Seeking Alpha featured a story titled “REITs Pop While Commodities Flop,” showed a summarized table showing various assets class returns of various time periods. Let’s take a look:




While commodities were the hot item for most of this year, the trend has clearly reversed as the sharp 1-monht drop of DJP shows.

REITs, as represented by VNQ, have shown a nice pop to the upside, but are they worthy investment at this time? We’ve owned VNQ over a year ago before the real estate bubble burst, so let’s take a look at a 2-year chart again:

A chart is worth a thousand words. It’s is obvious that the long-term trend is still down, although back in May, this ETF showed signs of life. As is the case so often in bear markets, counter-trend rallies can be fast and furious, but they usually have no staying power.

It pays to be cautious, especially with real estate, residential and commercial, not having seen the end of the down trend. One day, VNQ may provide us with good upside potential again, but right now is not the time to be a gambling fool.

Based on reader email, I know that there are many investors out there itching to try to pick a bottom in the severely beaten up financial sector. It’s beyond my understanding why the desire to gamble is so prevalent in that area.

The Big Picture had some enlightening comments on the subject. Here are some excerpts:

Just when you think there is a glimmer of hope that some of these ne’er do well, lying, cheating, sniveling, cowardly bank CEOs might finally be forced to step up to the confessional and tell all, this comes along: FASB Postpones Off-Balance-Sheet Rule for a Year.

Investment Thesis: Ritholtz Rule #1: Know what you own.

Whoever buys Financials under these circumstances loses the right to whine down the road about companies not forthcoming. If you own them, don’t complain when you get what you deserve.

While this article focuses on the fundamentals, the technical aspects are equally disconcerting. The ETF IXG represents the Global Financial sector. Take a look at this 2-year chart:




If you follow trends, there is absolutely no compelling reason to make any commitment to this sector. As I said before, until all skeletons are out of the closet, any rebound will be to short lived, such as happened in May 08, before the bears started feasting on this carcass again.

MarketWatch featured and article titled “Choose fund managers who stay ahead of the curve,” in which the editor of the No-Load Fund Investor newsletter (Mark Salzinger) states that you should avoid managers who believe “the market is wrong and they are right.”

Here’s a snippet:

In a radio interview, Salzinger defined that type of manager as one who is unwilling to bend, losing objectivity about what is happening in the market, and falling in love with investments in their portfolio. Accordingly, Salzinger said he would sell Bill Miller’s Legg Mason Value Trust (LMVTX).

I can agree with that in general, since many investors in the past have fallen in love with their mutual funds or a certain fund manager and subsequently lost all objectivity as to the wisdom of that choice.

As far as LMVTX is concerned, maybe that was the case as this fund has hit the skids big time. Take a look at a 2-year chart:




It’s obvious that the trend reversed sharply late last year. My simple 7% sell stop rule would have gotten you out around September. Since then that fund has done far worse in this down market than the S&P; 500 by losing an astonishing 42% and 30% YTD.

While recommending that this fund should be sold now is stating the obvious, but it’s way too late. Huge losses have already occurred. A Buy and Hold investor now needs to make a gain of over 50% just to get back to even, which is not an easy task in this market environment.

The fact is that we are in a bear market, and those not paying attention will see this type of scenario repeated many times.

One way to evaluate if an ETF or mutual fund still has long-term upward momentum is to look at the %M/A column in my weekly StatSheet, which simply shows if a fund is above or below its trend line and by what percentage.

Many once hot sectors like energy and commodities, along with most country funds, have dropped severely and in many cases moved below their trend line into bear market territory. Some may still be hovering above it, but if you look at the DD% figures, you’ll notice a sharp drop off their highs.

Some of the Health and Biotechnology ETFs have been bucking the trend, but many are tiny in size with low volume and high spreads, and I have removed several of them from my data base. As I previously posted, you want to be in ETFs with high volume so that you can get out even if the exit doors get crowded.

Some ETFs, like BBH, are having their own bull market right now, but having moved 18% above its trend line makes it too late to enter safely. Sometimes you have to accept that you simply missed the beginning of a trend. Take a look at BBH:



Of course, in this case, it would have taken several entries and whip-saws before you would have caught the real break-out, which many investors would not have had the stomach to do.

Look through this week’s StatSheet and notice that most momentum tables are mired in red numbers. There is a lesson in this. Don’t try to be a hero by thinking that you can pick a bottom.

We are in a bear market until the long-term trend proves otherwise. When you witness some of the rebound rallies keep in mind that “being on the sidelines and wishing you were in is preferable to being in and wishing you were out.”

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

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

Another wild ride of the major indexes accomplished nothing but excitement.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -2.61% thereby confirming the current bear market trend.



The international index now remains -9.06% 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.

You’ve probably been wondering how capital impaired firms such as Merrill Lynch, WaMu, Citigroup and others can continue to scour the globe in need of fresh capital to shore up their deteriorating balance sheets.

The key to attracting new money is a so called “ratchet provision,” which reduces the risk for the party investing the funds. Mish at Global Economic Trends explains it this way:

The investors in the equity raise would have their investment “protected” by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free.

It doesn’t take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral.

There is no question that these companies probably have very good reasons, maybe desperation is one of them, to get involved in this kind of capital raising effort. Whether shifting into that kind of survival mode will have long-terms success or is simple just a short-term fix remains to be seen.