fund that was launched in February 2001, has amassed net assets of $1.60 billion and favors medical-biomedical and gene companies with 63.17% of its investments. Its expense ratio is 0.48%, much less than your typical mutual fund.
A second ETF to watch is the SPDR S&P Biotech (XBI), a fund that attempts to closely match, before fees and expenses, the returns and characteristics of the S&P Biotechnology Select Index. That index tracks all of the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The fund started in January 2006, so it is newer than IBB, but it already has more than $400 million in net assets. It's top five holdings include Amgen, Gilead Sciences, Celgene, Vertex Pharmaceuticals and Alexion Pharmaceuticals. Its expense ratio is 0.35%, a bit lower than IBB and significantly less than typical mutual funds.
As the preceding chart shows, XBI has shown weakness in recent weeks, as has IBB. The pullback in the share-price of both ETFs presents investors looking to enter the sector with an opportunity to do so at a reduced price.
I am not recommending any biotechnology funds right now. However, they may be worth watching to see when they bottom out -- and when they could potentially begin rising again.
As always, I am happy to answer your questions about ETFs. To send me your queries, please click here. You may see your question answered in a future ETF Talk.
Get Your Q3 Intelligence Report Now
As regular readers of the Alert know, I am a huge fan of exchange-traded funds (ETFs). An ETF is like a virtual basket of stocks that usually tracks a specific index or sector. To put it another way, ETFs are like a homologous species of mutual funds that allow investors to buy into a specific area of the market without all of the hassles, management fees and trading restrictions imposed by traditional mutual funds. You could say that ETFs are a kind of mutual fund without any of the downsides.
Mark Your Calendars
In my line of work, I often get emails that are very gratifying. This month, I thought I'd share one such email with you that you also can be a part of. Here's the text straight from my inbox.
Dear Mr. Fabian:
Thank you so much for making 2009 another very successful year for The MoneyShows.
We truly appreciate your continued support and dedication to educating investors. Therefore, we would like to take this opportunity to invite you to the 2010 MoneyShows.
Below are the dates of the 2010 MoneyShows that we would like to invite you to speak at next year.
As most of you know, we work on our programming four-six months in advance, so please let us know what shows you'd like to do in 2010 at your earliest convenience.
We're looking forward to another year of working together again.
Sincerely,
The MoneyShow Staff
First, let me say that I am honored to be invited back for all three MoneyShows next year, and I have accepted the company's gracious invitation to attend all three. So, if you are going to be in or near any of the above locations at any of the respective dates, I cordially invite you to join me. These shows are always a great time, and I guarantee you'll learn a lot.
So, mark these dates on your 2010 calendar, and I hope to see you there.
A Comedic Revolution
"Listen, the next revolution is gonna be a revolution of ideas."
-- Bill Hicks, comedian and social commentator
The late, great Bill Hicks made his living by making people laugh, but what he said about revolution and ideas is no laughing matter. You see, revolutions -- or rapid change of any kind -- can only take place when ideas reach a critical mass. If the ideas in question are bad, then you get the Dark Ages and Soviet Russia. If the ideas are good, you get the Renaissance and America. So, take it from a comedic genius who's no longer with us --ideas matter, and ideas bring about revolution.
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.