07/23/2008

The chart above of the Financials Select Sector SPDR (XLF) clearly shows the sharp rise in the sector just since last week. The rise in financials also has brought about a rise in the overall market, as witnessed by the chart below of the S&P 500 Index.

The question now for all to ponder is if this is a bottom for financials and for the general market?

In my opinion, the answer is no.

I still think we are in a bear market, and when you have a bear market you have the inevitable bear-market rally. These rallies usually are fast and furious, and they usually take place in the most beaten-up market sectors. Unfortunately, these rallies usually fizzle as fast as they foam up.

The prudent course of action here is to wait and see what transpires during the next several weeks before putting any money to work in this tricky bear market. The last thing you want to do is get fooled by a soon-to-fizzle flurry in financials.

ETF Talk: Sectors Suffer Along with the Market

Anyone who has invested in the stock market so far this year is probably feeling wounded from the losses. Investors following my Successful Investing advisory service have been guided to areas of relative safety, but still, our allocations haven't been immune to the ill effects of the overall market plunge.

Before I start reviewing performance numbers, remember to write me a note online if you have any questions about ETFs that you'd like me to answer in an upcoming ETF Talk feature. To do so, please click here. Year-to-date through July 22, the performance of our ETF-focused portfolio is -4.93%. If this doesn't sound good to you, consider the rest of the market's horrid results. You see, compared to the major market indices, our performance is stellar.

So far in 2008, the S&P 500 is down 13.03%! On a relative basis, we've beaten the S&P 500 by almost three times, or by nearly 300%. Our ETF-oriented portfolio, combined with strategic cash allocations, also outperformed by far the year-to-date collapse of the Dow, -12.53%, and the NASDAQ Composite, -13.13%.

The table below clearly shows the pain of deep losses in the major market averages so far this year. So, if you thought the problems in this market were relegated to just the major averages, you're wrong.

The reality is that all of the key market sectors are in the red so far through 2008. This shows just how widespread the decline has been. Consumer discretionary stocks, industrials, technology, and healthcare all are showing double-digit percentage losses for the year. Even the energy sector is down for the year, despite record-high oil prices, with the Energy Select Sector SPDR (XLE) dipping 3.50% through July 22. The worst-performing sector is financials, Financial Select Sector SPDR (XLF), with those stocks giving up 22.26% of their value through July 22 this year.

Clearly, this year is one in which the buy-and-hold investment strategy so common with most advisory services is proving to be disastrous. What I find even worse is that some advisors are telling their clients to add more and more to their portfolios. Many of these advisors have bought stocks in anticipation of a rally somewhere down the road.

Unfortunately, many investors are down so much in 2008 that even a sharp rise in stocks from here won't begin to make a dent in their severe market losses. At this point, I want to go on record saying that I think we are due for a sharp snapback rally sometime during the next couple of months -- or even the next couple of weeks. Equity markets just don't go straight down. And given the immense decline we've witnessed since May, I expect to see buyers step back into this market and -- at least temporarily -- create a little buying fever.

But the overall trend remains downward, with the S&P 500 (SPX) and the EAFE Index (EFA) both plunging well below their 50- and 200-day moving averages. Both the S&P 500 and the EAFE Index -- a key measure of the international markets -- are trading at multi-year lows. This year's performance contrasts with research that shows if you bought and held the stocks in the S&P 500 from January 1, 1990, to December 31, 2007, you would have achieved an annualized return of 10.85% for those 17 years. And while the latter performance indicator is true, it suggests falsely that the buy-and-hold strategy is the soundest way to invest right now. The challenge is to know when to go back into the market and when to direct your money into the safety of cash.

Now if you are already acquainted with my Successful Investing service, you know that we have a proven plan to put you in the market when stocks are trending higher, and to take you out of the market when stocks are in decline. The plan has been tried and tested during the past three decades, and it has kept investors away from the most pernicious drops during that time period. Our plan also has put us into stocks during many of the market's biggest bull runs.

I like to use ETFs for investing in equities, but caution needs to be exercised when the overall trend for the market and key sectors is downward. When you let the "moving averages"of the market and key sectors determine your investing decisions, you go from having no plan about when to buy and sell to having a proven strategy that's served investors well for more than three decades.

To find out more about Successful Investing, click here.

A Drum in Decline

Oil prices have headed substantially lower during the past week, and once again today, oil prices fell hard. The cost of a barrel of crude sank immediately following a government report showing gasoline supplies rose far more than expected.

The Energy Department's Energy Information Administration reported that crude inventories fell by 1.6 million barrels in the week ended July 18, slightly less than most petroleum industry analysts had anticipated.

Maybe the more significant development was the 2.9 million barrel jump in gasoline stockpiles. Analysts had expected an increase of only half a million.

The government's report provided evidence that Americans finally are starting to cut back on fuel consumption. Demand for gasoline during the four weeks ended July 18 was 2.4% lower than the same period one year ago.

I think the powers that be would like to see oil and gasoline prices decline substantially before the November presidential election. If I was a conspiracy theorist, I might wager that oil and gasoline prices will be significantly lower by then.

But not being one who is prone to conspiratorial thinking, I'll just have to keep watching oil's machinations with an eye toward figuring out a way to make a buck off of the prevailing trend.

Stay tuned.

I Left My Heart in San Francisco 2

It's almost time for me to make my annual pilgrimage to one of the greatest cities on the planet -- gorgeous San Francisco, Calif., a place where hearts are lost and sweaters are a must even in the summer.

I will be in "The City,"as the locals call it (don't call it "Frisco"or the locals will spot you right off as a mere pathetic tourist), for The Money Show, which begins on Aug. 7 and runs through Aug. 10.

If you'd like to catch me this year, here is a quick look at my San Francisco Money Show speaking schedule.

Friday, Aug. 8, 8:00 a.m. - 8:45 a.m., "ETF Strategies in a Difficult Market”

Friday, Aug. 8, 2:30 p.m. - 6:30 p.m., "Structuring a Portfolio for Income and Safety”

Saturday, Aug. 9, 2:15 p.m. - 3:00 p.m., "Seven Rules of Success for ETF Investors”

This year's Money Show includes more than 50 world-class experts in more than 150 FREE workshops. And, this year's show will be held at the newly remodeled San Francisco Marriott, which I must say looks fantastic.

To attend the show, just call 800.970.4355 and mention priority code #009612 or visit The Money Show San Francisco's Web site to register FREE today!

Shaking the Lemon Tree

My latest quarterly Lemon List, a list of the worst performing mutual funds, now is available online.

And believe me; you don't have to look very hard to find some very big, widely held mutual funds that have found their way onto the Lemon List in what was a very bad quarter for equities.

One of those widely held funds is the Fidelity Growth and Income Fund (FGRIX). This large-cap core equity fund has assets of more than $15 billion, and an expense ratio of 0.68%. In Q2, the fund lost a whopping 10.1%. During the past 52 weeks FGRIX lost 24.08%.

Assess this lemon fund with a comparable ETF such as the SPDR S&P 500 (SPY). The SPY ETF has $78 billion in assets, and an expense ratio of just 0.08%. In Q2, the fund lost 7.03%. Not great, but much better than FGRIX. During the past 52 weeks, SPY fell 15.6%.

As you can see, you would have been much better off investing in SPY than investing in FGRIX, and it would have cost you a lot less money. Of course, in hindsight you would have been much better off with a 100% cash position during that same time period.

To get the complete Lemon List, absolutely FREE, simply go here.

If you find your mutual funds are underperforming their category average, you might need to do a little shaking of your own lemon tree. Of course, the first step is knowing what lemon funds you own, and that's where my Lemon List can help.

Guaranteed Monthly Income For Life? You Betcha! 5

On Saturday, July 12, I held the latest installment of my retirement income conference call. Big thanks to all of you who called in with your great questions, and big apologies to those who couldn't listen live because the event had reached capacity.

Now, if you are one of those who couldn't get through, or if you weren't available to join the call that day, don't fret. You can hear a FREE replay of the call right now, by clicking here.

In this call, I discuss the many tools and vehicles you can use to produce a monthly income stream, and I show you how some products can offer you a 5% to 6% GUARANTEED return without losing control of your investments. These products are outstanding for taking a portion of your IRA or 401(k) and creating an income stream of $1,000, $2,000 or even $3,000 per month.

If you have an existing annuity and want to generate guaranteed income WITHOUT annuitizing your assets, then please listen to the replay of this informative discussion.
Remember, your assets will need to last you 20-30 years. You will need to create an income plan that will last as long as you do. We can help.

"For in reason, all government without the consent of the governed is the very definition of slavery."

—Jonathan Swift

The great author of the satirical masterpiece "Gulliver's Travels"-- set in the fictional world of Brobdingnag -- reminds us that consent and government must be inextricably linked lest citizens become mere slaves. When managing your money, make sure your advisors have your consent and approval before taking any action. Otherwise, your money might just become enslaved.