Making Money Alert
THERE WILL BE BLOOD
01/23/2008
I haven't seen the Oscar-nominated film "There Will Be Blood" yet, and one reason why is because I've been busy watching all of the bloodletting on Wall Street. Ironically, the title of the highly acclaimed film also could be an apt title for the market story of 2008.
Barring some miraculous recovery in the major indices, January is shaping up to be the worst month ever for stocks. That's right, ever!
As I write this report, I am looking at a Dow that plunged more than 300 points in the first few hours of Wednesday's trading, a clear sign that the overwhelming anxiety in the market has completely taken over. Of course, this mindset is totally warranted given the current conditions in the U.S. economy.
Those dire conditions -- a credit crunch, a housing bubble, slow consumer spending, etc. -- are what prompted the Federal Reserve to step in with an emergency 75-basis-point interest rate cut designed to somehow patch up the economy. Well, judging by the market's reaction to the Fed's move, that patch didn't do much to stem the flood.
I don't think the above chart of the S&P 500 needs much elaboration, other than to say that the gains this market has enjoyed since September 2006 are now virtually gone. That's 16 months worth of growth wiped away in just a few weeks.
Sadly, most investors are still overweight U.S. equities and many are realizing they have to act to protect themselves. That is one key reason why this market can't rally. As more and more sell orders pour in, mutual funds are being hit with redemptions and many hedge funds have been forced to sell.
Even the best minds on Wall Street are coming out right now and saying that cash is the only safe place to be. Hey, these guys sound like somebody I know.
One thing that is particularly troubling about this market decline right now is the fact that it is nearly a worldwide phenomenon. Wednesday's domestic equity slide occurred in lock step with the drop in European markets.
In the chart above, we see a serious wiping out of all the gains made in international stocks via the iShares EAFE Index (EFA). This index is at its lowest level since November 2006, and by the looks of things it is on its way back down quite a bit further.
The one ray of light, the one morsel of hope we are seeing on the long side here is, ironically, coming from the financial sector. Financial stocks have been in their own bear market since last summer, and now that many of the biggest banks have been really tattered by those enormous subprime writedowns, we are seeing a tiny bump in the space.
I still think it is way too early to move any cash into financial stocks via the Financial Select Sector SPDR (XLF), but if we do see money start to pour into this severely beaten-down sector, it may signal the nascent stages of a market bottom (see chart above).
Finally, I know it may seem a bit self-serving, but I must tell you that subscribers to my Successful Investing advisory service sold out of both domestic and international equities the first week of the year.
Some people have asked me how I knew we were in for such pain. Well, the fact is I didn't know. I did know, however, that I had a plan in place to help me navigate these stormy market seas. That plan has worked for over three decades, and it worked beautifully once again.
If you'd like to find out how my Successful Investing advisory service can help preserve and protect your hard-earned dollars during the bear market of 2008, simply click here.
ETF News: Do You Know Your Options?
There's no denying that we are in a treacherous market right now, but did you know that thanks to a new exchange-traded fund (ETF) from PowerShares you do indeed have a few options?
The options I am talking about here aren't just a matter of choices. Rather, the options I am speaking of here come via the new PowerShares S&P 500 BuyWrite Portfolio (PBP).
Launched in December 2007, PowerShares S&P 500 BuyWrite Portfolio provides cost-efficient access to buy-write options strategies on one of the most widely used benchmarks in the world, the S&P 500 Index. Buy-write strategies are often used to reduce volatility under certain market conditions, as well as to provide additional income to a portfolio through call option premiums.
In down markets, the option premiums received mitigate the price decline in an equity portfolio. The trade-off is that in strong equity markets, the upside potential of the equity investment is reduced as the option is exercised above the strike price.
If you aren't familiar with options, you might want to get yourselves familiar by finding out more about PBP. If you already are familiar with options, or if you find the need to take some kind of aggressive action during this market sell off, I recommend you find out more about this new ETF by clicking here.
Introducing The Annuity Coaching Conference Call
Are you confused and frustrated with your annuity assets?
Do you understand all your options when it comes to generating income?
Do you really understand how your annuity works?
During the past few months, I've had many one-on-one conversations with Alert readers about their annuities. I have come away from those discussions with some rather disturbing insights. First, most investors know very little about their annuity investments; and second, they know even less about how their annuity can help generate retirement income.
Given the large-scale confusion out there surrounding annuities, I have decided to take my coaching sessions public. This month I am proud to announce that I will be conducting two annuity coaching conference calls. These calls are open to annuity owners and/or those thinking about purchasing an annuity.
These two annuity coaching conference calls will take place on:
Wednesday, Jan. 23, 3 p.m. EST, (NOTE: THIS EVENT IS FULL)
Saturday, Jan. 26, 3 p.m. EST
In these FREE annuity coaching conference calls, I will help annuity owners better understand their annuity investments, and I will explain how annuities can be used to maximize retirement income.
These FREE annuity coaching conference calls will be limited to the first 50 participants per call. If you would like to register for one of my FREE annuity coaching conference calls, just click on the link below. There is no cost or obligation associated with this call, and the information in the call is intended for educational purposes only.
Don't Become A Victim -- Again
Last night, I presented my first live workshop of the year designed to help investors manage their financial assets in 2008. During the event, we covered the status of the real estate market; how to manage retirement accounts; what to do with annuities, life insurance, small businesses and much more.
In my opinion, we are in a bear market, and we may stay here for some time. There's a panic building everywhere on the financial landscape, and many people are feeling the negative effects of what happens when you stay fully invested in a down market.
We still don't know if the economy will go into a recession -- although that certainly seems like a real possibility. And we don't know the extent of this current bear market, although traditionally bears last about nine months to two years.
The question now is what lessons did you learn from the 2000-2002 bear market? I hope for your sake you learned that riding down an angry bear was not the solution. There will be winners and losers in this battle with the bear, and here is what you must know to not become a victim.
- Every position must have an exit point.
- Sell your weak positions and losers first.
- Don't fall in love with your stocks.
- Cash is a good thing in a down market.
- All accounts need a cash cushion, including 401(k)s and annuities.
If you would like help in negotiating this most-difficult period in market history, we are here for you.
Fabian Wealth Strategies, a fee-only investment advisor, now is accepting new accounts for both growth and income portfolios.
If you have an investment portfolio of $250,000 or greater, we can help. Just call us at 800.391.1118, or visit our website.
They only thing you have to gain is the life you desire.
Blogs Away: A Fabian Aural 11
Want to hear my latest rant on the state of the financial markets? Well, now listening is as easy as a mouse click.
To listen to the audio blog, simply click here.
The Wisdom of Wodehouse
"There is only one cure for gray hair. It was invented by a Frenchman. It is called the guillotine."
—P.G. Wodehouse
If you haven't had the pleasure of reading the great P.G. Wodehouse, then you need to get to your local bookstore ASAP. The hilarious Brit is just the cure for any market blues you may be experiencing right now. If you want to laugh while simultaneously challenging yourself intellectually, pick up a glass of wine, a fine cigar and a little P.G. Life doesn't get much better than that.