Making Money Alert
The Little Index That Could
12/16/2009
We’ve been dancing around the 1,100 mark on the S&P 500 for about the past five weeks, but every time we get a little too far above this level, stocks seem to bleed back toward the 1,100 support line.
As the year comes to an end, it will be interesting to see if “the little index that could” manages to push past its current trading range, or if it falls back toward its short-term moving average.
We didn’t get much clarity from the Federal Reserve as to which way the index will go, as the Federal Open Market Committee announced today that it was holding interest rates at its current record-low levels.
In the Fed’s all-important statement accompanying the decision, the Committee pledged to keep rates at current levels for an “extended period” in an effort to keep the economic recovery going.
This news was pretty much what Wall Street expected, and that leaves the direction of stocks over the short term a completely open question.
Come on up for the Rising
Come on up for the rising
Come on up, lay your hands in mine…
--Bruce Springsteen, “The Rising”
I’ve been writing a lot lately about the prospect of rising interest rates (i.e., falling bond prices and rising bond yields) in my investment advisory services. The reason why is because rising interest rates will affect so many market sectors. Rate-sensitive sectors such as financials, REITs, preferred stocks, bonds, gold, the U.S. dollar and foreign equities all could be hurt by a wave of rising rates.
If we look at the charts below of the 30-Year T-Bond Yield ($TYX), and the iShares Barclays 20+ Year T-Bond (TLT), we can see the recent trend is rising bond yields and falling bond prices.
And while the short-term trend speaks to rising interest rates, we have yet to see any severe damage to the value of long-term bonds. Still, we have seen interest rates rise from 3.95% to 4.50% on the 30-year T-bond. That move represents more than a 10% rise since October. If we break above 4.60%, we could start seeing a real change in the character of interest-rate sensitive investments.
This is definitely a trend I’m watching as we head into 2010, and it’s a trend I’m already profiting from in my Successful Investing, High Monthly Income and ETF Trader advisory services.
ETF Talk: Betting on the Buck
The U.S. dollar had been getting hammered for much of the past year, but recent debt problems in Europe are giving the greenback a lift. Fortunately, there are exchange-traded funds (ETFs) that you can buy to help you profit from the rising dollar.
It remains to be seen whether the recent upward move in the greenback will be short-lived or the start of a long-term trend. However, currency swings do have a tendency to be sustained longer than most might expect. The latest example is the big drop in the value of the U.S. dollar earlier this year. In my view, this plunge exceeded what reasonably was warranted.
If the dollar continues to rebound, the greenback’s resurgence could offer a nice chance to profit. One of the funds that I have on my radar screen for investing in the dollar is the PowerShares DB US Dollar Index Bullish (UUP). As the following chart shows, UUP is starting to recover after taking a beating for most of 2009.
Keep in mind that the greenback often is considered a safe-haven currency. When markets are jittery and governments are in danger of defaulting on their debt obligations, the dollar generally rises. A key reason is that investors seek the protection of a currency that is backed by the full faith and credit of the U.S. government. Yes, Uncle Sam still conjures up images of strength when the rest of the world seems to be falling apart.
The Wall Street Journal wrote a scary story about the outlook for the euro in its Dec. 15 issue. It described how the euro is tumbling as debt woes spread across the euro zone. Greece, for example, appears unable to stem growing fears about its debt problems, despite government pledges of austerity and fiscal rigor. New worries about Austrian banking, after this week’s surprise nationalization of one of the country’s banks at the behest of the European Central Bank, also raised red flags about the euro. Yesterday, the euro dropped to its lowest value since October by falling to $1.4505.
In addition, a German government budget spokesman said this week that exploding budget deficits of economically weak European countries will force his country and other financially strong nations throughout the continent to consider how to support their struggling neighbors. These so-called “PIIGS,” i.e., the countries of Portugal, Ireland, Italy, Greece and Spain, are weighed down by big budget deficits and discouraging growth prospects.
Without question, the U.S. government is running up record deficits of its own and its economy is not exhibiting robust growth either. But America still has a reputation as a country that has proven its creditworthiness. The reaction of the market during the past week or so confirms the sentiment that the dollar offers a safe harbor in the midst of a brewing financial storm.
If you want advice from me about which ETFs to buy and to sell, I encourage you to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send your question to me, simply click here. You may just see your question answered in a future ETF Talk.
ETF Investing --- What You Need to Hear
The world of ETFs keeps getting better and better. We now can invest in almost any asset class, currency or country in the world with just a few clicks of a mouse. But to use ETFs properly, you have to learn a few key concepts.
Here are three important concepts you’ll learn by listening to my latest audio presentation:
- How to get defensive with your stocks and mutual funds
- How to prepare for rising interest rates and how to profit from them
- Which commodity ETF deserves your attention right now
During the past several months, I have been sharing my views on how to manage your portfolio during these unprecedented economic times via this teleconference series. If you haven’t yet had a chance to listen to this FREE audio presentation, then you can do so now by clicking here.
NOTE: Fabian Wealth Strategies is an SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Don't Give up Your Mind
“When men yield up the privilege of thinking, the last shadow of liberty quits the horizon.”
--Thomas Paine
In one of his many brilliant and pithy quotes, the great Thomas Paine reminds us that failure to uphold reason is a sure prescription for tyranny. Indeed, they are words to live by -- given the current economic and political milieu.
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.