It’s ugly out there, and it has been for the past week. Stocks around the globe are plunging, as the situation in Europe keeps putting pressure on worldwide equity prices. Fear and anxiety over the lack of any substantive plan from European leaders to effectively do more than put a band-aid on a burn victim has caused the euro to plunge, and bond yields in the region to surge. The decline in the euro also has prompted gains in the U.S. dollar, and the dollar’s surge has caused a big sell-off in the commodities space. Gold, silver and oil prices all plunged in Wednesday’s trading. Along with the decline in stocks around the world, we’re now hearing the bear roar load and clear.
If you’ve been a reader of the Alert since mid-October, you know that I’ve been discussing how to survive the next bear market. If you’re feeling squeamish about this market right now, and who isn’t, I recommend going back and reading each installment of this five-part series on bear market survival. It could save you a lot of anxiety, as well as a lot of money.
As you can see by the chart here of the iShares Europe 350 (IEV), European stocks have now broken down below their 50-day moving average. The broad measure of the biggest stocks in Europe had long since fallen below its 200-day moving average. A late-November rally, fueled by expectations of a comprehensive bailout, gave way to pessimism. As a result, it looks like we’re going to retest the most-recent lows.
The way I see it, Europe is fraught with too many problems. Those problems are going to require much more than just a few modest austerity measures and a strategic bailout to the most fiscally challenged European Union members. The fact is there’s still no credible plan being put forward to solve the European debt crisis, and that means the region’s problems will continue to keep stocks tied to Europe’s fortunes in the doldrums.
Moreover, I see the real possibility of a recession in Europe spreading throughout the world, and that will have a pernicious effect on markets in nearly every corner of the globe.
Already, we see that emerging markets have descended back into bear market status. The chart above of the iShares MSCI Emerging Markets (EEM) clearly shows the renewed pressure the segment has come under in December. Here too, we could see a retest of the November lows, and possibly even the October lows, before the year is out.
As for domestic markets, the S&P 500 Index has yet to fall back into a bear market; however, after today’s big selling, the broad measure of U.S. stocks now is back below its 50-day moving average.
This latest decline puts the so-called Santa Claus rally thesis into jeopardy. It also puts the S&P 500 down about 3.4% year-to-date. In a year plagued with such extreme volatility, it shouldn’t come as much of a surprise that stocks would finish up 2011 with a flurry.
Now, I am not discounting the possibility of a rally to finish out the year. This market has proven that as soon as the bears take center stage, the bulls are quick to come out of the wings. Still, I think the overwhelming body of evidence confronting us right now suggests that the bear is in the driver’s seat as we roll into 2012.
What this means is that you are going to be best served with a defensive posture that includes very low exposure to the equity markets. It also means that you have a chance to take advantage of strategic buying opportunities caused by the dislocation in places like Europe, emerging markets and commodities.
Right now in my ETF Trader advisory service, we are profiting from the decline in both Europe and commodities. If you’d like to find out how you can get on the right side of this trade, then I invite you to check out the service today.
ETF Talk: Seeking Safety in America
With the markets more interconnected than ever before, it is understandable if you feel threatened by the negative headlines coming out of Europe. While the U.S. market is hurt by what is happening in Europe, there still are sound reasons to like the U.S. market’s prospects. Despite volatility, the U.S. market offers more stability than the markets in Europe and many other places. One way to invest in U.S. stocks with a single purchase is through the SPDR Dow Jones Total Market ETF (TMW).
The SPDR Dow Jones Total Market ETF, before expenses, seeks to match the returns and characteristics of the Dow Jones U.S. Total Stock Market Index. This exchange-traded fund’s (ETF) approach is designed to provide low portfolio turnover, accurate tracking and low costs.
A key incentive to buy TMW is to collect income from its quarterly dividend payments. For example, TMW paid a $.42 dividend in September and it currently provides a 2.08% dividend yield. The fund’s top 10 holdings are well-established American companies that many investors know and love, including Exxon Mobil, Apple, IBM, Chevron, Microsoft, Procter & Gamble, GE, AT&T, Johnson & Johnson and Pfizer.
From my perspective, the prospects for a U.S. market turnaround in the coming months are good. With Europe dealing with declining Gross Domestic Product (GDP) for the foreseeable future, along with economy-crippling debt issues, the United States is poised to lead a recovery in the developed economies. For that reason, sticking with proven, blue-chip stocks through a fund that provides a solid, quarterly dividend should help you to weather any storms overseas.
Without question, any exposure to European stocks at this point in time is a big risk. You may prefer to invest more cautiously by purchasing TMW to ride a market turnaround in America. If the volatility of recent months persists for awhile, you still collect a quarterly dividend. When a recovery occurs, you are positioned for capital appreciation gains to supplement your dividend income from the fund.
One note of caution is that the troubles in Europe could affect U.S. corporate earnings. This situation is a risk that you will want to keep in mind when making your investment decision. However, TMW’s focus on major U.S. companies that operate globally reduces this fund’s risk, compared to many other investments.
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 happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.
High Risk Dead Ahead! — But the Next 13 Minutes Can Help You Prepare
Investing in the equity markets is always a pursuit fraught with peril, but these days, the risk meter on your money is running dangerously in the red.
You see, I think there’s high risk dead ahead for investors, as the market faces a trifecta of negatives itching to rob you of your hard-earned wealth.
I’m Doug Fabian, president of Fabian Wealth Strategies. I am of the opinion that investors will have to deal with some major headwinds going forward, headwinds that could blow down the house on your wealth in 2012.
First off, Europe’s debt crisis still isn’t solved, and there are no plans in place likely to stave off a European recession. That recession likely will spread around the globe in the year ahead, and that’s going to make things very tough for equities. Then there’s the political acrimony in Washington, D.C. As we all know, 2012 is a presidential election year, and that means that more political gridlock in our nation’s capital is a done deal.
To help investors deal with what I think is going to be a very difficult market environment in 2012; I’ve recorded a special audio report titled: 2011 Year-End Market Alert.
This audio podcast is just a little more than 13 minutes, but that’s enough time for me to show you why I think 2012 will be such a challenging year; why the upside potential in stocks pales in comparison to the downside risks, and why success in the year ahead will require proactive decisions designed to put your money in a defensive posture.
I believe that 2012 will be a crucial year for investors, a year where making the wrong decisions could spell disaster for your wealth. On the other hand, making the right decisions could help set you up to prevail against whatever peril the market throws your way — and making the right decisions starts off by listening to my special 2011 Year-End Market Alert.
President, Fabian Wealth Strategies
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
A Great Year for ETFs
Although it hasn’t been a very prosperous year for most investors, it has been a great year for the ETF industry. In 2011, the industry introduced 188 new funds, and those funds have thus far gathered a combined $5.7 billion in new assets.
Here’s a short list of some of the best and brightest of this year’s new offerings:
iShares High Dividend Equity Fund (HDV). This fund has captured $650 million in assets, trades 186,000 shares per day on average, and offers exposure to large-cap dividend paying equities.
PowerShares S&P 500 Low Volatility (SPLV). The fund has $650 million in assets, trades 600,000 shares per day and offers exposure to the 100 lowest volatility companies in the S&P 500 Index.
PowerShares Senior Loan Portfolio (BKLN). At $170 million in assets and 90,000 shares traded per day, this is the smallest on our list of new ETFs. What’s interesting here is that the fund is the first of its kind in the senior loan ETF space. It also boasts an attractive current yield of 5%.
Vanguard Total International Stock Index (VXUS). The fund has captured $440 million in assets, and trades 130,000 shares per day. It tracks the stocks in the All Country World Index, which excludes the U.S. market.
WisdomTree Asia Local Debt (ALD). This bond fund has $417 million in assets, trades 167,000 shares per day, and invests in local debt denominated in Asian countries such as Indonesia, Malaysia, Singapore, South Korea and Thailand.
WisdomTree Managed Futures Strategies (WDTI). The fund holds $260 million in assets and trades 68,000 shares per day. It’s the first ETF of its kind to give you exposure to the managed futures market, a sector that typically only hedge funds dabble in.
As the ETF universe continues to grow, look for 2012 to be another banner year for the industry — and that increased choice represents a win for investors.
On Being Cynical
“The cynics are right nine times out of 10.”
–H. L. Mencken
The great journalist and veritable human quote machine, H. L. Mencken, had a knack for poignant and thought-provoking one-liners. Here he tells us how being cynical usually is the correct way of seeing the world. I’ve always been a cynic when it comes to the conventional wisdom on Wall Street, as I think it has by and large hurt investors. If you want to make sure your money is safe, then you’ll be well served by cultivating a cynical, i.e., skeptical, attitude toward so-called expert advice. Learn to think for yourself, and learn to discern the advice that’s right for you.
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.