Making Money Alert: Does the Fed Want a Correction?

The big news today comes directly from the Federal Reserve. As most of us expected, the Fed announced today that it was tapering its bond-buying program by $10 billion per month, down to asset purchases of just $55 billion per month. The move is part of the Fed’s commitment to turn down the money printing spigot gradually, and without causing much of a shock to the financial system.

In today’s Fed minutes, however, there was a significant change in the central bank’s forward guidance.
The Federal Open Market Committee, or FOMC, actually removed the previous threshold of a 6.5% unemployment rate as a trigger to prompt an interest rate rise. Here’s the money quote from the FOMC statement:

“In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.”

In its previous statement, the Fed said it would begin to raise rates “well past” the time unemployment falls to 6.5%. The elimination of the 6.5% threshold might appear to be a bit “dovish” on the surface. But actually what I think is more likely is that the Fed is being a bit more “hawkish” than most think.

In fact, I wouldn’t be surprised if the Fed wants at least a small correction in stocks and bonds in order to slow the markets down from becoming too overheated for their own good.

The move also ushers in the new “Yellen era,” one that the new Fed chair would like Wall Street to perceive as tough, smart and independent.

Now, while stocks had a mild reaction to the FOMC announcement, there was some decided selling in the bond market, including a 2.69% spike in the yield on the 10-year Treasury note. That spike means bond prices got smacked. This situation could, in fact, be an investable trend going forward.

Keep your eyes on bonds. Particularly, track the 10-year Treasury note yield, as it will tell you all you really need to know about how Wall Street is reacting to the Fed’s moves.

ETF Talk: Guggenheim Draws a Unique Portfolio Picture

An exchange-traded fund (ETF) provider with a name more recognizable from the world of art, rather than investments, is Guggenheim. But Guggenheim Investments, a subsidiary of Guggenheim Partners, also is one of the legacies of the Guggenheim family, which first made its wealth in silver mining before later generations championed the visual arts, including the creation of three premier museums of modern and contemporary art.

However, any dealings with Guggenheim Investments are not likely to involve a pure play in silver or other commodities, or even difficult-to-measure alternative investments such as art. Roughly half of Guggenheim Investments’ 60 ETFs are either Equal Weight ETFs or BulletShares Bond ETFs.

Equal Weight ETFs contain each component of the fund equally at the time of inception and periodic rebalancing. An Equal Weight ETF also may capture some of the benefits of small-cap investing, since such small-capitalization companies outperform large-cap firms historically.

In turn, BulletShares are a fixed income investment, matching the performance of a group of bonds that mature in a specific year. The use of an ETF avoids the inconvenience of actually tying up your money for a period of years. The use of an ETF also allows you to buy or sell the investment in a liquid market, just as you could with a widely traded stock.

The current least mature BulletShares ETF is the Guggenheim BulletShares 2022 Corporate Bond ETF (BSCM). With an inception date of July 16, 2013, BSCM has been trading steadily above its 50-day moving average ever since it reached 50 days of trading history. So far in 2014, BSCM has gained 2.56%. The fund also issues a regular monthly dividend; since September 2013, the dividend has averaged $0.057.

If you’re not interested in a fixed income or Equal Weight ETF, Guggenheim also has other strategies for diversifying your portfolio and increasing your exposure to an array of market segments, including several small-cap, developing market and strategic ETFs. No matter which path you pursue, Guggenheim Investments has alternative methods for investing in traditional assets.

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.

How to 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 about 75% 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.

Christie and Tesla — A Freedom Problem

By Jim Woods

As an unapologetic advocate of capitalism and free markets, the thought of a politician blocking the sale of a legal product in any way, or for whatever reason, is an abhorrent concept. The idea is even more repugnant when that politician is being trumpeted by mainstream Republicans as a leading candidate for president.

New Jersey Governor Chris Christie recently sent a chill down the backs of free market, libertarian types such as me when he essentially took steps to block the sale of Tesla Motors (TSLA) luxury all-electric cars. The kerfuffle that’s now morphed into a war of words between Christie and Tesla CEO Elon Musk began last week when the state’s Motor Vehicle Commission unanimously passed new rules that limit Tesla’s direct sales business model.

The reasons given for the ruling are nearly laughable to freedom lovers, or to anyone who has ever bought a car from an auto dealership. The main hollow argument comes from the industry protection and lobbying group known as the New Jersey Coalition of Automobile Retailers (NJCAR). Group front man and NJCAR President Jim Appleton argued that Tesla’s direct-sales business model (which cuts out traditional auto dealers) is something that hurts the consumer.

Yes, the ability to choose to buy an automobile or any other good or service directly from the manufacturer and without a middleman is something that every customer knows is going to hurt them, right? I am being facetious here, of course, because the idea that you have to go through a special, government-approved channel just to buy a product is completely contrary to freedom. It is also something that reeks of cronyism and political favoritism.

So, it should come as no surprise to learn that the NJCAR is a big donor to Gov. Christie’s political machine. In fact, the NJCAR spent north of $150,000 on lobbying efforts last year. According to NJ.com, Gov. Christie has received a substantial portion (more than $60,000 in donations from dealerships) of that money.

In response to the New Jersey ruling, Tesla has accused the Christie administration of not acting in good faith to work with the company. In a blog post written by Musk, the self-assured Tesla chief also sharply criticized the ruling’s rationale in the following, and in my opinion harshly beautiful, statement:

“The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures ‘consumer protection.’ If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind.”

Ouch! Bravo, Mr. Musk!

In fact, I wish more CEOs had the gumption to speak their minds like this in the face of an obvious case of protecting an industry that makes a lot of political contributions. The more outspoken businessmen are, the more the public is likely to realize that self-proclaimed, anti-establishment politicians like Christie are actually impediments to freedom, not proponents of liberty.

In fact, the Christie case is even sadder than most — for the simple reason that I expect a liberal Democrat to always look to restrict freedom. It is in his philosophic DNA. What I don’t expect to find is that same DNA in someone who wants to be the leader of the GOP.

Gov. Christie, you have a freedom problem.

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

Your Monthly ETF Sector Spotlight — Energy

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.

Be a Master-Gardener

“A man sooner or later discovers that he is the master-gardener of his soul, the director of his life.”

–James Allen

The sooner you realize how important it is to take control of your own destiny, the sooner you will be able to make proud decisions about your life. Until you do this, and until you own the consequences of your decisions, you’ll be at the whim of others. So, be a man, be strong — and be your own master-gardener.

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 posted last week on Eagle Daily Investor about how the spillover effect from global events will affect the U.S. market. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Best,

Doug Fabian