Making Money Alert
Visiting an Old "Friend": S&P 800
02/11/2009
I love to visit old friends from time to time, but the market seems as though it wants to visit one old "friend" that isn't too hospitable. That friend is the S&P 500 Index 800, and it's a level that seems much closer to reality than the friendly S&P 900.
On Tuesday, I watched in amazement as Treasury Secretary Timothy Geithner put in a less-than-confidence inspiring debut performance. The Feb. 10 unveiling of a new bank bailout plan hit Wall Street with a thud, and the market rewarded Geithner's lack of plan specificity with a near 400-point hit in the Dow in just over an hour.
It certainly seems as though the Obama administration has run into some serious obstacles in its quest to remake the nation's economy. I think you can debate the merits of the Obama plan, but one thing that is not debatable is that the initial reaction from Wall Street has been tepid at best.
As you can see, the market is now trading just above our old friend, the 800 level on the S&P 500. And while stocks have managed to stay above this key technical level, we are in danger of a return to 800 if we see any more sessions like we had on Tuesday.
If we step back and look at what's happened so far in 2009, we see that nearly all of the major market indices are in the red save for gold. Of course, we all know that this market could turn on a dime, and we have seen many sharp market turns during the past several months. But remember that nearly all of those sharp spikes have ultimately been followed by a return to the doldrums.
It will be interesting to see what happens with this market once the details of the stimulus bill and the bank bailout package are finally ironed out. Until then, I suspect we will be visiting our old friends of S&P 800, 850 and 900 several more times during the next few weeks.
As Seen In IBD
It's always nice to get a little ink. I am speaking here about a story in the Feb. 9 edition of Investor's Business Daily, titled, "Advisers: Treasury Bubble Is Bursting."
The article, written by reporter Trang Ho, talked about the bubble forming in the Treasury market and how many advisors are positioning their clients in rising rate funds such as the ProShares UltraShort Lehman 20+ Year Treasury(TBT), which moves twice the inverse of the price of long-term Treasury bonds.
One of the advisors quoted in the story was none other than my son, David Fabian, vice president of Fabian Wealth Strategies.
Here's what David had to say about TBT.
"Foreign and domestic investors are going to want higher interest rates to invest in our bonds..."
"A low was seen in bond yields in December 2008, and they are going to continue to move up..."
"TBT had a big move in January, is consolidating here, and may begin another up-leg shortly."
Nice job, David, you make me a very proud papa.
If you'd like to read the Investor's Business Daily article in its entirety, click hereYour 401(k) Rescue Plan 2
Last week, we ran the following story on how to rescue your 401(k) plan. I got a lot of positive response to this story, so I thought I would repeat it here in today's Alert. Enjoy!
It's no secret that most 401(k)-type retirement plans are in shambles as a result of the recent market meltdown. And while there is no simple, quick-fix solution for an ailing 401(k), 403(b) or 457 plan, if you have the ability to self-direct your retirement assets there is a way to put yourself on the road to recovery.
Here are the dos and don'ts of turning around that big drop in your retirement nest egg.
First of all, you have to fight "city hall." All 401(k) providers want you to buy your investment and hold them in perpetuity. I don't care where your 401(k) is, the mutual fund companies want you to choose a mix of funds and then just leave that mix alone. They have placed rules and restrictions on you, and in many cases they make it hard for you to do what you want with your own money. Your first assignment is to know the rules of your 401(k) plan's fund exchange policies. Hey, it's your money, so don't let anyone talk you out of doing what you want with it.
Second, you need to know your retirement plan fund choices. Usually, these choices fall into three categories; stocks, fixed income or cash. Look closely at your safe choices in the cash category; this could be labeled "stable value" or "money market." As I have been saying for the last year, you need to use this account as your safe harbor in these uncertain times. I'd say you need at least a 50% safe harbor allocation right now.
In the fixed income category, there are some choices that I like. One popular fund is the PIMCO Total Return Fund, a balanced bond fund that posted a total return of 4.2% in 2008. I think you should stay away from those fixed income funds that went down in 2008.
Third, you need to get out of stock mutual funds. I realize that some of you may want to hold on to some of your exposure to stocks, but for me and subscribers to my Successful Investing newsletter, we have zero exposure to equity mutual funds right now. Ideally, if the S&P 500 can recapture 900, we could make a run to 950. If this happens, then it will represent the best opportunity for those still in equity mutual funds to sell into strength.
Fourth, are you able to get some money out of your 401(k) plan? Here's what I mean by that. Traditionally, 401(k)'s are very restrictive. Their very design means you have limited choices and more trading restrictions than you would otherwise have in a self-directed IRA. If you are able to, you should transfer assets out of you 401(k). You can do this if you are over age 59 ½, as you may be able to do what's called an in-service rollover. This is when you transfer all or part of your 401(k) to an IRA rollover account. And while this is perfectly legal, your plan must allow for it.
Also, if you have a 401(k) at a previous employer you should roll that account into an IRA. This will give you the ability to buy and sell exchange-traded funds (ETFs), which come at lower cost than mutual funds -- along with virtually no trading restrictions and with the utmost transparency, so you always know what you own.
Finally, I know what I am outlining here runs counter to establishment thinking, but ask yourself this: are you happy with the results you had in your 401(k) last year? I dare say that that the answer for most people is no, and that means it could be time for some radical change.
Remember that success in anything doesn't come without a little effort, and real success almost never comes about by following the conventional wisdom. In order to rescue your 401(k), you simply have to get involved and start thinking for yourself.
ETF Talk: Is It Time for the Nuclear Option? 2
For 30 years, no shovelful of soil was turned to construct a nuclear plant in the United States until 2006 when groundbreaking occurred for the National Enrichment facility in New Mexico. With elected officials calling to reduce U.S. dependence on carbon-based fuel, interest in nuclear power could reignite. With President Obama declaring that nuclear energy will be a huge part of an effective energy policy, now may be the time for investors to consider an exchange-traded fund (ETF) that focuses on alternative energy sources.
With environmentalists protesting that global warming threatens the planet, interest in nuclear energy and other non-carbon based fuel is on the rise. Although alternate energy sources such as solar and wind seem safer and trendier, neither of those technologies is capable of replacing coal or natural gas in the foreseeable future.
Despite the current recession, energy demand remains reasonably strong. Global electricity consumption is expected to double in the next 25 years. With a projected fossil fuel shortage to meet such long-term demand, experts believe that nearly 50 new nuclear plants will be constructed around the world by 2020. More than half of those are expected to be in the emerging markets of India, Russia and China.
Countries such as France already have 80% of their energy supplied by nuclear power. In addition, one of the biggest advantages of nuclear reactors is that once these plants are completed, they usually operate for decades and provide a steady revenue stream. So how do you profit from this surge in the sector? Well, there is a way to "go nuclear."
The Market Vectors Nuclear Energy ETF (NLR) is a fund designed to give investors exposure to public companies in the nuclear energy sector. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business. The fund has jumped by an impressive 15% since November.
The political risks and high costs of oil, combined with a global effort to decrease dependence on carbon-based fossil fuels, inevitably will spur the development of alternative energy. As solar and wind energy still are years away from developing a sustainable and cheap product, all signs point towards going nuclear. With the massive surge in the construction of nuclear plants around the world, this sector is a must for any investor watch list.
If you'd like to learn more about "going nuclear" or if you have any questions about ETFs that you want me to answer in an upcoming ETF Talk feature, please click here20 Questions to Ask Your Advisor 5
I recently came across a statistic published by the SEC's Office of Investor Education, which stated that more than 50% of investors seek the advice of some type of advisor when making financial decisions.
But the problem here, as I see it, is that most investors really don't know the right questions to ask their advisors. How do you know that your interests are being served by your advisor? How do you know if your goals comport with the kind of investments your advisor recommends? The only way to know is to ask the right questions.
Unfortunately, it's just a fact that most investors aren't as financially literate as they need to be, and this is a situation I won't stand for any longer.
To help you better understand your financial relationships, I have compiled my list of 20 questions to ask your advisor. A complete list of questions can be found by clicking here.
If you find your advisor unable or unwilling to give you satisfactory answers to any of these questions, you may want to rethink your relationship.
Pop Music and Market Wisdom
Save it for later
Don't run away and let me down
Sooner or later
You hit the deck, you get found out
Save it for later
Don't run away and let me down
--The English Beat, "Save It For Later"
Members of the 1980s alternative band The English Beat probably weren't thinking about stocks when they wrote their hit "Save It For Later," but the lyrics from the song certainly describe the market over the past year. Sooner or later, you hit the deck and get found out. This is the case with all of those toxic assets infecting the market right now, and the only cure to this disease is to save your cash up for later.