Making Money Alert: A Sideways Summer Stall?

A Sideways Summer Stall?

The markets have made a decided move to the upside since late June, but during the past couple of days we’ve seen a bit of a summer stall. Trading volumes have been relatively light, and the markets now are keying on the bevy of earnings reports that have come in.

So far, we’ve seen some high-profile earnings winners, notably Apple (AAPL), Boeing (BA), General Electric (GE) and Ford (F). We’ve also seen some high-profile earnings disappointments, such as Caterpillar (CAT), Coca-Cola (KO), IBM (IBM) and McDonald’s (MCD).

Now that we are in the heart of earnings season, I expect the markets to tread a bit of water here while we wait for additional data. Of course, the big tailwind for stocks here, as it has been for several years, is the Federal Reserve. The quantitative easing (QE) “taper” talk now seems to be on the back burner, and traders are counting on the fact that the Fed will be there with the easy money whenever the data gets soft. And even if the Fed moves to begin pulling back the reins on its bond buying scheme, the market is convinced that this won’t be significant enough to derail the monetary gravy train.

Now, when it comes to international markets, and particularly emerging markets, we see that there’s been a lot more volatility than there has been here at home. The chart below of the iShares MSCI Emerging Markets (EEM) shows the big comeback in the sector since it fell to its June lows. EEM now is back above its 50-day moving average.

The catalyst for this sector was the recent news out of China that the policymakers will do whatever it takes to make sure economic growth stays above 7% for the year. While I am not sure if China’s leaders can make good on this promise, I do know that they will move to inject more stimulus into the system in an attempt to shore up the perception that China’s growth is contracting too fast.

I suspect this situation would be bullish for EEM going forward, so keep an eye on this sector in the weeks to come.

ETF Talk: Eyeing GEMS for Your Portfolio

When I look for an investment opportunity, I am particularly interested in recovering markets. That’s why I was intrigued when Fed Chairman Ben Bernanke’s announcement on quantitative easing spurred a sell-off in global and emerging markets earlier this month.

As a result, I have found an exchange-traded fund (ETF) that taps into a diverse group of emerging markets, the EGShares Technology GEMS ETF (QGEM). This fund invests nearly 90% of its resources in emerging markets in Asia, Africa and South America. Chinese holdings lead the way at 49.15%, followed by Indian holdings at 29.01%. QGEM also invests 3.48% in Thailand, 2.88% in Chile, 2.64% in Indonesia, 2.28% in South Africa and 1.50% in Turkey.

The emerging market index, which includes stocks from all of these countries, looks ripe for a recovery due to its abnormally low P/E ratio. QGEM, on the other hand, already is nicely situated at a 16-to-1 P/E ratio, but this ETF has holdings in key countries that will benefit from such a rebound. QGEM should be well ahead of the emerging market surge.

As indicated by the chart below, QGEM has risen 26% during the last year through a wide variety of conditions. The fund also offers a 1.97% dividend yield.

International stocks form 96.9% of QGEM’s portfolio. The top 10 holdings, nine in developing economies and one in Russia, comprise 57.08% of the total assets of the fund. The largest is Tencent Holdings, with 10.41% of the fund’s assets, followed by Baidu Inc., 7.95%; INFOSYS LTD, 7.83%; TCS LTD, 6.48%; NetEase Inc, 4.62%; Lenovo Group Ltd., 4.55%; Sina Corporation, 4.24%; Wipro Ltd. GDR, 3.79%; Mail.ru Group Ltd GDR, 3.75%; and Shin Corporation Public Co. Ltd, 3.48%.

As indicated by the name of the ETF, these holdings primarily focus on one sector: technology. Indeed, 86.05% of QGEM’s portfolio is invested in that sector, followed by 10.35% in communication services and 3.6% in industrials. Considering that this concentration is spread across China, India, Thailand, Hong Kong, Russia, Chile, the United States, Turkey, Indonesia, South Africa and Poland, QGEM is an incredibly diverse investment. I encourage you to look into QGEM so you can profit as the emerging markets recover.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of 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.

The Detroit Debt Debacle

The big economic/political news story last week was Detroit’s filing for bankruptcy. The debt debacle in one of America’s largest cities is very sad, but it’s also not that surprising.

It’s also not likely to be the only big city that will file for bankruptcy.

So far, the damage financially has been relatively isolated to actual Detroit municipal bond holders. Still, there has been a big sell-off in municipal bond funds due in part to Detroit contagion fears.

The chart here of the iShares S&P National Municipal Bond Fund (MUB) shows the selling that has occurred in the sector of late. That selling ramped up since last Friday, when the Detroit bankruptcy was actually filed. Of course, the selling in munis also ramped up due to the Fed’s taper talk in late May.

If you own municipal bonds right now, I am sure you are uncomfortable and feeling uncertain. Before you take any action, I recommend that you do an inventory of all of your bond holdings to see how much muni exposure you actually have. If you have significant holdings in the space, consider paring those holdings down to protect yourself.

ETF Investors Take Note, a Quarterly Wrap Up

The second quarter of what has been a big year for exchange-traded funds (ETFs) now is in the books, but how do you keep track of the 1,200-plus ETFs currently available?

The answer is the Fabian ETF Report.

In fact, our latest version of the ETF Report has just been released, and you can get it FREE by visiting us at Fabian Wealth Strategies.

If you’re an investor who uses ETFs (and who doesn’t these days?), then you need to put the facts on your side. Doing so will help you make strong moves in Q3, which is something we all want.

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

On Freedom and Benefit

“Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom.”

— Friedrich August von Hayek

The brilliant economist reminds us that freedom, in some of its forms, can also mean the freedom to make poor decisions or to be destructive to oneself or society. This doesn’t negate the idea of freedom, but it does mean that with freedom comes the responsibility to freely choose good actions. Remember that thought the next time you make an important life choice.

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 Making Money 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.

To read my e-letter from last week’s Eagle Daily Investor, please click here. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

Best,

Doug Fabian

P.S. San Francisco Money Show, Aug. 15-17, San Francisco Marriott Marquis: Join me and all the other Eagle editors (Doug Fabian, Nicholas Vardy and Chris Versace), plus William O’Neil (founder of Investor’s Business Daily), Frank Trotter (Everbank), Matt Schifrin (Forbes), John Bollinger, Chuck Butler and many others. There is no charge for this conference, but you do need to register. Call 1-800-970-4355, and mention code #031734.