Making Money Alert
Trapped In The Web of Flux
11/28/2008
The market flux continues, and over the course of a few trading days we've seen huge selling followed by even bigger buying.
The fact that the market is trying to find its way through the jungle-like canopy of economic data is no surprise, but the fact that the volatility remains at record levels is, I think, somewhat of a surprise to even the most jaded of market observers.
Still, in order to see the forest amongst the trees we have to look at a chart of the S&P 500 Index.
The chart above shows the exchange-traded fund (ETF) proxy for the S&P 500, the S&P 500 SPDRs (SPY). As you can see, SPY still is trading way below both its 50-day moving average (blue line) and its 200-day moving average (red line).
Until we see a sustained move higher above these two all-important short- and long-term trend lines, I suspect we'll be trapped in the web of market flux.
Give Thanks To Those Who Deserve It
Now, for another perspective on being thankful, here is my good friend and writer extraordinaire Jim Woods with a few unconventional thoughts on the matter. Enjoy!
By Jim Woods
This Thursday is Thanksgiving, and I suspect that most of you reading this have plans to spend time with friends and family feasting on a sumptuous meal. I know I will be gourmandizing on various gastronomic delights, not the least of which will be of the fine fermented variety.
Now, amidst tomorrow’s day of celebration, I undoubtedly will be bombarded by numerous television news spots aimed at making me feel guilty for my bounty. Although not directed specifically at me, the purpose of these stories will be to remind me that I should feel fortunate to have a roof over my head, warm clothes on my back and a hot meal on my plate. Because, these stories will imply, it could be me -- or any one of us -- who suffers the indignity of poverty, hunger or homelessness.
The plight of those less fortunate, shown to us via remote telecast from the nearest homeless shelter or inner city soup kitchen, is supposed to be a stark reminder that those whose lives aren’t immersed in peril should be thankful for all that we have.
Well, to this I ask, thankful to whom? Who are the people responsible for providing us with the tremendous bounty most Americans enjoy?
This year, I want you to give thanks to those who truly deserve it.
This year, I want you to thank the men (and women) of genius who first discovered how to harness fire and how to forge tools for hunting. I want you to thank the men of genius who discovered how to cultivate crops and how to ferment grapes and create wine.
I want you to thank the men of genius who are responsible for creating the planes, trains and automobiles that delivered the bounty to your table. And I want you to thank the men of genius who, throughout history, plied their various trades -- often in the face of unimaginable opposition -- to help lift us all out of a squalid state of nature and into the magnificence that is 21st-century America.
And finally, I think we should all give extra thanks to the real unsung heroes, the capitalists, who put their money and their livelihoods at risk to fund the various enterprises throughout the ages that made modern life possible.
To all of the great capitalist heroes, I thank you from the very core of my own productive mind. I can offer you no greater tribute this Thanksgiving than to enjoy, without the slightest hint of guilt, the life-sustaining bounty you all have made possible.
This Thursday, we need to thank the men and women of genius, both past and present, who truly deserve the gratitude, yet who so often get nothing but condemnation in exchange for their tremendous achievements.
I toast you all in the name of the best within us.
Cheers,
Jim
Jim Woods is a freelance journalist specializing in the economy, the markets and politics. He is a frequent contributor to Doug Fabian’s Alert, as well as many other publications. He champions the cause of the men of genius from his home on the California coast. He welcomes your comments, and can be contacted at Woodsish@yahoo.com.
Pleasing The Pessimist: Roubini On Obama's Economic Team
President-elect Obama has acted swiftly in naming his economic team, and his selection of Tim Geithner as secretary of the Treasury; Larry Summers as director of the National Economic Council; Christina Romer (to be chair of the Council of Economic Advisers), and Melody Barnes (to be director of the Domestic Policy Council) were met with plaudits even from one of Wall Street's biggest economic pessimists.
In a recent interview with Newsweek, Nouriel Roubini, professor of economics at New York University, spoke highly of Obama's economic appointments. "The choices are excellent," Roubini said. "Tim Geithner is going to be a pragmatic, thoughtful and great leader for the Treasury. He has experience at the Treasury and the IMF [International Monetary Fund], then the New York Fed. I have great respect for both Geithner as well as Larry Summers. I think both of them in top roles in economics in the administration were good moves. I think very highly of them both."
Coming from a man who is famous for dispensing gloom and doom, this is a ray of light in an otherwise dark-clouded perspective.
And what are the first things that Obama and his new team need to tackle? According to Roubini, the "first one is the fiscal stimulus, because the troubled economy is in a freefall, so we really need to boost aggregate demand, and the sooner and larger the better. The second thing they should do is recapitalize the financial system. Most of the $700 billion is going to be used to recapitalize banks, broker dealers, finance companies and insurance companies. To do it aggressively and fast is going to be important."
As for Obama's plan to spend more money on infrastructure and energy development, Roubini says, "We need to do it because demand and spending and housing are literally collapsing. That will get a boost from public-sector spending: [spending on] infrastructure, unemployment benefits, state and local government aid, more food stamps. We're going to have to think larger, but I don't think you can pass most of it until January when [Obama] comes to power. We're going to have to wait, because nothing seems possible for the time being. But I expect most of his plans will pass once the new administration is in power."
Finally, in an unusually optimistic statement, Roubini closed the interview by saying, "Look, he [Obama] wants to get things done, so he's choosing a really terrific team. To me, it says that he's choosing people who have great experience. He's choosing people who are pragmatic and who realize the severity of the national problem we're facing. They're knowledgeable about markets, about the economy and the political process in Washington. These are the very best people he could have chosen."
Hey, when even staunch pessimists become optimists, maybe the light at the end of the tunnel isn't too far off.
ETF Talk: Funds That "Bogle" The Mind
With the U.S. political landscape changing, the economy slumping badly and the auto industry seeking a share of the government's $700 billion financial industry bailout money, it is almost impossible to know which companies are going to go bankrupt and which are going to be saved. That's why I always have been a big fan of diversification.
Even as the S&P 500 and the Dow continue to have bad and really bad days, a broadly diversified ETF portfolio limits your investment costs and losses. As I have written previously, buying a share of an ETF is essentially like purchasing a basket of securities in a single transaction. An ETF hedges your risk and reduces your exposure to market volatility by investing in a large group of companies.
In addition to diversification, reasons to love ETFs include low expense ratios, trading flexibility and tax efficiency through index investing. ETFs also retain key advantages of equity investing, such as using limit orders and short selling.
Subscribers of my ETF Trader service recently benefited when I recommended three ETFs that shorted the Dow, the S&P 500 and the commodities markets. On Nov. 13, I advised cashing out of these positions -- held for less than two weeks -- for an overall gain of 31.34%.
Whether you buy broad market ETFs that profit in a rising market or "short" ETFs to benefit from market drops, domestic index funds avoid the risk of placing too big of an investment in just one sector. One prominent investment professional who also has written about the merits of broad market ETFs is John Bogle, chairman of the Vanguard Group, a giant mutual fund company.
In fact, Vanguard has created 38 low-cost, broadly diversified ETFs as a separate share class of some of its funds. I find it interesting that a mutual fund industry icon not only has acknowledged the value of broad market domestic ETFs, but his firm also has launched dozens of its own ETFs. Despite the rivalry between the mutual fund and ETF industries, the truth is that ETFs are compelling investments. Look no further than Vanguard for proof.
As for Bogle, he was voted one of the "world's 100 most powerful and influential people" in 2004 by Time magazine and one of the investment industry's four "Giants of the 20th Century" by Fortune magazine. When a mutual fund industry champion praises broad market ETFs, well, that indeed "Bogle's" the mind.
For those of you who are interested in guidance about which ETFs to trade, you may want to check out my ETF Trader service by clicking here. If you have questions about ETFs that you want me to answer for you, just click here and I will try to answer them in future ETF Talks.
Money Show Musings 7
I want to take a moment to thank the many subscribers to my Successful Investing advisory service who came up to me at the recent D.C. Money Show. There were many of you who offered me your heartfelt personal thanks for the part I played in helping you escape the ravages of this bear market.
I can't really describe the full-extent of my gratification in helping so many of you survive this market downturn. I can only say that the pleasure and pride I take in helping you secure the fruits of your labor is akin to how a Major League Baseball player must feel when he knocks in the winning run that clinches a World Series victory.
You see, to me, giving out winning advice is like winning the World Series, the Super Bowl, the Indy 500 or the Admiral's Cup. This is what I do, and just like the professionals who seek the pinnacle in their respective sports, I too seek the pinnacle in my field of specialization.
My reward, however, is not a World Championship trophy. Rather, it's the trophies you give me in the form of your anecdotes -- anecdotes that tell me how happy you are to have retained your wealth even while trillions of dollars of worldwide wealth keep evaporating into the financial ether.
To this I salute you all, and thank you for bestowing such an honor upon me.
Oh, and if you couldn't make it to the D.C. Money Show, fear not. The PowerPoint slides and PDF workbook used in each of my seminars are available online by clicking here.
These workshops were filled to capacity, and I was really encouraged by the number of investors who now realize that ETFs are the best tools at your disposal to enhance your wealth in these difficult times.
If you don't know about ETFs, now is your chance to get up to speed and get in the race.
Some Memories Last Forever
Everyone would gather
On the 24th of May
Sitting in the sand
To watch the fireworks display
Dancing fires on the beach
Singing songs together
Though it's just a memory
Some memories last forever
--Rush, "Lakeside Park"
As you enjoy your Thanksgiving celebration tomorrow, always keep in mind that we get only a precious few of these days in life. So, why not make sure tomorrow -- and every day -- is imbued with your best effort? Make tomorrow's memories last, because though it's just a memory, some memories last forever.
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