Making Money Alert: If There’s Buying, it Must be January

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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Stocks are off to a solid start in 2012. So far this year, the S&P 500 Index is up about 2%. Of course, a move higher in stocks at the beginning of the year is a common phenomenon. In fact, there’s even a name for it — it’s called “the January effect.”

The January effect rally is usually attributed to the increased buying of stocks following end-of-year tax loss selling in December. This year, however, we’re seeing a lot of money come out of cash and bonds and back into the market from mutual funds, pension funds and increased 401(k)-type plan contributions. The move into stocks so far this year has pushed the S&P 500 Index back above the technically significant 200-day moving average and, as of this writing, back above the 1,300 mark.

Chart

I must say that I think stocks have been remarkably resilient this year, despite some rather downbeat news. But I suspect that the January effect is largely responsible for much of the gains. In terms of negative news, we’ve seen earnings from big financials come in tepid at best, and the news out of Europe isn’t getting any better. In fact, last week we saw ratings agency Standard & Poor’s downgrade the credit rating of nine European countries.

S&P lowered its long-term credit rating on Cyprus, Italy, Portugal and Spain by two notches, and cut its rating on Austria, France, Malta, Slovakia and Slovenia by one notch. The French downgrade was the big one, as France plays a key role in the European Union and is second only to Germany in terms of fiscal might. S&P did, however, affirm Germany’s credit rating.

On the economic front, we had some slightly better-than-expected GDP growth figures from China, and that gave markets a boost on Tuesday. However, the rate of growth in China’s economy is slowing, and the nation now is growing at its slowest pace since the Great Recession in 2009. China’s slowing, along with the imminent slowdown in Europe, is going to put a lot of pressure on the global economy.

In fact, we received word today that the World Bank warned developing countries to prepare for the “real” risk that an escalation in the euro area debt crisis could tip the world into a slump on a par with the global downturn in 2008/09.

The World Bank concluded that Europe was probably already in recession and, if the euro area debt crisis deepened, global economic forecasts would be significantly lower. Already, the World Bank is predicting global economic growth of just 2.5% in 2012 and 3.1% in 2013. That’s well below the 3.6% growth for each year projected in June.

The bottom line here is that there are a lot of potentially disastrous events on the horizon that could really do some damage to the equity markets. The kind of damage we’re talking about is no match for a modest January effect.

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I am currently advising readers of my Successful Investing advisory service to remain cautious with respect to their allocations to this dangerous market. I think there is just too much potential peril here for investors, and that means cash could be your best friend in the months to come.


Personal Finance Exercises for the New Year, Part III

For the past two weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part III of our series, which will be of particular interest to investors with a focus on income. Recall that the first installment was all about taking an inventory of all of your assets. Part II was to do an asset allocation review. Today in Part III, it’s time to think about cash flow.

In my experience, most people don’t think about their income as much as they do their expenses; however, the beginning of a new year is a great time to look at all of your existing — and potential — income streams. Now, this exercise is extremely important if you’re in retirement or transitioning into retirement, but it’s also very important if you’re still working.

Remember that your goal when investing is to increase your net worth. You can do this by making good investment decisions, but you also can do this by saving more money. The bottom line here is income minus expenses. We will get to the expenses portion of this equation next week, but this week it’s all about income.

Income is something that can, and should, come from multiple sources. When you finally reach retirement, you’ll want multiple income streams. Here are the categories of income for most people currently working:

  • W-2 income (wages earned and taxes withheld)
  • 1099 income
  • Rental income
  • Investment income (interest and dividends from your taxable portfolio)
  • Royalty income (energy and oil & gas funds)
  • Business ownership (profits from a small business or side business
  • Alimony/child support

For retirees, the categories for income streams also include:

  • Social Security
  • Pensions
  • IRAs (required minimum distributions or withdrawals from retirement accounts)
  • Other retirement plan distributions

This week, I want you to calculate all of your current (and projected) income, and figure out what’s coming in monthly and annually. Your goal here is to add up your total income, as you want to know how much cash flow you’re expected to get this year. Completing this exercise is critical to determining the kind of net income you’re going to have in 2012. Knowing what you have coming in is the first step in increasing your net worth, so be sure to complete this personal finance exercise before next week.

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If you’d like to hear more about these personal finance exercises, as well as my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.


ETF Talk: Low-Volatility Funds Offer Reduced Risk

Halfhearted optimism could be the phrase that best describes how investors are feeling, as we’ve seen a nice rally during the past two weeks of trading. With few, if any, of the major headwinds having been resolved yet, we also can expect the market to be susceptible to significant volatility in 2012. Fortunately for cautious investors, PowerShares recently launched two new exchange-traded funds (ETFs) that focus on low-volatility stocks: the PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSE: EELV) and the PowerShares S&P International Developed Low Volatility Portfolio (NYSE: IDLV).

The rationale behind the launch of these new funds is simple. There are plenty of opportunities for investors in the developed and emerging markets, but rocky conditions can wreak havoc on an otherwise diversified portfolio that features good investments.

For EELV, its top holdings include: Global X FTSE Colombia 20 ETF, 4.10%; Cathay No 1. REIT, 1.34%; Maxis Bhd, 1.18%; Public Bank Bhd, 1.16%; Nestle (Malaysia) Bhd, 0.97%; Taiwan Secom Co., 0.93%; Redefine Properties, 0.83%; Chunghwa Telecom Co. 0.80%; UMW Holdings Bhd, 0.76%; and Malyan Banking Bhd., 0.75%.

As for IDLV, its top holdings, including consumer staples and utilities companies that performed remarkably well in 2011, are: TrustPower Ltd., 0.96%; Great Eastern Holdings, 0.83%; Singapore Press Holdings, 0.81%; Nissin Foods Holdings Co., 0.78%; Bell Aliant Inc., 0.77%; Goodman Property Trust, 0.74%; Port of Tauranga Ltd., 0.71%; Nankai Electric Railway Co., 0.71%; SMRT Corp., 0.70%; and Kiwi Income Property Trust, 0.68%.

As we continue into the new year, the first half likely will be the most volatile as Europe forges debt-relief plans, as trading volume stays fairly low and as reduced growth expectations are factored into the share prices of European and U.S. stocks. While the biggest market-moving events are difficult to predict, low volatility ETFs such as EELV and IDLV could offer ways to stabilize your portfolio’s performance in 2012.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am pleased 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.


The Right Strategies for 2012

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It’s 2012, and that means it’s a great time to make sure you have the right strategies in place for your growth assets, as well as the right strategies in place for your income-generating investments.

In what will likely be a very challenging year for the markets, having the right strategies in place to both preserve and to grow your capital is absolutely critical to your investment success. Now is the perfect time to decide how you should position your investment dollars to achieve your financial goals in 2012.

Make no mistake; the year ahead will be very tricky. The markets will continue to be plagued by Europe’s debt problems, as well as a global economic slowdown led by China. Then we have the rollover of enormous debt loads in Japan, Europe and the United States, all of which could wreak havoc on your wealth in the coming year — if you’re unprepared.

We think that how you position your assets at the beginning of the year will be a big determining factor on whether you succeed, or whether you fail, in achieving your investing goals in 2012.

To help ensure you are on the right track for the year, Fabian Wealth Strategies has put together an audio special report titled, The Right Strategies for 2012.
In this special one-hour presentation, you will learn:

  • Which ETFs offer you the opportunity for steady and secure income.
  • Which stock market regions are poised to show the strongest growth in 2012.
  • Which sectors we believe you should be allocating to for strong returns.
  • What the fallout from Europe’s debt crisis will be on U.S. investors.
  • What we think will be the opportunity of the year for prepared investors.
  • Plus much, much more.

This audio special report is FREE, and all you have to do to listen is click here.
Here’s to a fantastic year for the well-prepared investor!

NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.


Of Principle and Parties

“There are many men of principle in both parties in America, but there is no party of principle.”

–Alexis de Tocqueville

Men of principle are rare, and they are even rarer in politics. Keep this notion in mind when you make your choice for the next chief executive of the United States.


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 that you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

Sincerely,

Doug Fabian

previous article

Well, the numbers released today on China's economic growth confirm what economists have long suspected: that the Chinese economy is finally slowing down from its breakneck pace of 10% annual growth. Of course, China's 8.9% growth rate in Q4 still trumps the U.S growth rate of 1.8% by a country mile. But behind China's slowing growth lurk deeper problems -- and ones that question the fundamental sustainability -- and credibility -- of the "China Miracle." China: Extreme, Not Unique

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