Making Money Alert
We Call 'Em As We See 'Em
03/15/2007
I want to start off this week's Alert with an e-mail that I received from a long-time subscriber to my Successful Investing advisory service.
Doug,
I sense you're not the type to run around saying "I told you so," but you oughta give 'em some of that now.
I remember many moons ago when you were predicting these series of dominoes would start falling over in the real estate market. Now that the foreclosure numbers are showing up so ugly, I just wanted to pat you on the back and say, "You called it, bud!"
I'm completely out of the market except for a couple of ProShares shorties. The retirement account is all cash except for a 20% stake in the AGG bond fund.
Your shows are still so educational for me. Keep up the good work my friend!
Will you be in Las Vegas for The Money Show this year? I'm thinking of coming over for that.
Russ
First of all, thank you very much Russ for your kind words. I am very gratified that you are having success managing your money, and I'm glad to hear you continue learning about the markets from my radio show. And yes, I will be at the Las Vegas Money Show in May. In fact, I've included this link so that Alert readers can sign up for their FREE admission ticket.
As far as calling it correctly, well, I just call 'em as I see 'em.
The whole housing market bubble was just too reminiscent of the technology bubble at the turn of this century. When I saw that so many people out there were borrowing more money than they could afford just to flip properties, and when I saw how weak the lending standards were, it didn't take much to put two and two together and come up with a painful equation ahead for the housing sector.
That pain firmly took root this week for the subprime lenders. That sector really has been smashed during the past few days, with companies such as New Century Financial now in big time trouble. My fear is that this drop in the subprime market will lead to a wider drop in financial stocks. As you can see by the chart below, the financial sector really has taken a hit over the past two weeks. The Financials Select Sector SPDR (XLF) now has fallen below its 200-day moving average -- a frequent harbinger of really bad things ahead for financial stocks.
One thing that really scares me about the current market is that financial stocks have really led the rally we saw all through the second half of last year and in the first two months of this year. I think that breaking the 200-day moving average in financials could lead to a breakdown in the overall market.
Right now, we still are above the 200-day average in the Total Market VIPERs (VTI), an ETF that measures the entire market's performance. But as you can see from the chart below, the trend definitely has not been a friend to VTI. Tuesday's selling really knocked the market for a loop and today's volatile session is once again signaling us that all is not stable in equity land.
The "head for the hills" moment in VTI will be if we fall below the 200-day moving average. I think we may see the market test this support level of about $133 but if we see a sharp drop that takes us right on through this support, look out. That's when things really could get ugly.
Conditions in the international markets are looking a bit better than they are on the domestic front, but here too we've seen some heavy selling of late. Look at the chart of the iShares EAFE (EFA), which tracks markets in Europe, Australia and the Far East. We can see that EFA still is firmly above the 200-day average, but once again things are trending downward for the bellwether international ETF.
What this all adds up to is the real need right now for investors to adopt a very defensive posture. You should definitely not be 100% allocated to equities. Some cash in your portfolio either via a money market account or bonds is a great hedge against further downside.
Remember that protecting principal should be the primary directive for managing your serious money, which is what I call the money that will fund your retirement years. Don't take undue chances with your investments during volatile periods like we are experiencing right now. When the coast clears, you'll have more than enough opportunity to set sail again.
GREAT MOMENTS IN FABIAN HISTORY.
I know many Alert readers already are familiar with the Fabian track record over the past three decades. I also know that many of you are new to the Alert and are just getting to know what this whole Fabian thing is all about.
For those of you who are new subscribers, and for those seasoned readers who like hearing about our past, I want to do a little recap of what I like to call, "Great Moments in Fabian History."
Hey, we've been making great calls for over thirty years, and here are some of the best of the best:
September 1976: Dick Fabian self-publishes the book, How To Be Your Own Investment Counselor. This was the first (and in my opinion still the best) primer on the trend-following approach that formed the basis for today's current Fabian Plan. After experiencing the devastating bear market of 1973-74, Dick knew investors needed a better way to manage their serious money.
April 1977: Motivated by the overwhelmingly positive response to his book, Dick teamed up with his wife Marie Fabian to launch the Telephone Switch Newsletter right from their dining room table. The basic purpose of the newsletter was to report and to monitor the results of the buy and sell signals generated by the plan laid out in his book.
July 1981: The Telephone Switch Newsletter issues a bear market sell signal. The sell followed subscriber profits of 40% during the previous 14-month buy cycle. The bear market that followed registered a drop of 27% in the Dow Industrials. This was the first bear market Fabian subscribers would avoid.
June 1985: A buy signal is issued for the newly created International Plan. This buy signal would last more than two years and produce gains in excess of 140% in international funds.
October 1987: A sell signal was generated on Oct. 15 that moved subscribers into the safety of the money funds. Four days later, the market experienced its biggest single-day decline ever. Fabian followers walked away with gains of 23% in calendar year 1987. The Telephone Switch Newsletter was one of five publications to have predicted the decline as reported by the Wall Street Journal. Of course, we did not predict anything. We simply stuck to our disciplined investment approach and followed the rules of our Plan.
August 1990: The Fabian Plan issues a new sell signal as Kuwait is invaded by neighboring Iraq. This geopolitical event instigated a global stock market bear that would end only after an American-led coalition of 80 countries boots Saddam Hussein out of Kuwait. We were only out of the market for three months before issuing a new buy signal that led to a 34% gain over the next 18 months.
January 1995: After a year in which the Federal Reserve raises interest rates four times and when most economists were predicting a recession, the Fabian Plan identified a new uptrend that kicked off the bull market run of the late-1990s. During the next five years, the Fabian Plan produced annual gains of more than 20%, led by the tech stock boom and the proliferation of more the 10,000 mutual funds.
April 2000: The Fabian Plan issues a new sell signal for stocks as the NASDAQ market begins to rollover. A decline of more then 70% over the next three years ensues.
I could go on and on with all of the calls we got right over the past three decades, but that is not my purpose here. What I do want you to realize is that the Fabian Plan isn't some hear-today, gone-tomorrow gimmick. Our investment strategy has worked for longer than many stock brokers out there have been alive. And, with a strong adherence to tradition and a constant attempt to improve upon the past, we're going to continue making great calls for another three decades.
Want to get yourself on the right side of history? Then you need to subscribe to my Successful Investing advisory service. Given the current market climate, it's more important than ever to take control of your money. To find out more about Successful Investing, click here.
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