Making Money Alert
Will Stocks Ever Go Down Again?
04/07/2010
There’s no denying that this market currently is immersed in the strongest uptrend we’ve seen in the past decade. Stocks have made a miraculous recovery off of the dramatic lows of March 2009, and now it feels like stocks will never go down again. Even in the face of bad news, this market keeps pushing higher and higher.
One reason for this constant push higher is the number of professional money managers that have been underinvested during the sharp run up. I know firsthand how this feels, as I’m one of those managers who have been very cautious about adding money to the market here.
Now, despite the seemingly endless move higher in stocks, whatever you do, please don’t be lulled into the misperception that stocks aren’t capable of a fast and furious correction. Right now, with the market trading so far above its respective 50- and 200-day moving averages, you have to be even more cautious when it comes to putting money to work.
During bear markets, I see investors throw in the towel and jump out of stocks right at the market low. Now, I’m seeing the opposite happen, with investors finally capitulating and just throwing their money into stocks at these elevated levels. I caution you not to make that mistake. If you’re feeling like you are underinvested, believe me, you are not alone. I’m there, too, and I know it’s not the greatest feeling.
Just keep in mind that you don’t want to put money to work now based on emotion, or on fears of missing the boat. There always will be opportunities to buy, and at much more attractive levels than we see right now. The best action for you to take right here if you feel underinvested is to exercise an act of patience, and just wait for the inevitable cooldown of this red-hot market.
Yields: A Fly in the Equity Ointment
If you haven’t paid much attention to bond yields lately, I have a news flash for you --long-term Treasury bond yields, i.e., long-term interest rates, are on the move. Look below at the chart of the 30-Year Bond Yield and you can see the breakout in this sector.
I think this trend could be with us for some time, as there is just no way to avoid the mountain of debt that will be issued by the U.S. government in the years to come. Higher interest rates inevitably will lead to higher taxes, and higher taxes could put a serious hurt on corporate profits.
The endgame of this pernicious cycle is that equity prices will come under pressure, and that means hard times for the bulls going forward. Sure, there’s a party raging right now on Wall Street, but if we see more interest-rate creep, it could mean lights out on this rally.
A Very Special Fabian Anniversary Offer
It's hard to believe, but 33 years ago this month, my father, Dick Fabian, wrote the first issue of what was then called the Telephone Switch Newsletter. His approach back then was simple and straightforward; follow the market's trend and you will stay out of trouble.
After living through the bear market of 1973-74, Dick realized that you could not leave it up to your mutual fund manager to keep you out of harm's way. His major innovation was to tell investors that they could exercise their rights, and move their money to cash during periods of major market decline. Back then, this process involved picking up the telephone and switching your holdings between stock funds and money funds -- hence, the name Telephone Switch Newsletter.
Of course, the technology is completely different today, yet the underlying principle remains the same in what is now the Successful Investing newsletter. That principle is your right to take control of your money -- and to put it to work when the markets are in an uptrend, and to get it out of harm's way when stocks are trending lower.
Now, I am pleased to announce that in honor of the 33-year anniversary of our flagship Fabian publication, my publishers have agreed to a special offer for a one-year subscription to Successful Investing for only $77. That's the same rate you would have paid 33 years ago!
Your subscription includes my weekly market commentary sent directly to your email inbox, our monthly newsletter, special reports, timely buy and sell alerts and our one-hour instructional DVD.
If you don't already subscribe to Successful Investing, now is your chance to get our flagship publication for the same price we charged 33 years ago -- so, I encourage you to act right now.
ETF Talk: Asian Fund 'Chips' Its Way toward Further Gains
With many markets around the world still on the rise, you may be able to grab some quick profits by taking a stake in an exchange-traded fund (ETF) that features a strongly performing anchor stock. The iShares MSCI South Korea Index Fund (EWY) tracks the performance of the high-flying South Korean stock market. Indeed, the market recently has been hitting highs for the year and its outlook should only be strengthened by South Korean electronics behemoth Samsung providing guidance yesterday that it anticipates a seven-fold jump in first-quarter operating profits. The stock comprised roughly 18% of the fund’s holdings at the end of February.
Samsung announced that it expects its first quarter operating profit to reach 4.3 trillion won, up from 590 billion won for the same time a year ago, due largely to rising prices for computer chips. Samsung is the world’s largest manufacturer of computer chips and flat-panel screens, as well as the second-largest producer of cell phones. Samsung’s momentum likely will continue for the next two quarters, one industry analyst predicted.
I am not convinced that the current bullish market conditions will last that long, but it is clear that the biggest holding in EWY looks to have a brisk tailwind in the form of rising computer chip prices to propel it forward during the next quarter. The Samsung announcement certainly caught my attention, since the company’s semiconductor business that builds its computer chips actually lost money during the first quarter last year.
However, the fund only jumped .50% on the news Tuesday and it pulled back more than 1% to hit $51.61 today at 11 a.m. EDT, giving you what may be a short-term opportunity to pick up shares at a slight bargain. Another factor in your favor is that stocks traditionally rise in the spring.
Let there be no doubt that EWY has been on a sustained upturn. The fund soared 70.36% last year. It had risen an additional 6.78% so far this year through April 6, after recovering from a February pullback.
With a population of around 49 million -- about the size of Italy -- South Korea is an electronics and information technology leader. South Korean companies such as Samsung are known for cutting-edge technology, trendy mobile phones and flat-screen TVs. The country now ranks as the world’s 10th-largest economy, and its per capita annual income grew from US$87 in 1962 to US$24,800 today.
EWY is not among my current picks but I am intrigued by its short-term prospects. Although a strong argument could be made that the markets have run up too quickly and may be ripe for a retreat, not much evidence is mounting yet that a sizable plunge is imminent. The market always climbs a wall of worry, so stay cautious with any new allocation and be ready to sell if you think the current rally is about to fizzle out.
If you want advice about buying and selling specific ETFs, including appropriate stop losses, please sign up for my ETF Trader service. As always, I am glad to answer your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.
The Value of Information
“As a general rule, the most successful man in life is the man who has the best information.”
--Benjamin Disraeli
The late, great author and British Prime Minister always had a way of crystallizing important points, and the above quote concerning the quality of information is a prime example. When it comes to investing, Disraeli’s words truly apply. If you don’t have quality information, you can’t make quality decisions -- and providing that quality information is something we try to do each week in all of the Fabian publications.
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. Don’t miss out on the 22nd annual MoneyShow Las Vegas, May 10-13, 2010, at Caesars Palace. This event will be your one-stop resource for the comprehensive education, efficient research, and valuable advice you need to make smart investment decisions in 2010 and beyond. Join me and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities, and options. Also hear about which overseas markets may outperform in the near term. Visit The MoneyShow Las Vegas to register FREE online, or call 800/970-4355 and mention priority code 017444 today!
P.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.