Making Money Alert
Yielding to Yields
06/10/2009
The big market-moving news this week happened today as the government conducted its auction of 10-year Treasury notes. As soon as the results of the weak auction were revealed, the market made a decided move downward.
The Dow Jones sank nearly 100 points after the government reported it had sold $19 billion in 10-year Treasury notes. According to my sources, there were plenty of bidders for the notes, but the government had to convince these bidders to buy with a higher yield than the market anticipated.
The chart below of the 10-Year Treasury Note Yield ($TNX) shows yields pushing up toward 4%. I think that if we move above this 4% level, it could mean a much slower economic recovery in the months ahead.
Understandably, investors are concerned that the government's debt load is growing so large that it will lead to higher inflation and soaring interest rates. I'm afraid of this as well, and that's why I want you to make sure that you understand there are still some significant bumps ahead on the road to recovery.
As we can see by the chart below of the S&P 500, stocks are still trading well above the all-important, 200-day moving average (red line). But if fears of inflation and the increased cost of future buying spiral, we could be in for a significant pullback.
The key here is the 200-day average, which is why I want you to be sure to monitor the price trend of the S&P 500 as it relates to this critical benchmark.
In my Successful Investing advisory service, we've used the 200-day moving average to help us identify the trends in the market for more than three decades. Our experience tells us that positioning yourself in the right assets, based on the key technical indicators of the market, is the way to make big money in stocks.
If you'd like to find out how to use the 200-day moving average to your advantage, then my Successful Investing advisory service could be right for you. To find out how you can put the power of trend following on your side, click here.
What is an ETF? 2
I am constantly being bombarded with questions about exchange-traded funds (ETFs). Basic inquiries such as just what ETFs are, how they work and how they can be used in an investment portfolio are some of the most common I deal with each week.
Now because I want to be sure that you know all of the basics about these fabulous investment vehicles, I've decided to do a short video presentation explaining exactly how ETFs work, their history, and how they can be a huge benefit to your portfolio.
I believe that ETFs are the greatest wealth-building tools for your portfolio because of their diversity, low cost and transparency, and you owe it to yourself to make sure you know just how great ETFs can be.
To find out more about ETFs, and to watch my presentation, click here.
As GM Goes, So Goes the Country 2
By now, you probably know all about General Motors (GM) and its recent filing of the largest bankruptcy in U.S. history. You probably also know that the federal government now is the de facto decision maker for one of the greatest companies in American industrial history.
For a long, long time, the vitality of GM was directly associated with the vitality of America. In fact, in 1953, at the peak of its dominance, GM President Charles Wilson reportedly declared before Congress during his confirmation hearings to become Defense Secretary that what was good for the country was good for GM and vice versa. Although his exact wording is open to debate, his sentiment was unmistakable.
Sadly, the company's rise to power and subsequent decline towards insolvency parallel the rise and fall of the Great American Republic. This is the conclusion of a great story I read on the Web site, The Market Oracle. In his excellent and very detailed piece on GM, author James Quinn goes through the history of the company and relates that history to America's history.
Bill Gross, managing director of the PIMCO Funds and a man whose opinion I respect immensely, wrote a report in May 2006 that compared the plight of GM with the plight of the United States.
Mr. Gross' comments were quoted in The Market Oracle piece, and I want to quote them again here as they are extremely prescient and poignant.
"I think it is important to recognize that General Motors is a canary in this country's economic coal mine; a forerunner for what's to come for the broader economy. Their mistakes have resembled this nation's mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions."
Bingo!
If you're concerned about the direction our country is taking -- and I know you are -- then I highly encourage you to read Mr. Quinn's piece at The Market Oracle. I assure you it will be well worth your time.
ETF Talk: Sunny Side Up
The sun brings forth incredible heat that warms, illuminates and energizes our planet. With the Obama administration becoming a powerful advocate for a strategy of increased use of alternative energy sources, it seems like solar power is destined to be a key component in that strategy. The question now for investors is how and when to profit from the political clout of a new president who has promised to make alternative energy one of his top priorities.
With both President Obama and his fellow Democrats who control Congress looking to fund clean energy initiatives, solar energy exchange-traded funds (ETFs) could start to shine.
Certain solar ETFs have been on a tear of late, and one reason why we've seen a surge in the sector is due to the recent announcement by the Chinese government that it intends to support the development of solar energy.
China's plan would offer $2.94 per watt for solar photovoltaic installations of more than 50 kilowatts. That amount may not sound like much money, but it certainly adds up fast in a huge and still vastly underdeveloped country like China.
The spurt in solar ETF prices is reflected in the charts below of the Market Vectors Solar Energy (KWT) and the Claymore/MAC Global Solar Energy (TAN).
While solar stocks have been volatile this year, they could offer good opportunities for long-term investors if governments around the world fund development. But here's a word of caution. Despite President Obama's call for alternative energy initiatives and the Chinese government's announcement of its support for solar energy, analysts are divided about whether investors have enough reason to bet on the trend. For example, critics of China's announcement cited its lack of detail or a definitive timeline.
With the market as volatile as ever, it is uncertain which direction solar ETFs will go next. If the United States and China choose to fund alternative energy projects, then solar ETFs have a good chance of shining. But if the funding fails to heat up, the sector could be in for some cloudy days ahead.
As always, I am happy to answer your questions about ETFs. To send me your questions, click here. I will try to follow up in a future ETF Talk.
Wisdom from the Orchard
"Design is not just what it looks like and feels like. Design is how it works ."
-- Steve Jobs, CEO, Apple
I've been a long-time devotee of the innovative products put out by the brilliant Steve Jobs and his exemplary team at Apple. This week's announcement of the new iPhone 3GS, along with an updated iPhone operating system, means two things. First, it's great for the company's shares, and great for the tech sector at large. Second, it means that I soon will be making the trip to my local Apple store and doing my part to stimulate the economy.
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.