A Tale of Two Markets
Last week, we witnessed the U.S. equity markets make a solid push higher, and we now are trading well above the February lows. In fact, we now are trading right below the key, 50-day moving average (blue line) on the S&P 500 Index (see chart below). I suspect that this market, indeed, may blow past this short-term technical indicator and, if it does, it likely will signal at least the temporary retreat of those bears that came out so forcefully in January.
If we do break above the 50-day moving average, it will not mean you should add money to stocks immediately. In fact, I would love to see more selling back toward the longer-term, 200-day moving average (red line) before I commit any significant long-term investment capital to equities.
The current “trade location,” as I often call the entry point, is just not that favorable in U.S. stocks, especially considering the volatility we’ve seen during the past four-plus weeks. I think if you are waiting to get back into U.S. stocks here, you might want to just continue being patient and wait things out to see if we do, in fact, break well above the 50-day average. If we see some strong-conviction buying here, then it might signal the all-clear sign. But until we see that conviction, I recommend that you stay patient and wait for a better entry point.
A shocking new report out earlier this week gives the lie to the government-endorsed myth that the worst is behind us.
Official figures out of Europe show that the Eurozone barely had a pulse. The news from the U.S. wasn't much better: Foreign investors are recoiling in horror from Washington's spending and borrowing spree.
No wonder so many Americans are FED UP with Washington and Wall Street!
So much for U.S. stocks, but what about the fortunes of one of the leading foreign markets in the world, China? As you likely know, that country’s equity markets have had a very rough go of it lately, as can be seen by the chart below of the iShares FTSE/Xinhua 25 (FXI).
This measure of the top 25 stocks listed on the Hong Kong exchange now trades below both its 50- and 200-day moving averages. And, while you could say that this is better trade location, i.e., a better entry point for capital vs. U.S. equities, I think you have to put the China pullback into its wider context.
That country has sold off lately on two big increases in bank reserve requirements during the last month or so, and fears of a bursting China bubble still haunt the equities market. While I do not yet know whether China is through turning down the spigot on its monetary stimulus, I do know that the worry over slower economic growth in that country, indeed, has contributed to the very sharp sell-off in its equity markets.
All year, I’ve been telling you to watch China, as it could be the proverbial canary in the coal mine that gives us the heads up on a wider global sell-off. So far in 2010, we have received strong signals that things are going to be tough for the bulls.
Will this China selling continue, and/or will the U.S. markets manage to come out of their funk before long? We’ll continue watching this tale of two markets for complete details -- and for the green light to put money to work in both domestic and international equities.
Consulting My CPA
It’s now February, and that means tax season is in full swing. During the past week, I’ve been working particularly hard on my own tax situation, and I’ve been meeting regularly with my CPA, Lee Haight. Now, you may remember the excellent article that Lee wrote about taxes last December.
In that article, Lee showed you how to make the most of your year-end tax planning by getting out in front of some of the rule changes slated for 2010. Those rules are numerous, and much more voluminous than one can cover in a short article.
So, to help you plan even further for this year’s taxes, I’ve invited Lee to be my guest this Saturday on my radio show, Making Money with Doug Fabian.
In what promises to be a most insightful hour, Lee will tell you how best to prepare for this year’s taxes -- taxes that are due in less than two months!
To prepare for the show, or if you just want to hear my discussion with Lee right now, then I have a special treat for you. Last week, I conducted an interview with Lee, recorded it, and I now have made that interview available at DougFabian.com.
If you want to find out what you need to be doing right now to get yourself prepared for April 15, then I highly recommend that you listen to this interview now.
ETF Talk: Europe’s Worrisome Debt
Greece’s fiscal woes have dominated the news in recent weeks but what you may not know is how to profit from the news. Although the European Union has promised to address the situation, Greece is not the only European country currently struggling with its debt load. The fiscally faltering countries to watch are Europe’s so-called PIIGS -- Portugal, Ireland, Italy, Greece and Spain.
Investors worried about potential fiscal meltdowns in these countries may want to take a well-diversified, international position to avoid fallout from potential financial bloodletting among the PIIGS. One way to do so is by investing in iShares MSCI EAFE Index (EFA). This exchange-traded fund (ETF) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the European, Australasian, and Far Eastern markets that are tracked by the MSCI EAFE Index. EFA currently is not one of my recommendations but it is a fund that offers limited exposure to the troubled PIIGS. The fund focuses on the developed markets that generally are protected from dire debt woes.
The biggest holdings in EFA, as of the end of January, were in Japan, 22.11%; the United Kingdom, 21.37%; France, 10.06%; Australia, 8.16%; Switzerland, 7.82%; and Germany, 7.66%. Two of the PIIGS, Spain, 4.3%, and Italy, 3.29%, follow. With only limited exposure to the PIIGS, the fund offers a chance to benefit from international exposure without taking excessive risk.
Key sectors held by the fund at the end of January were financials, 25.09%; industrials, 11.58%; consumer staples, 10.28%; materials, 9.86%; consumer discretionary, 9.82%; and health care, 8.42%. That degree of sector diversification helps insulate the fund from an overdependence on the performance of a given industry.
Let’s face it. Every investor is in the midst of a battle. It’s a battle for your hard-earned wealth, and so far, you’re not winning.
The steps the Federal government is taking to reignite the economy are good for Wall Street banks and big corporations, but they’re not good for you and your wealth.
But you can change your future. There are 5 critical forecasts that every investor needs to know before March 1 to protect their wealth. Heed my warnings and follow my advice and you could successfully build a fortress around your wealth and become two to three times richer.
The stocks that composed the biggest shares of the portfolio’s positions, at the end of January, were HSBC Holdings PLC, 1.91%; BP PLC, 1.8%; Nestle SA-REG, 1.7%; Total SA, 1.26%; Roche Holding AG-Genusschein, 1.22%; and BHP Billiton Ltd., 1.2%. Clearly, an individual company does not account for an inordinate part of the fund’s performance. The lack of concentration in any particular position should reassure investors who do not want the fund to be dependent on one geographic region, industry or specific company.
If you think the market’s rebound during the past few days is the start of a trend, EFA offers a way to tap future gains. Its diversification also limits the fund’s risk. With market conditions remaining volatile, protecting your assets should be one of your top considerations.
Do you want advice about which ETFs to buy and to sell? If so, please sign up for myETF Trader service by clicking here. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me if you have one. To send an ETF question to me, simply click here. You may see your question answered in a future ETF Talk.
Don’t Be a Mutual Fund Dinosaur
Does your investment strategy still consist of buying and holding mutual funds? If so, then you might be considered a “mutual fund dinosaur.”
You see, with the volatility we’ve seen in the markets over the past couple of years, and with innovative products such as exchange-traded funds now heavily populating the investment landscape, a failure to evolve from investing in primitive mutual funds could have your assets going the way of the dinosaurs.
In my latest radio show, broadcast Feb. 13, my sons David and Michael stood in for me and devoted nearly the entire hour to a discussion of mutual funds. They explained that in many cases, mutual funds just aren’t serving investors the way they should. They also explained that for many investors, exchange-traded funds are the much better investment option.
If you’re primarily a mutual fund investor, or if you own any mutual funds right now, you need to listen to this most informative -- and most entertaining -- broadcast hour. To listen to this episode, click here.
A Little Tax Humor
“I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.”
The late, great humorist pretty much hit the nail on the head with his comedic insights into our tax system. I’d venture to say that most of us don’t mind paying our fair share for the country’s expenditures, but what we really don’t want to be is overtaxed.
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.
Every year, at least one member of the European Union seems to earn the title of economic ne'er-do-well, the collapse of its economy threatening the utopian project of European integration. Last year, it was Hungary and the Baltic states of Estonia, Latvia and Lithuania. This year, it is Greece that is grabbing the headlines. Since the country's perilous fiscal position came to light, Greece has become the global poster child for fiscal irresponsibility.
Despite the Dow hitting 10,000, and no matter whether the DOW ends the year at 11,000 or 9,000, savvy investors interested in more-certain profits are banking that global markets, and the "other China" in particular, will continue to beat the pants off of Wall Street.
While many advisors will tell you that China is the place to park your money, I'm here to tell you that there's an even better way to cash in on China's booming economy!
Click here to discover an emerging economy that's stable, modern, westernized, and even more attractive than China's.
As remote as it may seem to the United States' own economic problems, how Greece ultimately resolves its fiscal woes offers important lessons on what the U.S. government needs to do to avoid a similar fiscal train wreck -- even as that train is heading down the track toward us with ever-accelerating speed.
Greece: Europe's Ne'er-Do-Well of 2010
Greece's accession to the eurozone -- that is, abandonment of its own currency in favor of the euro -- was always viewed as a kind of economic affirmative action. Greece's lack of genuine economic achievements and transparent statistical sleight of hand, which added 25% to Greece's GDP overnight, was dismissed by European bureaucrats with a wink and nod. Best intentions notwithstanding, admitting Greece to the eurozone did nothing to change its centuries-long culture of government entitlements, lackadaisical tax collection, and widespread practice of petty graft and corruption.
Yet, should the European bureaucrats who are now castigating Greece be surprised? As Carmen Reinhart and Ken Rogoff demonstrated in This Time is Different: Eight Centuries of Financial Folly, Greece has been in default roughly one out of every two years since it first gained independence in the nineteenth century.
The United States: The Planet's Ne'er-Do-Well of the Next Decade
Here's the irony. By any objective measure, the U.S. government is in much worse shape than Greece. Greece and the U.S. government's fiscal deficits of 12.7% in 2009 are virtually identical. Yet, while Europe is going apoplectic over whether Greece will meet its objective of reducing its deficit by 2012 to 3% of GDP, an austerity program of similar proportion in the United States is unthinkable.
Unlike Greece, the Obama administration's proposed budget for 2010 shows it is in complete denial. There are a handful of factors -- the inexorable impetus of demographics, the miracle of compound interest and the growing role of government -- that cannot be ignored, no matter what your political persuasion. The fiscal situation of the United States combines all three of these factors and gives the formerly fringe, doom-and-gloom crowd newfound "street cred." And, looked at from the outside, the emerging culture of government entitlements and subsidies in the United States is scarcely different from the benefits enjoyed by Greek workers. As recently as 2007, the Transportation Department had only one person making $170,000 or more a year. Today, it has 1,690. Don't bother telling your kid to study hard so she can go to Harvard or Stanford Law School and to get a job at a top Wall Street Law firm. Chances are, she'd be better paid as a pencil pusher for the government.
How Hungary and New York City Got It Right
The irony is that despite a long tradition of fiscal profligacy, Greece's chance of solving its fiscal problems is much higher than the United States solving its own. The United States does not have the pressure of 15 other larger economies shoehorning it into economic austerity. And, the U.S. economy is a supertanker, compared to a speedboat that is Greece. When their backs are up against the wall, spending cuts and reforms in small countries can happen quickly.
Take the example of Hungary, last year's European bad boy. For all of the disfunction of that country's political system, when push came to shove, Hungary was able to call the political equivalent of a "time out" among incessantly squabbling political parties and appoint a technocratic government that pushed through otherwise politically unacceptable spending cuts. As a result, the country was able, with the help of the IMF, to pull back from economic collapse. By all objective measures, Hungary's Prime Minister Gordon Bajnai, a former colleague of mine, engineered an impressive (and frankly, surprisingly successful) turnaround. His reward? He's one of the most hated men in the country.
That's not a risk an approval-seeking Barack Obama would ever take. New York City offers the best example of what the federal government would have to do to avoid Greece's fate. Mayor Michael Bloomberg's New York is now facing a staggering $4.9-billion deficit. As with U.S. government workers, New York City public salaries skyrocketed, with teachers enjoying a 43% increase in the last few years. In response, Bloomberg has proposed austerity measures like closing Manhattan swimming pools. Presumably, New York City teachers can now afford their own.
It is tempting to assert that if Bloomberg, a Democrat who is also an ex-businessman, was sitting in the White House, the federal government budget for 2010 would not include a projected deficit of $1.3 trillion. Nor is this a matter of which party's lever you pull when you go into the voting booth. Contrast Bloomberg's response to his fiscal crisis with that of a Republican bodybuilder-turned-actor at the helm of California or a Democratic political parvenu whose modest mastery of rhythmic cadences landed him in the White House.
Sadly, while Mayor Michael Bloomberg can make the necessary spending cuts in New York City, and Prime Minister Gordon Bajnai could do so in a small country like Hungary, it's unlikely to ever happen in the U.S. federal government. Although I am convinced that Greece eventually will do the right thing, the current crisis also shows how quickly things can get out of control. Once a country loses its credibility, things can head south very quickly.
Whales are the largest animals today, and many feed on the abundantplankton, particularly diatoms, in the oceans. Whales aroseand diversified in the Cenozoic, about 30 to 40 million yearsago (see the Perspective by Cavin). Marx and Uhen (p. 993) showthat their diversity parallels the diversity of diatoms andchanges in ocean temperature. Whether there were large predatorsof plankton before whales has been enigmatic, because the fossilrecord during the Mesozoic (245 to 65 million years ago) issparse. Friedman et al. (p. 990) now show that a group of largefish filled this role for nearly 100 million years in the Mesozoic.Although not as large as whales, these globally distributedfish were still several meters long. Their extinction at theCretaceous-Paleogene boundary 65.5 million years ago may havecleared the seas for the evolution of whales.
To Degrade or Not to Degrade
Regulating the turnover of proteins within the cell is of fundamentalimportance to almost every physiological process. Hwang et al.(p. 973, published online 28 January; see the Perspective byMogk and Bukau) now find that acetylated N-terminal methionine(Met) is a degradation signal. This degron is recognized bySaccharomyces cerevisiae Doa10, a transmembrane E3 ubiquitinligase that resides in the endoplasmic reticulum and inner nuclearmembrane. The removal of N-terminal Met by Met-aminopeptidasesgenerates N-terminal residues that are often N-terminally acetylated.Doa10 selectively binds to the resulting N-degrons, which mayrepresent the most prevalent class of cellular protein degradationsignals.
2D Quantum Critical Transitions
Quantum critical transitions occur at near-zero temperatureswhen the properties of quantum matter are tuned by an externalparameter such as the magnetic field or pressure. Heavy fermionmaterials, which have effective charge carrier masses hundredsof times heavier than the bare electron mass, have emerged asa prototypical system for studying these transitions. Now, Shishidoet al. (p. 980; see the Perspective by Coleman) use a heavyfermion compound to experimentally realize a new type of quantumphase transition where the tuning parameter is the dimensionalityof the system. They engineer a family of superlattices madeup of a fixed number of layers of the conventional metal LaIn3and varying numbers of layers of the heavy fermion materialCeIn3. As the number of layers of CeIn3 is decreased, the systemgradually changes character from three- to two-dimensional,with corresponding changes in its transport properties.
Detecting Distant Planets
More than 400 planets have been detected outside the solar system,most of which have masses similar to that of the gas giant planet,Jupiter. Borucki et al. (p. 977, published online 7 January)summarize the planetary findings derived from the first sixweeks of observations with the Kepler mission whose objectiveis to search for and determine the frequency of Earth-like planetsin the habitable zones of other stars. The results include thedetection of five new exoplanets, which confirm the existenceof planets with densities substantially lower than those predictedfor gas giant planets.
Silicate in the Primordial Soup
Direct evidence for how prebiotic synthesis of complex organicmolecules paved the way for the origin of life is extremelyscarce. Thus, studies are mainly limited to controlled simulationsof likely reactions in early Earth conditions. Similarly, chemicalreactions in the laboratory may generate the products necessaryfor biosynthesis, but may nevertheless be geochemically irrelevant.Lambert et al. (p. 984) show that silicate ions, present inEarth's surface waters at relatively high concentrations, catalyzethe formation of four- and six-carbon sugars from simple sugarsvia the formose reaction. The resulting complexes stabilizethe sugar molecules, allowing sugars to accumulate in greaterabundance. Silicate stabilization also circumvents the needfor the formose reaction to proceed at high temperatures, thusextending the range of possible environments in which life couldhave originated.
CREDIT: XU ET AL.
Protons are quite versatile catalysts of organic reactions,but because they are achiral, they cannot induce stereoselectivityon their own. One productive way around this problem has beento use chiral conjugate bases and perform reactions in mediawhere the bases remain tightly attracted to protonated substrates.Xu et al. (p. 986; see the Perspective by Schreiner) thoroughlyexplored the mechanism of an alternative approach, in whichan achiral acid was used in conjunction with a second, chiralmolecule (a urea derivative) for catalysis. High selectivitywas attained with this method in the coupling of aryl imineswith olefins. Extensive kinetic and computational studies showedthat the acid and its chiral partner acted cooperatively inbinding the substrates, optimizing the tradeoff between speedand selectivity.
Metabolic Regulation Through Acetylation
Covalent modification of lysine residues in various proteinsin the nucleus is a recognized mechanism for control of transcription.Now two papers suggest that acetylation may represent an importantregulatory mechanism controlling the function of metabolic enzymes(see the Perspective by Norvell and McMahon). Zhao et al. (p.1000) found that a large proportion of enzymes in various metabolicpathways were acetylated in human liver cells. Acetylation regulatedvarious enzymes by distinct mechanisms, directly activatingsome, inhibiting one, and controlling the stability of another.Control of metabolism by acetylation appears to be evolutionarilyconserved: Wang et al. (p. 1004) found that the ability of thebacterium Salmonella entericum to optimize growth on distinctcarbon sources required differential acetylation of key metabolicenzymes, thus controlling flux through metabolic pathways.
Cropland Acidification in China
China is experiencing increasing problems with acid rain, groundwaterpollution, and nitrous oxide emissions. Rapid development ofindustry and transportation has accelerated nitrate (N) emissionsto the atmosphere. Consequently, soil degradation, water shortage,and pollution, in addition to atmospheric quality decline arebecoming major public concerns across China. Since the 1990s,China has become both the largest consumer of chemical N fertilizersand the highest cereal producer in the world, which has consequencesfor arable soil acidification. Guo et al. (p. 1008, publishedonline 11 February) present a meta-analysis of a regional acidificationphenomenon in Chinese arable soils that is largely associatedwith higher N fertilization and higher crop production. Suchlarge-scale soil acidification is likely to threaten the sustainabilityof agriculture and affect the biogeochemical cycles of nutrientsand also toxic elements in soils.
Predictable Travel Routines
CREDIT: SONG ET AL.
While people rarely perceive their actions to be random, currentmodels of human activity are fundamentally stochastic. Processesthat rely on human mobility patterns, like the prediction ofnew epidemics, traffic engineering, or city planning, couldbenefit from highly accurate predictive models. To investigatethe predictability of human dynamics, Song et al. (p. 1018)used the recorded trajectories of millions of mobile phone users,collected by mobile phone companies and anonymized for researchpurposes. They hypothesized that given the wide range of travelpatterns that different users follow, there would be significantdifferences between their predictability as well: Users whotravel less should be easier to predict than those who are constantlyon the road. Surprisingly, there was 93% predictability acrossthe whole user base, and individuals' predictability did notin general fall significantly below 80%.
Gram-negative Pseudomonas bacteria are opportunistic pathogens,and drug-resistant strains present a serious health problem.Srinivas et al. (p. 1010) synthesized a family of peptidomimeticantibiotics that is active only against Pseudomonas. These antibioticsdo not lyse the cell membrane, but instead target an essentialouter membrane protein, LptD, which plays a role in the assemblyof lipopolysaccharide in the outer cell membrane. Activity ina mouse infection model suggests that the antibiotics mighthave therapeutic potential. In addition, LptD is widely distributedin gram-negative bacteria and so its validation as a targethas the potential to drive development of antibiotics with abroader spectrum of activity against gram-negative pathogens.
Examining the Backbone
Determination of tertiary protein structures by nuclear magneticresonance (NMR) currently relies heavily on side-chain NMR data.The assignment of side-chain atoms is challenging. In addition,proteins larger than 15 kilodaltons (kD) must be deuteratedto improve resolution and this eliminates the possibility ofmeasuring long-range interproton distance constraints. Now Ramanet al. (p. 1014, published online 4 February) use backbone-onlyNMR data—chemical shifts, residual dipolar coupling, andbackbone amide proton distances—available from highlydeuterated proteins to guide conformational searching in theRosetta structure prediction protocol. Using this new protocol,they were able to generate accurate structures for proteinsof up to 25 kD.
Histones and Alternative Splicing
Alternative splicing—the inclusion of different combinationsof gene exons within a messenger RNA transcript—occursin the majority of human genes and is regulated by basal andtissue-specific splicing factors, by transcription kinetics,and by chromatin structure. Luco et al. (p. 996, published online4 February) analyzed the alternative splicing of the human fibroblastgrowth factor receptor 2 gene in tissue culture cells and foundthat inclusion of exon IIIb or IIIc was modulated by the levelsof histone H3 lysine 36 trimethylation (H3-K36me3) and H3-K4me3.Histone H3-K36me3 enrichment correlated with binding of thechromatin protein, MRG15. The MRG15 protein in turn recruitedthe polypyrimidine tract–binding protein (PTB) splicingfactor, which acts to repress alternative exon inclusion, thusestablishing a direct link between histone modifications andthe splicing machinery.
So, so you think you can tell Heaven from Hell,
blue skies from pain.
Can you tell a green field from a cold steel rail?
A smile from a veil?
Do you think you can tell?
And did they get you to trade your heroes for ghosts?
Hot ashes for trees?
Hot air for a cool breeze?
Cold comfort for change?
And did you exchange a walk on part in the war for a lead role in a cage?
How I wish, how I wish you were here.
We're just two lost souls swimming in a fish bowl, year after year,
Running over the same old ground.
What have you found? The same old fears.
Wish you were here.