Making Money Alert: State of the Equity New World Order

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

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The news stories of late all sound like a rerun. They either read, “Stocks are down on worries over Europe,” or “Stocks are higher leading up to European summit.” I’ve been seeing those same stories since last year, but without any resolution to the region’s debt woes. From my vantage point, no resolution is in sight anytime soon.

This week, we have another summit of European leaders getting underway, but I suspect there will be little or no “solutions” coming out of this meeting. Interestingly, this meeting is the 20th summit, depending on how you count them, of European leaders gathering to discuss how to deal with their region’s fiscal mess. I really don’t think 20 is a charm, so forgive me if I remain firmly in the skeptic camp.

Given the current state of Europe’s debt mess, we have somewhat of a new equity world order, meaning that stocks around the globe continue to react negatively to the situation in the “Old World.” Let’s take a look at a few charts to see what the new equity world order looks like.

China is the second-largest economy in the world and, as you can see by the chart below of the iShares China 25 Index (FXI), China’s equity market is mired in a decided downtrend. FXI trades well below its short- and long-term moving average, a clear technical sign that the bear is roaming throughout China.

What about Japan? The third-largest economy in the world’s equity market also is struggling. The iShares Japan (EWJ) trades below its short- and long-term moving average, which is once again a clear sign that the bear likes this part of the world, too.

What about the emerging markets? They once were the darlings of the global equity market, but now they also are in bearish hands. The iShares MSCI Emerging Market (EEM) chart clearly tells the tale of woe in the region.

Finally, there is the domestic equity market, which still is hanging tough when compared to the rest of the world. The chart here of the S&P 500 Index shows that we still trade above long-term support at the 200-day moving average. We did fall below this key level briefly in early June, but since then money from around the world has sought out the relative safety of the U.S. equity market.

Given the precarious state of the new equity world order, my advice to you is to stay patient, and to make sure your money isn’t exposed to inordinate amounts of risk. There will be plenty of opportunity on the other side of the European debt crisis, when the bearish sentiment in the global equity markets is finally rung out.

When that happens, it will be time for the bulls to run — but just not yet.

Welcome to Bankrupt Stockton

I live in California, and today I saw the news that one of the state’s large cities, Stockton, also is the largest U.S. city to file for bankruptcy. Stockton came into existence during the Gold Rush, but now it is a hub for California’s agricultural exports. It also now has the dubious distinction of going bust.

Sadly, the slowing California economy, as well as high levels of taxation, onerous regulation, and the city’s borrowing binge several years ago, has resulted in the city’s fiscal demise. Stockton formally filed for protection under the U.S. bankruptcy code, halted its bond payments, slashed employee health and retirement benefits, and adopted a day-to-day survival budget.

I bring this situation to your attention today because it’s a cautionary tale of what increasingly could become the norm for more cities throughout the state, and throughout the country. If this type of debt contagion spreads throughout the nation, it will become a real threat to all of our financial lives, and that’s something we all must be aware of — and prepared to face.

Wisdom from Satchmo

“All music is folk music. I ain’t never heard a horse sing a song.”

–Louis Armstrong

In this quote, the great jazz musician Louis Armstrong, whose nickname was “Satchmo,” reminds us that everything out there is within our reach, if we have the gumption to grab it. Applied to investing and wealth, this advice simply means that having financial success is within our reach, if we take the time and effort to learn about what’s best for our money, and if we make the right decisions with it. Of course, helping you make the right decisions with your money is what the Fabian services are all about.

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 audio podcast, newsletters, seminars or anything else. Click here to ask Doug.


Doug Fabian

P.S. Today’s challenging market conditions require even more knowledge than ever for investors and traders like you to keep pace with the latest market intelligence to safeguard your portfolio and to profit from opportunities that only may be available for short periods of time. Join me at this year’s MoneyShow San Francisco, August 24-26, at the San Francisco Marriott Marquis to hear recommendations and advice about how best to profit in 2012 and beyond! Register FREE today by clicking here, by going to or by calling 1-800/970-4355 and mentioning priority code 027879.

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