quarta-feira, 18 de fevereiro de 2009

Doug Fabian's Making Money Alert

Fellow Investor,

What Obama Bounce?

Dow Jones Industrial Average closing value, November 4, 2008: 9,625

Dow Jones Industrial Average closing value, February 17, 2009: 7,553

On Tuesday, President Obama signed unprecedented bailout legislation into law. The $787 billion "rescue" package is intended to create jobs and jumpstart the ailing U.S. economy. Whether the plan has its intended effect, only time will tell; however, one effect we all can agree on is that since Election Day, the market hasn't been very bullish on Obama.

The Dow Jones Industrial Average is down 2,072 points since the nation voted in our 44th president. So much for the Obama bounce that many Wall Street pros, including myself, admittedly predicted would take place.

If you recall, we wrote to you in last week's Alert that we once again could be on our way to the 800 level in the S&P 500. Well, as President Obama was signing the biggest -- some may say most invasive -- economic legislation in U.S. history, the S&P 500 blew through the 800-support level.

The chart above of the S&P 500 tells us that the next stop on the downside is 750. If the market falls below that level, we need to batten down the hatches and prepare for what could be the most turbulent conditions I've witnessed in my three-plus decades of market watching.

Conversely, if stocks can find some positive catalyst -- be it a bank rescue proposal with some real teeth, a mortgage bailout or some kind of positive macro economic data -- we could look back on this decline as a great buying opportunity.

Fortunately for readers of my Successful Investing advisory service, we have sidestepped nearly all of this market pain by allocating to what I'm calling the best Obama investment right now.

Want to find out how to position your portfolio for the current market maelstrom? Click here.

Has every ship run aground? Have all the oceans frozen over? You might think so if you've followed the dramatic tumble of the Baltic Dry Index. The index tracks the price to ship dry goods -- everything from corn to cement -- and unless the world suddenly stops eating and building, the odds are this index is ripe for a stunning rebound.

Today, we're featuring an article from our friends at StreetAuthority. StreetAuthority's Amy Calistri explains why these shipping stocks have a bright future ahead of them, all while providing some monstrous yields -- one shipper in particular is paying a 23.2% yield!

Shipping Stocks Are Starting to Rebound...
Don't Miss the Chance for Double-Digit Yields
By Amy Calistri, Investment Strategist, StreetAuthority.com

Legendary investor Warren Buffett has always said, "Be fearful when others are greedy, and be greedy when others are fearful." When we look back on 2008, we'll see it as one of the most fearful times of our generation.

A number of investors, certainly including Buffett, will remember this time happily, as an opportunity to make a fortune. Fear has caused everyone -- investors, consumers, businesses -- to put the brakes on spending. This has led to nothing short of panic.

Nowhere is this more obvious than with the Baltic Dry Index -- which had at one point fallen 94% from its peak just seven months ago.

The Baltic Dry Index isn't a regular stock index like the S&P 500 or the Nasdaq. It's actually a composite survey of daily shipping prices around the world. And although it doesn't track underlying stocks like most market indices, its movement does affect almost every shipping company's share price, as it is viewed as a proxy for the overall industry. As the index has plummeted, it has taken the share prices of most shipping companies with it. This provides new investors a chance to capture some of the most appealing yields that we have ever seen.

The BDI's Bubble Trouble

In May 2008, the Baltic Dry Index was riding high. Commodity prices were still on the upswing, and commodity buyers were insensitive to shipping costs. In preparations for the headaches of tighter port security surrounding the Olympics, Chinese companies had stockpiled raw materials, pushing shipping prices even higher. And the U.S. subprime crisis appeared to be contained at its borders -- meaning the rest of the world's trade went on unhampered. On May 20, shipping spot prices hit an all-time high.

No one, not even the shipping companies, considered the May highs sustainable. But few anticipated the perfect storm of downward pressure that shipping prices would face during the next few months. How bad has it been? Rates for capesize ships -- so named because initially their large size prevented them from using the Suez Canal, forcing them to sail around either Cape Horn or the Cape of Good Hope -- that were priced at $230,000 a day in late May have fallen to almost $20,000 a day. The Panamax-class shipping rates have seen a similar trend, tumbling from daily rate quotes of $90,000 a day to about $12,800.

The decline of the S&P 500 looks like a mere bunny slope when compared to the Baltic Dry Index's plummet. The BDI has fallen more than 90% since its high on May 20.

There are a number of valid reasons why the Baltic Dry Index should be off its highs. In addition to being grossly overheated just a few months ago, the U.S. subprime mortgage problem blossomed into a full blown financial crisis and undoubtedly has weighed on economies outside the United States. When world economies slow down, the demand for shipping also slows. And the speculative bubble in the commodities market also has burst, making commodities buyers more price-sensitive when it comes to shipping.

But instead of adjusting to a new shipping world order, the index failed to find a floor. Jacob Fentz, Classic Maritime Inc. president, noted that the BDI was "overshooting big time on the downside just like it did on the upside." But there is good news for investors: Ample evidence suggests the index's current inability to find the brakes stems from temporary problems with immediate solutions.

Short-Term Problems, Near-Term Solutions

Why do we see an eventual rebound in the future for the Baltic Dry Index? Many of the short-term pressures weighing on shipping prices are already showing signs of abating.

Easing Credit Worries: The worldwide credit crisis that has made it harder for small companies and consumers to borrow money, also has made it harder for dry bulk buyers to get their cargos loaded onto ships. Traditionally, all a buyer had to do was show a letter of credit from a bank. But as banks became undercapitalized, letters of credit -- the lifeblood of international shipping -- grew harder and harder still to come by. As a result, commodities began to pile up at the ports. "There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."

The credit freeze has begun to thaw. Bank-to-bank lending has resumed. Governments around the globe have put up hundreds of billions of dollars to back the world's banking system, and letters of credit appear to be navigating their way through the system again.

Stabilizing Demand: In an effort to reduce pollution, China shut down hundreds of construction sites, coal-fired power plants, cement factories and chemical manufacturers a month before the Olympics and throughout the games. While this was only a temporary measure, the drop-off in shipping demand made an already nervous sector panic. But the temporary fits and starts from the Beijing Olympics are now long behind us. The Olympic cutbacks were not a real measure of demand any more than the pre-Olympic build up was, and these anomalies now are being seen for what they were.

Short-Term Feuds and Still-Strong Growth: A tiff between China's steel companies and Brazilian iron ore suppliers, which has resulted in limited shipments of ore between the two countries, had wreaked havoc on the index. This situation has cooled, with Brazilians backing down from the price hikes they were demanding.

China, of course, is an important market for shippers, and many investors worry about a slowing Chinese economy. While there are some signs of this, it is a relative term. After all, China is on track to maintain an 8.5% rate of growth for the next four years. That's considered breakneck speed for any economy, and it will add 50% to China's GDP by the end of 2013. China will need iron ore and other materials to build out that growth. Brazil and other international suppliers will sell it, then ships will move it.

"Dry bulk levels may be close to their 'logical bottom'"

So read the recent headline from Lloyd's List, a respected maritime news outlet. As many of the temporary pressures on the Baltic Dry Index already are starting to ease, it's hard not to believe the BDI has overshot its floor and soon will find a more rational level -- certainly off of its unsustainable highs but also above its equally unrealistic lows.

In fact, we're already seeing this. The BDI is more than 20% off its lows -- but still nowhere near a rational level. And as normalcy returns to the index, investors still have a chance to profit from shipping's worst fears. While you can't trade the index itself, almost every shipping stock was pummeled by the fall, and most will follow it up on the rebound.

In the meantime, with many shipping stocks trading near their 52-week lows, already generous yields are at unprecedented highs. Investors not only have the opportunity to lock in 10%-plus yields with stocks such as Navios Maritime (NYSE: NM), they have the added potential for share-price gains once sanity returns to this sector.

Shipping is Just One Bright Spot for 2009

I'm not the only one who thinks the shipping sector is poised for a comeback. Paul Tracy, editor of StreetAuthority's Market Advisor, recently cited the rebound in shipping rates as Prediction No. 3 in his "11 Surprising Investment Predictions for 2009."

"The bounce-back investment of the year," Paul writes, "will be shipping stocks. After plunging 94% in 2008, these stocks are ripe for a monster rebound." Paul has pinpointed his two favorite ways to cash in on the shipping rebound, including one stock yielding 23.2%.

Along with an expected historical rise in shipping, Paul makes several other bold investment predictions in this report, including:

A scarce metal needed for the defense industry will see its price soar after violence in Africa cuts off supply.

President Obama will pour billions into rebuilding the nation's highways, bridges and other ailing infrastructure. Three construction companies' revenues will skyrocket.

A new way to cash in on nanotechnology may make early investors rich. Some people are calling this the "opportunity of the century."

These are just four of the 12 investment angles that Paul's research team has identified as triggers for explosive profits in 2009. Visit this link to read Paul's predictions report in its entirety right now.

ETF Talk: Is Retail Out of Style?

Consumer spending always is a key factor in economic growth. Economists tell us that consumers account for nearly 70% of the U.S. gross domestic product (GDP). In light of the current economic situation, with a 7.6% unemployment rate that is more than double the norm, consumer spending and GDP seem destined to fall further.

As of this week, the retail outlook seems dim. The Labor Department recently reported that retailers slashed about 45,000 jobs last month to cut costs. Even major retailers such as Wal-Mart, Target and Macy's have announced job cuts in the last few weeks. Amid this maelstrom of dismal news, however, retail sales unexpectedly rose 1% in January -- the first time in the last six months that retail sales haven't fallen from the previous month.

Your first instinct from this brief analysis might be to short retail stocks -- possibly by using exchange-traded funds (ETFs). If you believe that the retail sector is going to be plagued unrelentingly by this ongoing recession, betting against retailers might be a profitable idea. As the retail industry enters a new year, consumers generally are curbing their spending, according to reports from the International Council of Shopping Centers and Goldman Sachs. Chain-store sales were flat for the week ended Feb. 7, compared to the previous week, but declined by 1.8% on a year-over-year basis.

Between job cuts and lagging sales, the shares of major retailers such as Wal-Mart, Target and Sears fell more than 6% last week. The S&P Retail Index, which tracks most retail stocks, last week fell 18 points, or 6.9%. As a result, ETFs that short this sector, such as UltraShort Consumer Goods ProShares (SZK) and UltraShort Consumer Services ProShares (SCC), have risen by more than 15% since January 2009.

Two Ways To Play
XLY Consumer Discretionary SPDR
XLP Consumer Staples Select Sector SPDR
PMR PowerShares Dynamic Retail
UCC ProShares Ultra Consumer Services
UGE ProShares Ultra Consumer Goods
SCC ProShares UltraShort Consumer Services
SZK ProShares UltraShort Consumer Goods

On the other hand, if you believe that consumer spending will recover in a few months, you may prefer to invest in a retail rebound. Since the market usually rises before the economy, early bird investors willing to bet on retail stand to profit the most. Since retail stocks have been beaten down, the industry may bottom out in the coming months. Major retailers such as Macy's and Sears have lost as much as 50% from their share prices in the last year. At some point, retail stocks inevitably will start to climb.

For those of you who believe that President Obama's stimulus package will work and that tax cuts and bailouts might encourage people to resume their now-curtailed spending habits, you may want to invest in retail's recovery. If that scenario plays out, expect to see the sector jump.

At this point, I am not recommending retail as an investment either way. We are at the proverbial fork in the road and it is not readily apparent which way to go. Although retail is starting off 2009 in rough shape, things could improve by year-end.

If you want specific recommendations about which ETFs to trade, check out my ETF Traderservice by clicking here. As always, I am happy to answer any questions that you have about ETFs. To send me your questions, simply click here. I will try to follow up in a future ETF Talk.

Your 401(k) Rescue Plan

Last week, we ran the following story on how to rescue your 401(k) plan. I got a lot of positive response to this story, so I thought I would repeat it here in today's Alert. Enjoy!

It's no secret that most 401(k)-type retirement plans are in shambles as a result of the recent market meltdown. And while there is no simple, quick-fix solution for an ailing 401(k), 403(b) or 457 plan, if you have the ability to self-direct your retirement assets there is a way to put yourself on the road to recovery.

Here are the dos and don'ts of turning around that big drop in your retirement nest egg.

First of all, you have to fight "city hall." All 401(k) providers want you to buy their investments and hold them in perpetuity. I don't care where your 401(k) is, the mutual fund companies want you to choose a mix of funds and then just leave that mix alone. They have placed rules and restrictions on you, and in many cases they make it hard for you to do what you want with your own money. Your first assignment is to know the rules of your 401(k) plan's fund exchange policies. Hey, it's your money, so don't let anyone talk you out of doing what you want with it.

Second, you need to know your retirement plan fund choices. Usually, these choices fall into three categories: fixed income, stocks, or cash. Look closely at your safe choices in the cash category; this could be labeled "stable value" or "money market." As I have been saying for the last year, you need to use this account as your safe harbor in these uncertain times. I'd say you need at least a 50% safe harbor allocation right now.

In the fixed income category, there are some choices that I like. One popular fund is the PIMCO Total Return Fund, a balanced bond fund that posted a total return of 4.2% in 2008. I think you should stay away from those fixed income funds that went down in 2008.

Third, you need to get out of stock mutual funds. I realize that some of you may want to hold on to some of your exposure to stocks, but for me and subscribers to my Successful Investingnewsletter and me, we have zero exposure to equity mutual funds right now. Ideally, if the S&P 500 can recapture 900, we could make a run to 950. If this happens, then it will represent the best opportunity for those still in equity mutual funds to sell into strength.

Fourth, are you able to get some money out of your 401(k) plan? Here's what I mean by that. Traditionally, 401(k)s are very restrictive. Their very design means you have limited choices and more trading restrictions than you would otherwise have in a self-directed IRA. If you are able to, you should transfer assets out of your 401(k). You can do this if you are over age 59 ½, as you may be able to do what's called an in-service rollover. This is when you transfer all or part of your 401(k) to an IRA rollover account. And while this is perfectly legal, your plan must allow for it.

Also, if you have a 401(k) at a previous employer, you should roll that account into an IRA. This will give you the ability to buy and sell exchange-traded funds (ETFs), which come at lower cost than mutual funds -- along with virtually no trading restrictions and with the utmost transparency, so you always know what you own.

Finally, I know what I am outlining here runs counter to establishment thinking, but ask yourself this: are you happy with the results you had in your 401(k) last year? I dare say that that the answer for most people is no, and that means it could be time for some radical change.

Remember that success in anything doesn't come without a little effort, and real success almost never comes about by following the conventional wisdom. In order to rescue your 401(k), you simply have to get involved and start thinking for yourself.

Latin For "Hero"

Tu ne cede malis sed contra audentior ito
(Do not give in to evil, but proceed ever more boldly against it.)

-- Virgil, The Aeneid

The above Latin verse from Virgil's Aeneid was adopted as a motto by one of the greatest thinkers in history, Austrian School economist Ludwig von Mises. The author of the highly recommended book Human Action recalled these words during the dark hours of World War II, and it helped him survive intellectually as he was forced into political exile by Nazi sympathizers. I think we all can learn from the example set by Mises, as the only real power that evil has is the power we choose to give it. Thanks, Mises, for being a true intellectual and moral hero.

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. Click here to Ask Doug.


Doug Fabian

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