Mid-Week Market Report on SP500, Oil, Gold & Dollar

September 30th, 2010

Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.

That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.

Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.

The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.

This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.

In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis and that I want to keep the service personal the price of the service will be going up Oct 1st, so join today.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

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Read more here:
Mid-Week Market Report on SP500, Oil, Gold & Dollar




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Five Tech ETFs to Look at Now

September 30th, 2010

Ron Rowland

You can always count on one thing in the technology sector: Change! The cutting-edge inventions that fascinated us so much back in the 1990s are de rigueur now. Where will we be in ten years? I can only imagine.

As I said last year in my Trade Technology with ETFs column, playing tech trends with individual stocks is a high-risk game. You never know where the next big breakthrough will originate. Even a portfolio of 15-20 tech stocks might not catch the big winners.

The ideal solution: Exchange traded funds (ETFs). But you still have to know what you are buying. These days, the answer is not as easy as it might look.

Here’s the problem: “Technology” is a very broad term. You can take your pick of tech-oriented ETFs and mutual funds. The big ones will be composed of the same few dozen names — highly liquid stocks that won’t get anyone in trouble.

With the plain-vanilla segment well covered, ETF sponsors are defining narrower and narrower niches in an attempt to distinguish their offerings. Unfortunately, the “definitions” are not always as clear as they might seem.

Here is a good example …

Where Does GOOG fit in?

What is Google? Does GOOG fit into the internet, software, or telecom category? Maybe it should be classified as an advertising company instead of a tech company.

Pop quiz: What sector is this company?
Pop quiz: What sector is this company?

The correct answer: All of the above! Google is a big company doing many different things. Ditto for stocks like Apple, IBM, and Microsoft.

This creates a quandary …

Index providers categorize stocks in various ways; so not all “software” ETFs are comparable to each other. The same is true in any of the technology sub-sectors.

So what do you do? Many analysts take a top-down approach. They look at market action to identify promising trends, then try to find ETFs that can exploit those trends.

I prefer to work from the bottom up, going straight to the performance of individual ETFs. I don’t especially care what they claim to be doing. I look at what they are doing — and the results always show up in their performance.

Of course I consider other factors like liquidity and diversification, and you should, too. You also need a strategy that dispassionately ranks the available ETFs from best to worst.

Right now my analysis is pointing to a handful of technology ETFs with strong momentum. You may want to take a closer look at these names …

  • First Trust Dow Jones Internet (FDN). We’re way past the days when “the Internet” was new and exciting. Now it’s just a part of life. Yet there is still money to be made on the net — and companies like Google, Amazon, eBay, and Yahoo! are doing it. That’s why their stocks are climbing recently. FDN is a good way to get on the train.
  • Guggenheim China Technology (CQQQ). It’s no exaggeration to say our high-tech society could not exist without China. Many of the devices we depend on so heavily originate there. CQQQ lets you zero in on Chinese tech stocks. Incidentally, this ETF used to be called Claymore China Technology. The sponsor was bought by Guggenheim recently, and they are changing names.
  • iShares S&P North American Technology — Software (IGV). A computer without software is like a brick without a building: Not worth much. IGV holds a good selection of the software-oriented stocks that keep the world going.
  • Vanguard Telecommunication Services (VOX). Phone companies used to be boring — and they still would be if all they did was let us call each other and chitchat. Now they do much more: Data is their fastest-growing segment, especially mobile data. The stocks held in VOX are literally the glue that binds the world’s technology together.
  • PowerShares Dynamic Networking (PXQ). Technology took a quantum leap when computers starting talking to each other as well as to us. The stocks held by PXQ are involved in both hardware and software, with a singular focus on networking. I especially like the way this ETF diversifies its holdings.

Pop quiz: What sector is this company?

So what is the potential with ETFs like these? Just check out their results for the current quarter on the table to the left.

Meanwhile, another technology group, semiconductors, has been lagging the past few months. So if your favorite tech fund has a large allocation to this group, then chances are it’s been lagging too.

Obviously we don’t know that the next three months will be as favorable as the last, for these ETFs or any others. Yet if your goal is to follow the bull wherever he goes, they could be some good candidates for you to consider.

Best wishes,

Ron

P.S. Speaking of technology, are you a Twitter user? I am. You can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the “Follow” button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

Related posts:

  1. Mega-Cap ETFs Give You the Bluest Blue Chips
  2. Zero in on Small Cap Sectors with New ETFs
  3. Get Outside the Style Box with ETFs

Read more here:
Five Tech ETFs to Look at Now

Commodities, ETF, Mutual Fund, Uncategorized

Five Tech ETFs to Look at Now

September 30th, 2010

Ron Rowland

You can always count on one thing in the technology sector: Change! The cutting-edge inventions that fascinated us so much back in the 1990s are de rigueur now. Where will we be in ten years? I can only imagine.

As I said last year in my Trade Technology with ETFs column, playing tech trends with individual stocks is a high-risk game. You never know where the next big breakthrough will originate. Even a portfolio of 15-20 tech stocks might not catch the big winners.

The ideal solution: Exchange traded funds (ETFs). But you still have to know what you are buying. These days, the answer is not as easy as it might look.

Here’s the problem: “Technology” is a very broad term. You can take your pick of tech-oriented ETFs and mutual funds. The big ones will be composed of the same few dozen names — highly liquid stocks that won’t get anyone in trouble.

With the plain-vanilla segment well covered, ETF sponsors are defining narrower and narrower niches in an attempt to distinguish their offerings. Unfortunately, the “definitions” are not always as clear as they might seem.

Here is a good example …

Where Does GOOG fit in?

What is Google? Does GOOG fit into the internet, software, or telecom category? Maybe it should be classified as an advertising company instead of a tech company.

Pop quiz: What sector is this company?
Pop quiz: What sector is this company?

The correct answer: All of the above! Google is a big company doing many different things. Ditto for stocks like Apple, IBM, and Microsoft.

This creates a quandary …

Index providers categorize stocks in various ways; so not all “software” ETFs are comparable to each other. The same is true in any of the technology sub-sectors.

So what do you do? Many analysts take a top-down approach. They look at market action to identify promising trends, then try to find ETFs that can exploit those trends.

I prefer to work from the bottom up, going straight to the performance of individual ETFs. I don’t especially care what they claim to be doing. I look at what they are doing — and the results always show up in their performance.

Of course I consider other factors like liquidity and diversification, and you should, too. You also need a strategy that dispassionately ranks the available ETFs from best to worst.

Right now my analysis is pointing to a handful of technology ETFs with strong momentum. You may want to take a closer look at these names …

  • First Trust Dow Jones Internet (FDN). We’re way past the days when “the Internet” was new and exciting. Now it’s just a part of life. Yet there is still money to be made on the net — and companies like Google, Amazon, eBay, and Yahoo! are doing it. That’s why their stocks are climbing recently. FDN is a good way to get on the train.
  • Guggenheim China Technology (CQQQ). It’s no exaggeration to say our high-tech society could not exist without China. Many of the devices we depend on so heavily originate there. CQQQ lets you zero in on Chinese tech stocks. Incidentally, this ETF used to be called Claymore China Technology. The sponsor was bought by Guggenheim recently, and they are changing names.
  • iShares S&P North American Technology — Software (IGV). A computer without software is like a brick without a building: Not worth much. IGV holds a good selection of the software-oriented stocks that keep the world going.
  • Vanguard Telecommunication Services (VOX). Phone companies used to be boring — and they still would be if all they did was let us call each other and chitchat. Now they do much more: Data is their fastest-growing segment, especially mobile data. The stocks held in VOX are literally the glue that binds the world’s technology together.
  • PowerShares Dynamic Networking (PXQ). Technology took a quantum leap when computers starting talking to each other as well as to us. The stocks held by PXQ are involved in both hardware and software, with a singular focus on networking. I especially like the way this ETF diversifies its holdings.

Pop quiz: What sector is this company?

So what is the potential with ETFs like these? Just check out their results for the current quarter on the table to the left.

Meanwhile, another technology group, semiconductors, has been lagging the past few months. So if your favorite tech fund has a large allocation to this group, then chances are it’s been lagging too.

Obviously we don’t know that the next three months will be as favorable as the last, for these ETFs or any others. Yet if your goal is to follow the bull wherever he goes, they could be some good candidates for you to consider.

Best wishes,

Ron

P.S. Speaking of technology, are you a Twitter user? I am. You can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the “Follow” button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

Related posts:

  1. Mega-Cap ETFs Give You the Bluest Blue Chips
  2. Zero in on Small Cap Sectors with New ETFs
  3. Get Outside the Style Box with ETFs

Read more here:
Five Tech ETFs to Look at Now

Commodities, ETF, Mutual Fund, Uncategorized

When Only a Much Weaker Dollar Will Do, Part One of Two

September 30th, 2010

It is sometimes challenging to make sense of economic policymakers’ frequently convoluted and occasionally obfuscating language. There are times, however, when they say what they mean rather clearly. This the Fed did in its September policy meeting statement. While these statements normally contain quite standard language that does not change materially meeting to meeting, last month was an important exception. The Fed chose to add some text which, when placed in context, implies that the Fed now has a bias to apply more unconventional stimulus to the economy. Here is the relevant excerpt:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Now if inflation is too low and is likely to remain too low for “some time”, then the Fed clearly has a bias to do what it can to try and expedite a rise in inflation. But with policy rates already near zero and the Fed already preventing a natural shrinkage of its balance sheet as securities holdings mature, all that is left is for the Fed to reach further into its toolkit of unconventional policies.

We have examined the Fed’s various unconventional policy tools in previous Amphora Reports and concluded that, absent a decline in the dollar and/or rise in commodity prices, the Fed is not going to succeed in increasing the rate of price inflation. This is because the money and credit transmission mechanism is the US is broken due to a weak financial sector, excessive household debt and associated high unemployment. We believe that Mr. Bernanke knows this. Indeed, in a speech from 2002 that we have quoted before, he cites currency devaluation as an effective means of policy in the event that the domestic money and credit transmission mechanism breaks down:

…there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation. [emphasis added]

Now think about this for a minute. Mr. Bernanke is on the record advocating currency devaluation as an effective means of ending deflation, supporting the stock market and promoting economic growth when interest rates are near zero. Well, with interest rates near zero and the Fed already buying Treasuries systematically to prevent any shrinkage in the monetary base, an obvious possible conclusion one can draw from the Fed’s recent, explicit statement that inflation is too low amidst weak economic activity, is that the Fed is moving closer toward advocating a policy of dollar devaluation as the means to bring an end to deflationary pressures, support the stock market, promote economic growth and contribute to a decline in unemployment.

We say “advocating” for a reason, in that it is the US Treasury, not the Fed, which has the mandate for US currency policy. Any decision to deliberately devalue the dollar must therefore be made by the Treasury, presumably on the executive order of the president, although it is possible that an act of Congress would be used to provide additional legitimacy for such action. The Fed, however, would act as the agent, selling dollars in exchange for foreign currency government bonds, most probably those of the euro-area and Japan–the largest foreign markets–but possibly also others.

In the event that the euro-area and Japan are willing to allow their currencies to appreciate, then the cost of goods imported from those countries into the US is going to rise. The same is true for imports from any country which is willing to allow its currency to rise versus the dollar in this fashion. In time, the US will find that import price inflation is pushing up the prices of consumer goods generally. As US wages are likely to remain stagnant amidst high unemployment, however, it is only when the dollar has fallen far enough to make US workers’ wages somewhat cheaper relative to the rest of the world (ROW) that businesses will begin to hire US workers again and unemployment will begin to decline.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

When Only a Much Weaker Dollar Will Do, Part One of Two originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Only a Much Weaker Dollar Will Do, Part One of Two




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

When Only a Much Weaker Dollar Will Do, Part One of Two

September 30th, 2010

It is sometimes challenging to make sense of economic policymakers’ frequently convoluted and occasionally obfuscating language. There are times, however, when they say what they mean rather clearly. This the Fed did in its September policy meeting statement. While these statements normally contain quite standard language that does not change materially meeting to meeting, last month was an important exception. The Fed chose to add some text which, when placed in context, implies that the Fed now has a bias to apply more unconventional stimulus to the economy. Here is the relevant excerpt:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Now if inflation is too low and is likely to remain too low for “some time”, then the Fed clearly has a bias to do what it can to try and expedite a rise in inflation. But with policy rates already near zero and the Fed already preventing a natural shrinkage of its balance sheet as securities holdings mature, all that is left is for the Fed to reach further into its toolkit of unconventional policies.

We have examined the Fed’s various unconventional policy tools in previous Amphora Reports and concluded that, absent a decline in the dollar and/or rise in commodity prices, the Fed is not going to succeed in increasing the rate of price inflation. This is because the money and credit transmission mechanism is the US is broken due to a weak financial sector, excessive household debt and associated high unemployment. We believe that Mr. Bernanke knows this. Indeed, in a speech from 2002 that we have quoted before, he cites currency devaluation as an effective means of policy in the event that the domestic money and credit transmission mechanism breaks down:

…there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation. [emphasis added]

Now think about this for a minute. Mr. Bernanke is on the record advocating currency devaluation as an effective means of ending deflation, supporting the stock market and promoting economic growth when interest rates are near zero. Well, with interest rates near zero and the Fed already buying Treasuries systematically to prevent any shrinkage in the monetary base, an obvious possible conclusion one can draw from the Fed’s recent, explicit statement that inflation is too low amidst weak economic activity, is that the Fed is moving closer toward advocating a policy of dollar devaluation as the means to bring an end to deflationary pressures, support the stock market, promote economic growth and contribute to a decline in unemployment.

We say “advocating” for a reason, in that it is the US Treasury, not the Fed, which has the mandate for US currency policy. Any decision to deliberately devalue the dollar must therefore be made by the Treasury, presumably on the executive order of the president, although it is possible that an act of Congress would be used to provide additional legitimacy for such action. The Fed, however, would act as the agent, selling dollars in exchange for foreign currency government bonds, most probably those of the euro-area and Japan–the largest foreign markets–but possibly also others.

In the event that the euro-area and Japan are willing to allow their currencies to appreciate, then the cost of goods imported from those countries into the US is going to rise. The same is true for imports from any country which is willing to allow its currency to rise versus the dollar in this fashion. In time, the US will find that import price inflation is pushing up the prices of consumer goods generally. As US wages are likely to remain stagnant amidst high unemployment, however, it is only when the dollar has fallen far enough to make US workers’ wages somewhat cheaper relative to the rest of the world (ROW) that businesses will begin to hire US workers again and unemployment will begin to decline.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

When Only a Much Weaker Dollar Will Do, Part One of Two originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Only a Much Weaker Dollar Will Do, Part One of Two




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Zooming in on the St. Louis Fed’s Financial Stress Index

September 30th, 2010

Yesterday’s post, St. Louis Fed’s Financial Stress Index, generated a great deal of interest in what I like to call the STLFSI.

Not surprisingly, many of the questions and comments had to do with the performance of the STLFSI and the VIX during the 2008 Financial Crisis and up through the present.

The chart below zooms in on the previous 1993-2010 timeline and highlights the STLFSI and VIX since the beginning of 2007. Keep in mind that the data is weekly (the STLFSI is only updated once per week) so some of the nuances are lost. Still, some conclusions are unavoidable. For instance, the STLFSI appears to have done a better job than the VIX of flagging the deteriorating economic situation from the end of 2007 to September 2008. Additionally, the STLFSI indicates that extreme stress in the system in late 2008 persisted longer than the VIX would have investors believe. Finally – and perhaps most relevant to the current situation – the VIX has almost completely discounted the May 2010 volatility spike some four months later, whereas the STLFSI suggests that the events of May, which were highlighted by the European sovereign debt crisis, still cast a large shadow on the current state of the markets.

As is often the case, here the holistic analytical approach trumps the solo indicator.

Related posts:

[source: Federal Reserve Bank of St. Louis]

Disclosure(s): none



Read more here:
Zooming in on the St. Louis Fed’s Financial Stress Index

Uncategorized

Student Housing REIT – Perfect Combination of Yield, Stability and Price Gains

September 30th, 2010

A buddy of mine has been making a killing in college housing for years.  Unlike what has happened to the residential real estate market, the college housing market has been largely insulated from both the initial bubble and the subsequent crash.  Why?  Well, valuations are based on actual cash-flows (real money) and not speculation, flipping and no-doc loans like the mess we got into with residential real estate.  In essence, if a certain unit is return X cash per year, it can be reasonably valued at Y dollars.  In general, the cost of college housing has been increasing at or more than the rate of core inflation for years pretty steadily.  There’s no shortage of college students requiring off-campus housing if you pick the right university.  Zoning laws and insider dealings make it a bit of a tough nut to crack, but once you’re in, you’re in.  So in the end, my friend is making 20% on cash and continues to roll equity from one property to the next.  He’s building a small empire – the one you used to hear about with condo flipping in Miami…but this one won’t pop unless universities start going belly up.

In thinking through how I could participate in this seemingly handsome reward per modest risk without being an insider myself, I came across a great proxy – a Real Estate Investment Trust (REIT list of dozens of tickers referenced there) based on college campus housing.  There are a couple of these out there but I identified what I felt to be the best in class – American Campus Communities Inc (ACC).  I like ACC for several reasons, enough to actually buy some for my self-directed IRA.  I prefer holding dividend payers in this account since they’re protected from taxes and I love the benefit of the overall dividend return equating to close to half of the total stock market returns over time as indicated graphically there.

Key Performance Measures of ACC:

  • Yield: 4.5% – The dividend payouts have continued uninterrupted for years, even through the financial collapse last year.  Granted, share prices declined, as did all asset classes outside of Treasuries, but they also recovered quickly.  Meanwhile, investors have continued to enjoy yields exceeding the 2% yield on the S&P500 and 3% on the longest duration Treasuries.  While one could pursue even higher yields with muni bond funds and other high yield asset classes, there are significant risks that may have yet to manifest themselves in the current valuations.  Admittedly, the best utility ETFs due convey similar benefits of stability and high yield.
  • Performance YTD: ACC is up 7.4% vs. 2.7% for the S&P500 (SPY) – This is impressive in that with a market with virtually no dispersion and alpha tough to find, it has greatly outpaced the market at large.  This, all with a higher dividend to boot.
  • Performance During Crash of 2009: ACC was down 40% vs 47% for the S&P500 (SPY) – While 40% is nothing to write home about, it demonstrates lower volatility and risk than the market at large.  I looked at the 1 year period leading up the March 2009 lows before the market capitulated and rebounded.
  • Performance Since Inception Aug 20, 2004: ACC has gained 72% since inception vs. 7.5% for the S&P500 (SPY) - very strong long-term performance.  In a “lost decade” and a period of near flat returns from 2004, ACC delivered a very respectable 72% plus dividends.
  • Performance vs. REIT Index ETF: When comparing to the iShares REIT Index ETF (IYR), ACC outperformed strongly as well, at the same 72% since inception vs. 3.8%.

Disclosure: Long ACC

ETF, Real Estate

Student Housing REIT – Perfect Combination of Yield, Stability and Price Gains

September 30th, 2010

A buddy of mine has been making a killing in college housing for years.  Unlike what has happened to the residential real estate market, the college housing market has been largely insulated from both the initial bubble and the subsequent crash.  Why?  Well, valuations are based on actual cash-flows (real money) and not speculation, flipping and no-doc loans like the mess we got into with residential real estate.  In essence, if a certain unit is return X cash per year, it can be reasonably valued at Y dollars.  In general, the cost of college housing has been increasing at or more than the rate of core inflation for years pretty steadily.  There’s no shortage of college students requiring off-campus housing if you pick the right university.  Zoning laws and insider dealings make it a bit of a tough nut to crack, but once you’re in, you’re in.  So in the end, my friend is making 20% on cash and continues to roll equity from one property to the next.  He’s building a small empire – the one you used to hear about with condo flipping in Miami…but this one won’t pop unless universities start going belly up.

In thinking through how I could participate in this seemingly handsome reward per modest risk without being an insider myself, I came across a great proxy – a Real Estate Investment Trust (REIT list of dozens of tickers referenced there) based on college campus housing.  There are a couple of these out there but I identified what I felt to be the best in class – American Campus Communities Inc (ACC).  I like ACC for several reasons, enough to actually buy some for my self-directed IRA.  I prefer holding dividend payers in this account since they’re protected from taxes and I love the benefit of the overall dividend return equating to close to half of the total stock market returns over time as indicated graphically there.

Key Performance Measures of ACC:

  • Yield: 4.5% – The dividend payouts have continued uninterrupted for years, even through the financial collapse last year.  Granted, share prices declined, as did all asset classes outside of Treasuries, but they also recovered quickly.  Meanwhile, investors have continued to enjoy yields exceeding the 2% yield on the S&P500 and 3% on the longest duration Treasuries.  While one could pursue even higher yields with muni bond funds and other high yield asset classes, there are significant risks that may have yet to manifest themselves in the current valuations.  Admittedly, the best utility ETFs due convey similar benefits of stability and high yield.
  • Performance YTD: ACC is up 7.4% vs. 2.7% for the S&P500 (SPY) – This is impressive in that with a market with virtually no dispersion and alpha tough to find, it has greatly outpaced the market at large.  This, all with a higher dividend to boot.
  • Performance During Crash of 2009: ACC was down 40% vs 47% for the S&P500 (SPY) – While 40% is nothing to write home about, it demonstrates lower volatility and risk than the market at large.  I looked at the 1 year period leading up the March 2009 lows before the market capitulated and rebounded.
  • Performance Since Inception Aug 20, 2004: ACC has gained 72% since inception vs. 7.5% for the S&P500 (SPY) - very strong long-term performance.  In a “lost decade” and a period of near flat returns from 2004, ACC delivered a very respectable 72% plus dividends.
  • Performance vs. REIT Index ETF: When comparing to the iShares REIT Index ETF (IYR), ACC outperformed strongly as well, at the same 72% since inception vs. 3.8%.

Disclosure: Long ACC

ETF, Real Estate

Three ETFs Influenced By Chinese Real Estate

September 30th, 2010

As China continues to witness exponential economic growth, its real estate sector is following and the Chinese government is taking measures to curb the real estate boom potentially influencing the Guggenheim China Real Estate (TAO), the iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS) and the Guggenheim China All-Cap (YAO).

China’s Finance Ministry recently announced that it will speed up the introduction of a trial property tax in certain cities before implanting the levy across the nation.   The Ministry further stated that the tax rate will be 1 percent for units that are 90 square meters or smaller and will end an income-tax exemption on profits from the sale of real estate reinvested within one year. 

To further spark a crackdown on its real estate sector, which has witnessed property prices in 70 of its major cities rise 9.3 percent in August from a year earlier, China is urging commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers.  Additionally, banks have been ordered to stop lending to property developers that violate industry regulations, have raised interest rates on second-home mortgages and have put restrictions on the number of new homes that residents can purchase in certain cities. 

Overall, these increased regulations and the implementation of a property tax on residential real estate are likely to hinder the Chinese real estate sector influencing these ETFs:

  • Guggenheim China Real Estate (TAO), which is a diversified play on Chinese real estates and includes 41 holdings.
  •  iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS), which allocates more than 8% of its assets to Chinese real estate holdings.
  • Guggenheim China All-Cap (YAO), which includes companies which will be directly influenced by stricter lending regulations such as China Construction Bank Corporation, Industrial and Commercial Bank of China and Bank Of China Limited.

If currently invested in these ETFs, to further protect against downward price pressure implementing an exit strategy is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

Read more here:
Three ETFs Influenced By Chinese Real Estate




HERE IS YOUR FOOTER

ETF, Real Estate, Uncategorized

Is Inflation “Too Low”?

September 29th, 2010

John Mauldin, in his Frontline Weekly Newsletter, had a graph of Total Consumer Credit Outstanding, showing that it had peaked at the end of 2008 after running up to almost $2.6 trillion.

I instantly leap to my feet, howling in outrage because there are less than 100 million private-sector workers in the Whole Freaking Country (WFC), and private-sector workers are the only people that can show a profit, with which to pay debt, by their labors.

“This means,” I go on, “that each of these 100 million private-sector workers must produce enough in profits to pay off, in one way or another, $26,000 in credit card bills, plus, at an average of 16% interest on the unpaid balance, paying $4,160 a year in interest charges, too, which doesn’t even start talking about paying off a whopping $13.6 trillion national debt!”

You can see the look of impatience on Mr. Mauldin’s face as I ramble on and on, as this must all be elementary to him, but it is, as I prove, endlessly fascinating to tragic halfwits like me. Embarrassed, I just shut up and sat back down.

And I am glad I did, because the more surprising thing, and thus more fascinating to guys like me who have intellectual deficits and the associated poor table manners, hygiene, and lack of self-control, was when he went on that Total Consumer Credit Outstanding “had been growing steadily for 65 years until this last recession.”

Being Completely Freaked Out (CFO), I could only admire Mr. Mauldin for his calm serenity, which has allowed him to write that sentence without at least one exclamation point to indicate the importance of 65 years of steadily-growing personal debt! Hell, I can’t seem to write a sentence about it that DOESN’T end with a damned exclamation point, to show you how CFO I am!

Perhaps my agitation explains why I re-wrote Mr. Mauldin’s sentence for inclusion in my quarterly report to Glaxxnorgg, the new overlord of this sector of the galaxy. My excuse is that I was in a rush since I had trouble finding the memo containing the new obligatory salutation for our new hotshot in charge, which turned out to be, if I decoded the message correctly, “Greetings, Glorious and Magnificent Glaxxnorgg, Supreme Overlord, whose wisdom is surpassed only by his good looks, or maybe the other way around, depending on mood and time of day.”

It took a lot longer than I thought to find the misplaced memo, and so, in my rush to beat the nearing deadline, I hastily re-worded Mr. Mauldin’s sentence as, “Earth on Red Alert: Total Consumer Credit Outstanding grew for 65 freaking years in a row, and then it suddenly stopped! Stopped!! 65 years of accumulating a massive, crushing debt of just under 2.6 trillion freaking dollars to buy the massive flood of goods and services that grew an idiotic, distorted, malignant, cancerous economy based on financed consumption and government deficit-spending instead of production! And now the necessary, lifeblood of new debt has not only stopped growing – horrors! – but is – horror of horrors! – dropping, although by less than $100 billion a year! These idiot Earthlings are freaking doomed!!”

I am sure that you, as did Glaxxnorgg and Junior Mogambo Rangers (JMRs) around the galaxy, grasped the significance of the plethora of exclamation points, actually ending with two of them, so I shall not belabor the point.

I concluded my report with the summation, “Things are looking worse and worse here because the idiot central banks keep creating money so that their respective governments can borrow it to deficit-spend, and you know how that kind of Really Stupid Crap (RSC) always works out.”

As if to prove the point, I am still in a semi-reclusion defensive position since the last FOMC announcement when the foul Federal Reserve decided that they would make inflation in prices worse because inflation was “too low.”

Inflation being “too low” is, to a guy who has seen the historical record of inflation in prices, means that I am more petrified than ever of inflation in prices, which is the Big Nasty Killer (BNK) of people, economies and countries.

The FOMC statement was enough of a shock to me that I quit working immediately, but fortunately not for Scott Lanman and Joshua Zumbrun of Bloomberg.com, who apparently did a little research and found that the Federal Reserve said, significantly, “for the first time, that too-low inflation, in addition to sluggish growth, would warrant taking action,” which is interpreted as taking the Fed “closer to a second wave of unconventional monetary easing” to, as completely un-freaking-believable as it is to even say such a thing, cause higher inflation in prices!

This is outrageous! The “mission statement” for the Fed, and the purpose of the Fed’s very existence, is to keep prices stable! Stable! Meaning no inflation! Gaaakkkk!

That “Gaaakkkk!” was the sound of an original scream of outrage and fear of impending doom from inflation in prices that was suddenly choked off by my suddenly remembering, to my immense happiness, that I can just buy gold, silver and oil stocks!

Their prices will go up and up and up, guaranteed by the deadly resolve of a desperate, deficit-spending federal government and desperate, money-creating insanity by the Federal Reserve to accomplish it.

And with that kind of guarantee, all you do is buy gold, silver and oil, and all you can say is, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Is Inflation “Too Low”? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Is Inflation “Too Low”?




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

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Is a Falling US Dollar Causing a Stock Sell-Off?

September 29th, 2010

“As pressure mounts on the greenback, US stock futures chart a course modestly lower,” read a headline on MarketWatch before the open this morning.

Exhibit One on why the financial media is so confusing.

Up till now, a falling dollar has been given as the one constant that has propped UP stocks since coming off their late-April highs.

S&P Charted Against the US Dollar Index

In fact, the upward trend in stocks has become especially pronounced as the dollar has weakened during the September rally. When the dollar rallied in August, stocks sold off.

Now, apparently, a falling dollar is responsible for stocks charting a “modestly lower” course.

Argh.

The real takeaway: Since the April highs, the S&P is down 5% and the dollar index is down almost as much. Anyone holding an S&P Index fund just got handed a double whammy.

In our opinion, you’d do better to stick with specific stocks and forget the indexes as best you can.

Addison Wiggin
for The Daily Reckoning

Is a Falling US Dollar Causing a Stock Sell-Off? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Is a Falling US Dollar Causing a Stock Sell-Off?




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

A History of Inflation, Deflation and Monetary Meddling

September 29th, 2010

“Forget football,” a friend told us when we arrived in Buenos Aires a few weeks back. “Avoiding taxes is the national sport down here.”

There are few things in life a freedom-loving wanderer appreciates more than a healthy distrust of the state. More on that later in the week. But first, the noise…

Stocks inched higher again yesterday, up almost half a percent by the close. Gold was up too. The anti-dollar investment had retreated a few dollars off another record high, last we checked. An ounce, as of this writing, will cost you (or bring you, depending on whether you are buying or selling) around $1,309. Not bad for a metal that, just one short decade ago, was shunned from polite conversation.

So we get gold’s mood. At least, we think we understand why the metal is moving higher. Put simply, there are trillions of reasons for it to, most courtesy of the Federal Reserve. Even the mainstream media is beginning to notice.

Writing in the UK’s Telegraph, Ambrose Evans-Pritchard explains…in an admirably penitent kind of way:

“I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.”

Kudos to Mr. Evans-Pritchard. Anyone can make a mistake. It takes a steely resolve to admit it…and to a mass audience, no less. Like many before him, the Telegraph’s International Business Editor believed that the Fed was capable of the one thing it most sorely lacks: restraint.

“My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION,” he wrote. “If the Federal Open Market Committee cannot see the difference, God help America.”

And therein lies the problem. Unlike Mr. Evans-Pritchard, who can cop to folly with few repercussions for the greater public, Mr. Bernanke enjoys no such leeway. The Fed Head must – and will – follow his convictions through to their inevitable end. One turn of the lever begets another. A tinker here, an adjustment there, each movement grounded on the fallacious assumption that one man, one panel of experts, can truly know and set the price of money itself…and before you know it you’ve got the credibility of an entire currency weighing on your back…and debtors from around the world knocking on your door. Like a spineless man in a bad marriage, Mr. Bernanke will follow his promises to the grave, from health to sickness, from better to worse, forever and ever. Amen.

Since 1913, when the Federal Reserve first assumed its role as money-printing monopolist, the value of the dollar has fallen some 97%. And with each freshly inked bill that hits the streets, the value of every one that preceded it erodes a commensurate amount. Pretty soon, the price of the “stuff” those dollars are chasing begins to go up. Inflation begins at the bank. Or, as Milton Friedman better phrased it, “Inflation is always and everywhere a monetary phenomenon.”

In this instance, not only is gold “stuff”…it is also the right stuff. Not only is it a commodity in and of itself, in other words, it is also the one true money, the sound alternative to a fiat anchored, papier-mâché economy built in the path of a rising tide.

This is what happens when planners get to planning. Whether it is your education, healthcare or the price of money itself, meddlers always find a way of making a reasonable situation worse.

Take, for example, Social Security. As of tomorrow, September 30, 2010, your retirement “fund” officially begins shelling out more money than it is taking in. Over the past couple of weeks, our special reports correspondent, Ian Mathias, has provided a few essays on that so-called retirement “lock box” and the millions of Americans who are counting on it to supplement their golden years [click here to see Part I, "The End of Social Security as We Know It" and Part II,  "Opt Out of Social Security"].

Here’s what a few readers had to say:

Thank you for your article on Social Security. Let me offer you another slant on that awful program.

One argument that I have used in the past against SS is a rather religious one, mainly the 4th commandment: Honor thy father and mother. When I was growing up, of course that always meant I was suppose to obey my parents…well, at least try. But as I got older, that also meant to take care of my parents when they became elderly. What I have argued is that SS short-circuits that process. Why bother with taking care of them monetarily? After all, they have Social Security, and that frees me from that responsibility.

In addition, it seems to me, that it diminishes the connection between generations. Obviously, there’s going to be more interaction between you and your parents if you’re helping to support them. And then there is the resentment that drives a wedge between generations. Why should I pay more and more into a program that isn’t going to be worth a damn once I retire? They’re going to get theirs, but I’m not going get anything.

I will be eligible for SS in 5 years. Believe me, I’m not counting on it. God help the people who are because they’re going to be in for one hell of a jolt.

And this:

The system may “go into the red”…but the federal government owes the trust 2.7 trillion dollars and the program is solvent for many years to come…unless the government defaults on its commitment to the trust…

And, finally:

As I fast approach the age of 70, I think back to the time when I first got a SS card. I was 11 years old, living in New York. I had a chance to get a paper corner on the crossroads of two busy streets, 5th Avenue & 5th Street in the Bronx. I had to get an SS card to get the corner. I was excited and when I got my first payment for the job I was doing, I questioned the card that came with the cash about the deductions that were withheld.

SS was explained to me and I have been paying into this fund for almost 60 years. During those years I seem to remember the government borrowing from the fund for some crisis or something a couple of times. My grandfather made the comment to me before his passing that SS should always be there unless the government does not pay back what they borrow.

Is this in fact what happened, and if so, did they ever pay back what they borrowed?

Thank you to all our Fellow Reckoners who wrote in with thoughts and concerns regarding this very important topic. For more insight on the Social Security bankruptcy and government meddlers, take a look at Ian Mathias’s brilliant essay “What’s Really in the Social Security Trust Fund?”

Joel Bowman
for The Daily Reckoning

A History of Inflation, Deflation and Monetary Meddling originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A History of Inflation, Deflation and Monetary Meddling




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Update on SP500 Intraday Triangle and Market Internals

September 29th, 2010

You may be asking, “What are Market Internals saying about the recent price action in the S&P 500?”

Good question!  Let’s take a look at current intraday market internals and also note the developing ascending triangle price pattern that is forming – and of course the trendline price boundaries to watch for clues for a breakout or breakdown.

The S&P 500 5-min chart:

Click for full-size image.

Let’s start first with the Internals.

Given that price is forming a sideways trading range, internals for the most part are doing the same.

I highlighted the two recent price peaks (highs) so you can compare what Market Internals revealed at those points – and you’ll notice that in both cases, a negative divergence formed.

Internals (Breadth and VOLD) peaked on September 24th’s spike, and though price pushed higher recently, internals did not.

TICK did make a slight new extreme high on yesterday’s close (price spike), but that was right after making a new TICK low not seen since September 23rd.

In summary, internals are consolidating and diverging along with price – not really showing conviction in either direction.

So now let’s turn to the short-term price pattern – an ascending triangle – that is forming intraday.

The upper boundary at the 1,148 to 1,150 resistance is clear, but the lower rising support trendline is not as clear.

I drew a longer-term rising trendline (blue) that ends currently at 1,144.

The shorter term (red) trendline ends a little higher – right where we are now at 1,146.

However you slice it, look for a breakdown under 1,144 or 1,140 to be a potential short-sale trigger, just as a breakout above 1,150 would be a potential long/buy trigger.

Even though we call them “Ascending Triangles,” it’s best to think of them as price compression patterns that do NOT have any inherent bullish or bearish bias.

Price alternates between range compression (triangles, for example) and range expansion (breakout moves), so it’s best not to try to outsmart the market and be caught on the wrong side of a big breakout – which is forecast from the price compression (triangle) pattern.

Let’s see what happens next!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Update on SP500 Intraday Triangle and Market Internals

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XOM Forms Another Daily Triangle Pattern

September 29th, 2010

Exxon-Mobile’s (XOM) stock chart has a tendency to form triangle patterns – as I’ve pointed out in the past.

It looks like another symmetrical triangle price pattern has formed, with price slightly tipping above the upper boundary on lackluster volume and momentum – perhaps we’ll need to redraw the boundary.

Let’s take a look at the current pattern and key price levels to watch:

I discuss Triangle Patterns in the educational section on Triangles (Symmetrical, Ascending, and Descending).

Generally, triangles are just two price trendlines that converge at the apex, or cross-over point.  More times than not, price will break out of the triangle trendline boundaries before price reaches the apex (crossover).

It’s possible we’re seeing a breakout in XOM, but if so, we’re not seeing a corresponding breakout in volume or momentum – notice the 3/10 oscillator also shows a corresponding triangle pattern that has NOT broken out yet.

So if that’s the case, we’ll need to redraw the upper trendline, or just call this a potential “bull trap” or false breakout.

The currently drawn trendline rests at the $61.00 level, which also sports the 20 day EMA at $61.18.  Right now, that level will be the determinant – or key – to future price action.

It’s bullish if shares remain above $61, but otherwise a break back down under $61 sets up a short-term retest of $60, and a breakout under $60 would be a bearish turn-about.

Keep in mind that the 200 day SMA rests currently at the $63 area overhead, so a continuation breakout might have trouble rising above $63 in the short-term.

For now, watch $61 for support, $63 for resistance, and a breakdown under $60 as a bearish trigger.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
XOM Forms Another Daily Triangle Pattern

Uncategorized

XOM Forms Another Daily Triangle Pattern

September 29th, 2010

Exxon-Mobile’s (XOM) stock chart has a tendency to form triangle patterns – as I’ve pointed out in the past.

It looks like another symmetrical triangle price pattern has formed, with price slightly tipping above the upper boundary on lackluster volume and momentum – perhaps we’ll need to redraw the boundary.

Let’s take a look at the current pattern and key price levels to watch:

I discuss Triangle Patterns in the educational section on Triangles (Symmetrical, Ascending, and Descending).

Generally, triangles are just two price trendlines that converge at the apex, or cross-over point.  More times than not, price will break out of the triangle trendline boundaries before price reaches the apex (crossover).

It’s possible we’re seeing a breakout in XOM, but if so, we’re not seeing a corresponding breakout in volume or momentum – notice the 3/10 oscillator also shows a corresponding triangle pattern that has NOT broken out yet.

So if that’s the case, we’ll need to redraw the upper trendline, or just call this a potential “bull trap” or false breakout.

The currently drawn trendline rests at the $61.00 level, which also sports the 20 day EMA at $61.18.  Right now, that level will be the determinant – or key – to future price action.

It’s bullish if shares remain above $61, but otherwise a break back down under $61 sets up a short-term retest of $60, and a breakout under $60 would be a bearish turn-about.

Keep in mind that the 200 day SMA rests currently at the $63 area overhead, so a continuation breakout might have trouble rising above $63 in the short-term.

For now, watch $61 for support, $63 for resistance, and a breakdown under $60 as a bearish trigger.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
XOM Forms Another Daily Triangle Pattern

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