No Load Fund/ETF Tracker updated through 10/16/2008

Ulli Uncategorized Contact

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

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

Great rebounds and jaw dropping losses kept the major indexes in the green for the first time in many weeks.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -16.15% thereby confirming the current bear market trend.



The international index now remains -24.74% below its own trend line, keeping us on the sidelines.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Reality Check

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After Monday’s euphoric reaction, realization started to set back in on Wednesday that a painful recession is underway. Most gains were wiped out again and the major indexes got hammered.

Below is a video clip with Peter Schiff, who was one of the few who saw the handwriting of the real estate/credit crisis on the wall, when most were still asleep at the wheel:



Made It…

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The usual jet lag is still my constant companion as I finally made it over to Europe, or more specifically Hamburg, Germany.


The picture is of the Port of Hamburg (800 years old), which is a seaport and deep water harbor off the North Sea, on the river Elbe in Hamburg, Germany.

It is named Germany’s “Gateway to the World” and is the largest port in Germany. In terms of numbers of containers handled in 2004, it is the second-largest in Europe and ninth-largest worldwide.

It should be no surprise, as I mentioned yesterday, that the challenging economic problems have not gone away and are still in place despite Monday’s huge relief rally. The bulls were disappointed about a lack of follow through to the upside on Tuesday and, despite wide swings, the major indexes closed down.

The government will now partner up with banks and will be spending as much as $250 billion to buy their shares. Of that, about $125 billion will be invested in nine companies, including Citigroup, Bank of America and Goldman Sachs. Officials will also offer guarantees on new bank debts and start purchasing commercial paper in two weeks.

Citigroup and JPMorgan will get $25 billion, Bank of America and Merrill will get $12.5 billion, Goldman and Morgan Stanley will get $10 billion, and Bank of New York and State Street will each get $3 billion, reports said. The banks are expected to get the funds before the end of the year.

Treasury secretary Paulson had to chime in with another classic quote: “These are healthy institutions, and they have taken this step for the good of the U.S. economy.”

Yeah, right; if they were healthy, we would not need this partnership, wouldn’t we?

Again, my view is that this volatile market may offer some opportunities to aggressive traders but not to conservative investors. With what we’ve seen, one move to the wrong side and big losses are a guarantee. If you’ve followed my sell recommendation, you should be safely on the sidelines, which is a great place to watch this circus from. The down trend is firmly established and is likely to continue despite bullish rebounds.

Given the events of the past few weeks, this quote about investing still applies as much as ever: “I’d rather be out wishing I was in, then being in wishing I was out.”

Up, Up And Away

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A long overdue market rebound generated euphoria on Monday, as governments around the world pledged to inject new capital (with no limits) into banks and financial institutions in an effort to ease the credit crunch.

Market reaction to the upside was fast and furious as the graph on the left shows. Take a look at the numbers, as this may have been a once in a lifetime type of recovery. The move was somewhat distorted due to banks and the bond market being closed for Columbus Day.

While excitement about the rebound was widespread, it does not mean that a new uptrend has been signaled. It will take a lot more then one feel-good-day to resume consistent upward momentum. One economist put it best when he said that “the G7 announcement was “fluff — good fluff, but fluff.”

Our Trend Tracking Indexes (TTIs) rebounded, but are still deeply entrenched in bear market territory:

Domestic TTI: -12.75%
International TI: -20.67%

Expect continued volatility as the underlying problems with housing, consumer spending and the wide open question as to whether these widely announce plans will actually work are bound to be moved to the front burner again. Yes, and earnings season has started, which has always market moving potential. Stay safely on the sidelines.

Stupid Quote Of The Week

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I was waiting for it to happen. Whenever bear markets strike, buy-and-hold proponents come out and tout the wisdom of their ways. Leading the pack as usual is Jack Bogle, founder of Vanguard who had this to say:

“If you’re following the rules of asset allocation, diversification and long-term horizon, stay the course.”

Sure, along that long-term horizon, we will all be able to retire just about 6 years after we’ve died. Be realistic and take a look at some bear market numbers as of right now.

Most investors, who stubbornly stayed in the market, have lost some 40% of portfolio value this year. That means that a $100k portfolio is worth now about $60k. Even if you feel comfortable with that, and I doubt it, you will now have to make some 66% return on your $60k balance just to get back to even.

How long will that take? Well, if the markets cooperate, you might make it back in some 7 years. That translates to you just having wasted 7 years of your financial life that could have been used to grow your assets, even at a slow pace.

Bear markets have a way to restore some sense of reality in the investment world, and it’s easy to forget that a bear can always lurk around the corner and wipe out many years of your investing efforts. If this has happened to you, I feel for you and recommend that you revisit your investment strategy and review how to better prepare for the future.

No one investment approach is perfect, but using a simple trend tracking strategy along with a clearly defined entry and exit method will most certainly avoid the big portfolio disaster.

Once of my clients put it best when he emailed me saying that “It never felt so good to sit in cash with this crazy market while all my work buddies are seeing their work years extending by the day! Thanks!”

Sunday Musings: Back To The Cookie Jar

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No surprise in this story as MarketWatch reports that “Fed to lend billions more to AIG:”

The Federal Reserve announced Wednesday it was lending billions of additional funds to cash-strapped American International Group Inc.

Under the program, the New York Federal Reserve Bank will provide $37.8 billion in additional cash to certain domestic life insurance subsidiaries of AIG in return for investment-grade, fixed-income securities.

AIG already has an $85 billion line of credit with the Fed. As of last week, AIG had used $60 billion of this loan, according to Fed data.

This new program will allow AIG to replenish liquidity, the Fed said. At the same time, the securities will provide enhanced protection to U.S. taxpayers, the central bank said.

In a separate statement, AIG said the New York Fed is prepared to borrow securities to extend AIG’s currently outstanding lending obligations where those obligations are not rolled over or replaced by transactions with other private market participants.

The arrangement will help AIG secure funds on an as-needed basis, the company said.

AIG recently put many of its businesses up for sale to try to repay the government loan.

The insurer, which had to be saved from bankruptcy last month by a Fed, said it wants to keep its main property and casualty insurance businesses in the U.S. and abroad.

AIG came under fire in Washington this week as members of Congress, the White House and Democratic presidential candidate Barack Obama said the firm should not have spent $200,000 on an expensive retreat at a luxury hotel after receiving the government bailout. AIG said the event was for independent life insurance agents, not for AIG executives.

Why not have a few more parties. Once you get a commitment that you will be bailed out no matter what, why not reach in the cookie jar again? What’s another $37 billion among friends?

Personally, I just have to question the insanity behind all of these bailouts. Once the $50 trillion derivatives market starts to crumble, there is no entity large enough to lend a helping hand. The combined world economies can’t print enough money to support that perfect storm, should it ever decide to make a black swan appearance.

As I announced Friday, I will be heading to Germany for my annual visit, so my blog posting will be more irregular.