Making Money Alert: China and Emerging Markets: The Quiet Rebound

The first quarter of 2014 is almost in the books, and so far things have been a lot tougher in the markets than the previous two years. For example, year to date through March 25, the S&P 500 is up about 1.8%. Last year, the index was up nearly 6% through the first three months. In 2012, we already were up about 11%.

Yes, it’s been harder to make money this year, and that’s particularly true if you’ve been allocated to China and/or emerging markets. The charts here of the iShares China Large-Cap ETF (FXI) and the iShares MSCI Emerging Markets (EEM) show the respective tumble that took place in January, which was followed by a lot of volatility through mid-March.

Recently, however, stocks in both China and the emerging markets have staged a quiet comeback. FXI just broke above its 50-day moving average, while EEM now is back above both its 50- and 200-day moving averages.

So, is the move in China and in the emerging markets the beginning of more upside in these two sectors?

I am going to let the data make the official judgment, but if you are looking for two value sectors that are starting to see a lot of capital flowing their way, then certainly these two areas deserve serious consideration.

If you want to know what I am buying right now, and how you can profit from trends in the current market, then I invite you to check out my Successful Investing newsletter today.

ETF Talk: Charles Schwab’s ETF Selection is Broad

Charles Schwab’s discount investing company offers one of the industry’s widest selections of exchange-traded funds (ETFs). The company recently fully embraced the world of ETFs with the launch of its ETF OneSource marketplace.

ETF OneSource offers commission-free trading on approximately 100 ETFs from five different providers, including some providers that recently have been featured in ETF Talks — Guggenheim, PowerShares and SPDR. Additionally, all of Schwab’s own 21 ETFs are available for trading commission-free.

Another innovation offered by Schwab in the ETF field is the Fundamental Index ETF. A Fundamental Index ETF measures companies by their sales, their operating cash flow and their return to shareholders in the form of buybacks and dividends. One such ETF is the Schwab Fundamental U.S. Small Company Index ETF (FNDA).

FNDA has made a 2.25% gain in the first three tumultuous months of this year. From its inception in August 2013, it has risen nearly 16%, and the fund issued dividends in October and December.

In addition to its Fundamental Index ETFs, Schwab also offers more traditional market-cap weighted ETFs. Charles Schwab & Co. does not itself offer the widest breadth and depth of ETFs, but they do offer their investment customers a commission-free introduction to the wider world of ETFs.

The investment firm has been an innovator in the past by introducing trading by phone in 1989, trading online in 1996 and a mobile app in 2010.

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 send me an e-mail. You just may see your question answered in a future ETF Talk.

Buy Gasoline for $1 a Gallon

If I told you where you could buy gasoline in your town for $1 a gallon, wouldn’t you go there?

Of course you would.

That’s because $1 per gallon is about a 75% discount in cost from what you pay if you’re in California. Well, it’s the same thing for investment products.

You see, the cost of owning the average mutual fund per year is much more than a comparable ETF. Stated differently, an ETF costs about 75% less than a mutual fund — and that makes a BIG difference over the course of five, 10 or 15 years.

So, go get your gasoline for $1 a gallon, and get your portfolio exposed to ETFs.

How Investors Should Connect the Fed’s ‘Dots’

By Jim Woods

I hate the Fed and all it stands for.

I despise the very existence of a quasi-governmental cabal that controls the money supply, and I hate the fact that most people have no clue how the Fed got started and what its real purpose is (to facilitate big government, finance wars and control the financial system). Just read G. Edward Griffin’s brilliant book, “The Creature from Jekyll Island,” and I promise you’ll never look at the Fed the same way again.

Of course, I don’t expect the Fed to go away anytime soon, and despite the valiant efforts of Ron Paul and other freedom advocates to audit the Fed, I doubt whether the Fed is ever going to be scrutinized the way it needs to be in order to see what, precisely, it holds on its books.

That said, what we can do as investors is take advantage of the conditions in the market created in large part by the central bank’s manipulation of the money supply and interest rates. Think of this as a case of “beating them at their own game.”

On Wednesday, March 19, the Fed acted as expected by announcing a taper of its bond-buying program. The Fed reduced its asset purchases by $10 billion per month to $55 billion. The Fed also dropped its previous threshold of a 6.5% unemployment rate as a trigger to prompt an interest rate hike.

During her first-ever press conference, Fed Chair Janet Yellen suggested that interest rates would start to rise sometime around six months after the end of quantitative easing (QE). Wall Street was already betting that QE would end later this year. While I think predicting the end of QE that soon is dubious, if the conventional wisdom turns out to be accurate, then the first interest rate hike in many years would be around April or May 2015.

The Yellen comments actually spooked traders, and the result was a sharp sell-off in stocks and in bonds immediately after. And while this may have been a short-term overreaction to the Yellen hint on when rates would get turned up, all one has to do is effectively connect the “dots” to see the rising rate writing on the wall.

My friend and expert market watcher Tom Essaye, Editor of The 7:00’s Report, explained this concept of “dots” to me today like this:

“The projections of where individual members of the FOMC [Federal Open Market Committee] expect the Fed Funds rate to end each year is known as the ‘dots,’ and those ‘dots’ moved up decidedly in March compared to December. The latest FOMC release showed that 10 out of the 16 Fed officials believed the Fed Funds rate would be at or above 1% by the end of 2015. That compares with just seven Fed officials back in December. That means the ‘dots’ are telling us that we will see at least one rate hike in 2015, and, logically, more than one.”

If this uptrend in the “dots” continues, it will effectively act as a long-term driver that will send market interest rates, i.e. yields on the 10-year Treasury note, much higher. And it is this bid that will keep bond prices trending lower (and bond yields higher) during the next year and well beyond.

For investors, this means either A) avoiding long-term Treasury bonds completely, or B) allocating at least some of your capital to an inverse Treasury bond fund such as the ProShares Short 20+ Year Treasury (TBF). This exchange-traded fund (ETF) is designed to deliver the inverse of the daily performance of the Barclays U.S. 20+ Year Treasury Bond Index, and that means it can make you money as the value of bonds fall and as interest rates (bond yields) rise.

So, if you want to get ahead of the trend and make some money, then start by connecting the “dots.”

Jim Woods is Editor-at-Large of TheWealthShield.com. You can follow him on Twitter: @Woodsish.

Your Monthly ETF Sector Spotlight

Want a detailed look at a different subsector of the ETF universe each month? Of course you do, and that’s why at FabianWealth.com, we provide this analysis — absolutely FREE.

This month, we take a look at our Top 10 Energy ETFs, a list that you can use to benefit from one of the biggest, and potentially most powerful, investment themes we’ve seen in the last several years, something I call the North American energy renaissance.

Thanks to technological advances such as horizontal drilling and hydraulic fracturing, oil and natural gas production companies now are able to explore and unlock U.S. energy resources in ways they haven’t before. That’s caused a huge economic boom in many sectors, and taking advantage of that boom is what many of our Top 10 Energy ETFs are doing.

To see which funds made our Top 10 Energy ETFs list, get your ETF Sector Spotlight today!

NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Publishing.

Paul on Patriotism

“Real patriotism is a willingness to challenge the government when it’s wrong.”

–Ron Paul

I don’t always agree with the colorful Ron Paul, but his thoughtful commentary here on patriotism is a lesson that all Americans should heed.

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. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week’s Eagle Daily Investor about what the Federal Reserve’s policy change means for the economy. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Best,

Doug Fabian