I am all in favor of lower fees when it comes to investment products. Charles Schwab & Co. (my custodian) has again upped the ante in “ETF deals get even better as Schwab cuts prices in price war:”

Maybe the day will come when they will pay you to buy ETFs. That will be a great day, but don’t count on it.

Here’s the fee comparison chart:

While price reductions are always a step in the right direction, do not make this your main criteria when selecting ETFs. For example, while Schwab’s S&P; 500 equivalent (SCHX) has no commission and the lowest management fee (0.08%), the average daily volume is around $6 million, which makes it suitable only for small investors. Compare that to SPY, the largest ETF in the universe with over $25 billion being traded daily.

When the markets correct, and the exit doors get crowded, you do not want to get caught holding a low volume ETF. Commissions or no commissions, slightly higher annual fees or lower ones, it does not matter; when you need to exit in a hurry based on changes in the trend, or your sell stops being triggered, only volume matters.

Reader Mel emailed the following comment:

For some reason I was blocked from commenting on today’s blog. Here’s what I wanted to say, and you can feel free to post it:

I’d be particularly interested in your evolving views of the Euro- style welfare state–whether you were always a skeptic, whether you think it can survive in some form, how different we are if we have such a heavy burden of future obligations anyway, etc., etc.

First, as you may have noticed, a few weeks ago I disabled the anonymous posting function due to abuse and ever increasing spam attempts. While you can still post, you need to identify yourself.

A quick check of other blogs dealing with economic/investment issues confirmed that most do not offer anonymous posting—very likely for the same reasons. If you wish to remain anonymous, you can always email me with any questions, and I’ll address those in future posts.

Second, in regards to my view of Europe, or Germany in particular, I must admit that I have been gone for a long time (35 years) and at times feel like that I am on the outside looking in. Nevertheless, every time I visit, I seem to become reacquainted with their way of life fairly quickly.

The most obvious difference I notice every time is the much more conservative behavior of the consumer. Despite the fact that purse strings have been loosened quite a bit, the overriding desire and priority number one is still to save money first.

This was confirmed during my recent visit when it was announced on the business channel that the average German nowadays saves 15% of his net income every month. That’s truly an impressive number and certainly does not contribute to any reckless spending sprees such as are/were common here in the U.S.

Additionally, some frugality or new thinking seems to have even struck one of the most unlikely places, the German government. During the recent G-20 meeting, I read on Bloomberg that Chancellor Merkel uttered these words “we can only spend what we receive in income.” Certainly that is not an attitude that Treasury Secretary Geithner wanted to hear, since he seems to be operating more in line with ‘spend now and worry about pay backs later.’

My point is that Germany, along with most other European countries, is forced to initiate austerity programs to varying degrees, which will not bode well from a U.S. or Asian export point of view, since it will most certainly limit/reduce future consumption and not increase them. Subsequently, global economic output will suffer down the line, which eventually will affect stock markets around the world.

Future debt obligations are a problem in Europe just as they here and in most industrialized nations. For a comical view of how Europe got into this mess, hat tip goes to reader Robert, who sent in the video below. Enjoy!

I am out for most of the day and will not have a chance to post. However, I will resume tomorrow with Sunday Musings.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Tuesday’s strong up move held, and the major indexes not only gained for the week, but also stayed above their 200-day moving averages.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains above its trend line (red) by +2.46% (last week +1.38%) keeping the current buy signal intact. The effective date was June 3, 2009.



The international index has now broken below its long-term trend line by -0.49% (last week -2.83%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in that arena.

The best thing that can be said about yesterday’s market activity is that the solid gains from Tuesday held as you can see from the above chart (courtesy of MarketWatch.com).

There were no additional catalysts to speak of so volume was fairly light, but the important event was that the S&P; 500 closed the day above its 200-day moving average for the second day in a row confirming investor confidence.

Since a selloff did not happen, I committed about 1/3 of portfolio value (depending on client risk tolerance) to broad domestic indexes as mentioned yesterday. I consider the downside risk fairly small at a level of about 4%.

Here’s how I arrived at that number.

Our domestic Trend Tracking Index (TTI) is currently positioned +2.27% above its long term trend line. If the major indexes head south from here, it would take a drop of only about 4% of the broad market to pierce the trend line to the downside generating an all-out sell signal.

Because of our proximity to the trend line, this would happen prior to our conventional 7% trailing sell stop being triggered—hence the reduced risk.

After Monday’s failed attempt, the major indexes managed to pierce through strong overhead resistance levels on Tuesday supported by positive economic news on a day where nobody seemed to care about Europe’s problems.

As the chart above (courtesy of MarketWatch.com) shows, there was no hesitation nor any reversal attempts, and the bulls remained in charge all the way into the close. As I mentioned yesterday, if there is a breakout and 200-day moving averages are conquered, more buying and subsequently further upside momentum may develop.

While that up move could very well be ephemeral in nature, as some columnists forecasted in “One More Rally,” topping at around 1,200 with the S&P; 500, you can never be certain.

Our domestic Trend Tracking Index (TTI) improved and has now moved above its trend line by +2.12%, while the international TTI rallied as well but still remains -0.67% below its respective trend line.

Establishing new positions at these levels reduces the risk quite a bit.

How?

We’re only +2.12% above the trend line, which means that, if a trend reversal occurs again—after you have bought back in—there is a good chance of the domestic TTI dropping below its long term trend line before your 7% trailing sell stop gets triggered. That would cause an all out sell signal prior to the sell stop becoming effective thereby reducing potential losses.

Barring any huge sell off in the morning, I will begin to nibble on some long positions; however, I will only use ETFs and not any 401k accounts limited to no load mutual funds due to short term trading restrictions.

I simply can’t see right now that last year’s bull market will resume with full force, so my approach will be conservative in nature and involve only a portion of our portfolios. If I am proven wrong, I can always add to my holdings.