Making Money Alert
Where Has All the Worry Gone?
05/12/2010
As I write today’s Alert, I’ve just come from giving a seminar at the Las Vegas Money Show. The buzz at this year’s show is all about the market’s recent machinations, including the Dow’s wild, 700-point swing last Thursday. There’s also some buzz about Greece’s debt crisis, as well as the near trillion-dollar bailout just agreed upon by the European Union.
Despite these concerns, I have to say that the real revelation this year to me is the tremendous bullishness that’s come from the many financial professionals and show attendees I’ve spoken with so far. It seems like the worry about the future of equities has all but gone after the past couple of positive trading sessions.
Hey, I know that people generally like to look at the bright side when it comes to the market. I also know that wishing doesn’t make it so. None of the underlying fiscal problems in Europe are gone. In fact, that huge bailout is a recipe for more debt disaster down the road. I think that this situation could really explode in the months and years to come, but for now, traders largely have jumped back on the equity bandwagon.
A quick look at three charts below -- the SPDR S&P 500 (SPY), the iShares EAFE Index (EFA) and the iShares FTSE/Xinhua China 25 Index (FXI) -- show that after last week’s huge drubbing, stocks around the globe now have managed to recover a healthy portion of their losses.
Keep in mind, however, that all three of these major market segments still are below both their 50- and 200-day moving averages. Until we see these sectors break back above their respective 50-day moving averages, my market needle will remain pointed at the “extreme danger” setting. Of course, at some point, we will get the “all clear” signal and, when we do, it will serve as the green light I’ve been waiting for to get back into this market.
If you would like to find out when that signal turns green, i.e., when it is finally safe to return to equities, then you need my Successful Investing advisory service.
Los Angeles -- It’s All Greek to Me
The debt crisis in Greece has me worried, and not just for the prospects of stocks around the globe. You see, much of the same issues currently afflicting Greece also have the potential to really harm the United States. And while our economy is a behemoth when compared to Greece -- or even the European Union, for that matter -- the growth of government and our recent borrowing spree could put our country on the Greek path.
If you think this is far fetched, then you should try living in California. My state is in a true fiscal mess caused by way too much government spending, and a pending pension crisis with the potential to choke out our state’s prosperity. It’s even worse when you drill down locally. Case in point is the city of Los Angeles.
Here, we see a truly Greek-like fiscal mess, with nearly no end in sight, save for some very serious -- and unlikely -- adjustments on the part of current city employees and pensioners. But is this realistic? Can the adjustments needed to save a city from financial ruin actually be made?
In a recent column in The Wall Street Journal, former Los Angeles Mayor Dick Riordan, along with financial advisor Alexander Rubalcava, lay out a plan of attack that just might get the major metropolis back on its feet. The plan calls for the conversion of city-defined pension benefit programs into 401(k) accounts, the lifting of the city employee retirement age and the elimination of some $300 million spent on costly retiree health-care benefits. This plan is similar to the cuts being proposed nationwide in Greece, and it’s ironic that most of our political leaders fail to see the similarities.
I strongly recommend that you read this editorial, as it will give you a glimpse of the kind of problems Los Angeles faces, and the kind of solutions that may be necessary to save the city, the state -- and maybe even the country.
ETF Talk: Is the Fund Down Under Ready to Rise Again?
The market’s recent pullback could be considered a buying opportunity if you expect the trend in emerging markets to reverse and resume their bullish ways. One region that might be worth looking at closely as a potential investment is “down under” in Australia. The iShares MSCI Australia Index (EWA) is a choice that could give you nice upside in the coming months, and for several reasons.
First of all, the fund is separated geographically from Europe, where the debt problems in Greece, Spain and Portugal have disrupted international markets and sent the value of the euro falling. EWA is not immune to the problems that affect the rest of the world, but it is less vulnerable than many other investment opportunities that focus on other regions.
Second, the fund is heavily concentrated in financials and commodities. Financial stocks in Australia should not be as prone to problems as financials in Europe and elsewhere. A big plus is that the debt crisis in Europe is not unraveling economic growth that is taking place in Australia and other countries that have been more fiscally responsible. Asia, in general, is growing economically. Indeed, that region could be one of the best performers economically in the months ahead. Australia stands to gain from this growth, along with the rest of the region.
Third, EWA gives you exposure to the Australian currency, which could benefit from the devaluing euro. As the euro skids, the currencies of economically stronger countries have an opportunity to shine. Australian investments for U.S. investors also could gain lift from the appreciation of the U.S. dollar.
Another reason that may spur you to consider EWA right now is that it recently has fallen in price. The market downturn last week is only part of the story. The fund also has been adversely affected by the possible adoption of a hefty tax on Australia’s mining and other natural resource companies. The news already may be factored into the price of the Australian mining stocks and EWA. Although further fallout could be ahead if the tax is implemented, investors already are aware of the risk. Now may be a good buying opportunity, if you like to look for emerging-market bargains.
I currently am not recommending EWA, but I am watching it closely as a potential future investment while I wait to see if the equity markets stabilize. If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please sign up for my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
You're Invited to a Fixed-Income Strategies Teleconference
Join me on Saturday, May 15, 12:00 p.m. (noon) Pacific Standard Time, for a FREE discussion of the rapidly changing financial markets in 2010. In this teleconference, “Sound Fixed-Income Strategies in an Uncertain World,” I will be speaking about conservative fixed-income strategies that I am implementing during unprecedented times of financial challenges.
No doubt you’ve been following the news of late in Europe. The continent is facing a crisis in terms of its debt, currency and financial stability. The euro has fallen more than 10% so far this year, while short-term interest rates in some countries have risen to more than 20%. Countries such as Greece, Portugal and Spain have had their credit ratings cut, and all face a debt-ridden economic future.
Trepidation rising: While watching the reports from the media, many investors are thinking…
• How does this affect my investment portfolio?
• What does this mean for the U.S. economy?
• What about our debt problems and lack of confidence in our own government?
For months now, I’ve been saying that the problems in Europe would spill over into U.S. investor portfolios, and that is what’s happening right now.
The five key points you’ll learn in this seminar are:
• How does the crisis in Europe affect your stocks and mutual funds and what should you do now?
• What will be the next big move in interest rates and our economy?
• What fixed-income investments should be avoided right now?
• What are the right fixed-income strategies for the current market environment?
• My outlook for the U.S. stock market and equity markets around the world.
All conference-call, registered participants will receive a valuable handout ahead of time that outlines these key topics. To join me for this timely discussion on Saturday, May 15, please register today to reserve your place. This FREE, one-hour teleconference will be limited to the first 800 registrants and, judging by our last two record-setting teleconferences, we will reach capacity quickly. Take advantage of this opportunity and reserve your spot today.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Crazy Heart Wisdom
And this ain’t no place for the weary kind
And this ain’t no place to lose your mind
And this ain’t no place to fall behind
Pick up your crazy heart and give it one more try
--Ryan Bingham, “The Weary Kind”
This year’s Oscar winner for best original song, “The Weary Kind” is from the excellent film, “Crazy Heart.” The lyrics tell the listener what to do when things get really difficult. You see, this world is no place for the weary, nor is it a place that rewards a lack of focus or a stumble. Sure, these things happen to all of us, and it can make your heart crazy. But our only option in life, if we wish to achieve happiness, is to pick up that crazy heart, and give it one more try.
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.
Sincerely,
Doug Fabian
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.