Last week’s solid rebound rally happened despite higher oil prices and interest rates. Generally speaking, interest rates and stocks tend to move in tandem, which has not been the case lately. Take a look at the chart below, which shows the iShares Lehman 20+ Year Treasury Bond ETF (TLT), vs. the S&P; 500:



Notice that the gap between the two has been widening since the end of 2006, which means that, as interest rates rose, bond prices fell. Long-term, this is not sustainable as stock investors at a certain point will switch to higher yielding and safer bonds (as in ‘perceived’ safety) from the more volatile stock market environment.

While there is no exact number in regards to a desirable bond yield for investors to make the switch, my point is that an adjustment will happen; the timing is just unknown. That can either be in the form of lower interest rates (good for stocks) or lower stock prices (higher interest rates), the former which would be more desirable.

The good news is that, when using trend tracking, we don’t have to concern ourselves with the “when” and “why” since our exit strategy will tell us when it’s time to take some chips of the table.

With Standard & Poor’s recent downgrading of some of the subprime loans, this question comes to mind: Will continued problems in that area, like more downgrades or defaults, have a negative effect on stocks and subsequently mutual funds and ETFs?

MarketWatch had a story on that subject, which made the case for a potential spillover into stocks. I have to agree with it, but the timing is very uncertain. Once Wall Street traders focus more attention away from the lucrative M&A; business and get done with evaluating the earnings season in the next couple of weeks, they may just look for other things to dwell on.

Subprime problems certainly might take center stage especially if the downgrading continues. I liked Peter Schiff’s (Euro Pacific Capital) quote best when he said in regards to subprime loans that “if lenders themselves call them liar loans, why should we think they’re boy scouts?”

This debacle is far from being over, and it pays to have a strategy should the stock market become the whipping boy of the subprime fall out. Depending on the severity of the outcome, it can certainly derail this enthusiastic rally in a hurry; however, those with clearly defined exit strategies may be in a position to avoid serious portfolio damage.

Even the WSJ recently touched on one of my pet peeves I wrote about recently as I was reviewing the book “Why Business People Speak Like Idiots.”

Their article was named “Most Annoying Business Expressions” and covered some of the blown up phrases that could be translated into a simple word for everyone to understand. Here are some of the highlights:

Paradigm shift. The most overblown euphemism for “change.”

Swung to a profit/loss. A staple of Wall Street Journal earnings stories, it conjures images of Tarzan as an accountant.

Downsize (or its variations including “right sized” or “reductions in force”). They’re being fired, folks.

Sell off. There is no selling without buying

Leaving for personal reasons/to spend more time with his family. Yeah, right.

The pendulum has swung too far. I’m not a physicist, but pendulums by definition can’t swing too far.

We are cooperating fully with the investigation. After which our CEO will be leaving to spend more time with his family.

Profit taking. It’s called selling.

Merger of equals. The business version of jumbo shrimp.

Forward-looking statements. Lawyers must get paid by the word. For the rest of us “forecast” or “prediction” works just fine.

Reviewing our strategic alternatives. It’s called selling.

Quiet period. A legal fiction that grew out of a rule prohibiting companies from hyping their stock before selling shares to the public.

Pre-owned. A mangling of the English language to avoid the truth: used.

Pre-approved. A mangling of the English language to hide how lenders see you: a sucker.

Zero-percent financing/interest. How about “no interest?”

The customer experience. I don’t want to have an experience. I just want to buy stuff and leave.

Maximize shareholder value. Companies that talk about it usually aren’t doing it.

There you have it. If you have some to add, feel free to send them to me. Don’t keep those gems to yourself.

In a previous post I mentioned the obvious disconnect that occurred earlier this year between domestic REITs and those that invest in the global arena.

The WSJ just featured an article called “Foreign Real Estate Funds Boom,” which analyses several REITs covering a variety of countries. Most of them are well known, however, foreign funds are not the cheapest when it comes to annual operating expenses.

However, my contention has always been that cost is relative to performance. If you had owned EGLRX for example with an over 40% return over the past year, the expense ratio would not have mattered. Nevertheless, many investors prefer a low cost solution along with great performance.

As has been the case, ETFs have come to the rescue over the past 5 years. The new kid on the block for international REITs is a Wisdom Tree International Fund (DRW), which focuses on Australia and some Asian countries. It’s only been around a short while, but for that period it has closely tracked the above mentioned EGLRX.

I will add DRW to the StatSheet (sector section and master List) starting with this week’s issue. While there is not enough data available to clearly identify its long-term trend, having it included already gives us the opportunity to monitor it and see how the momentum figures develop over the next few months.

If you believe that the performance of foreign REITs is to continue, you can invest in this new ETF now, but it is essential that you use my recommended sell stop discipline, just in case the market turns against you.

I have currently no investments in these funds.

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

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

The bulls had it their way as the Dow and S&P; 500 closed in record territory.

Our Trend Tracking Index (TTI) for domestic funds/ETFs is now positioned +5.23% above its long-term trend line (red) as the chart below shows:

The international index has now moved to +8.90% above its own trend line, as you can see below:

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

Last Tuesday, the market could not find its bearings and the result was a sharp sell off. Seems like it was one of those days were all news were interpreted as bad news. Even Fed chairman Bernanke’s words on inflation couldn’t calm the Wall Street crowd.

One of the big news items of the day was Standard & Poor’s announcement that they might be downgrading some 2.1% of the $565 billion of subprime bonds because of the housing slump being worse than anticipated.

No surprise to me, but Michael Shedlock explains the ins and outs of this debacle with a great sense of humor in his article titled “Stress Test.” This is in reference to S & P’s report that it will implement a ‘stress test’ of subprime mortgages.

Hmm, I wonder if that is just another useless phrase that would fit well into the theme of my recent Sunday post “Why business people speak like idiots,” or if they actually have a valid plan. My guess is, it’s the former but I’m sure, as time goes on, we’ll hear more about it.