No Load Fund/ETF Tracker updated through 3/6/2008

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

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

The bears feasted big time this week as all major indexes headed further into bear territory.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains now -1.68% below its long-term trend line (red), which means we are in bear market territory.



The international index dropped to -9.53% below its own trend line, keeping us in a sell mode for that arena as well.



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

Rally Pretense

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Bill Fleckenstein wrote an interesting article called “A great pretender of a rally.” Here are some excerpts:

Over the last couple of weeks, the stock-market action has been remarkable. The bulls have enjoyed a nice rally. It was precipitated by the anticipation that the monoline insurers would be bailed out. Then anticipation turned into reality: The bailout was nothing more than an agreement by the ratings agencies to pretend that the monolines were still worthy of AAA ratings.

Parenthetically, I would just note that the rating agencies continue to be a farce. How could MBIA – — which recently had to pay 14% to borrow money, and whose debt still yields over 13.5% — ever possibly be considered AAA?

If the ratings agencies are to have one shred of credibility again, ever, they might as well start now. But of course, just like every other aspect of the sanity that some of us might like to see break out, it seems to be politically unacceptable for anyone in a position of real responsibility to act like an honest adult.
…
The specter of municipal-bond downgrades is a function of a much larger problem: the unwinding of the credit bubble, which had the housing bubble at its epicenter. The credit bubble that has burst is going to continue to shrink the availability of credit, and the housing bubble that has burst is going to continue to unwind. The United States is not going to escape without a serious recession, which is the outcome preordained by the housing/credit bubble.

As to when folks will confront that reality, let me say this: It takes many years for a certain psychological mindset to take root, and resistance to change is always formidable. Yet when the dominant trend finally changes, that new trend remains in place for a long time.
…
In any case, the determination to suppress the destructive downside of capitalism and ensure permanent prosperity is a terrible idea that will not work. Permanent prosperity, after all, is what socialism was supposed to be about, and we’ve all learned that theory doesn’t work. I continue to find it a sad irony that Wall Street — the alleged bastion of capitalism — would cling so dearly to the hope of socialism.

That’s exactly what the Fed is all about. Its central planners think they can pick the right interest rate with which to run the world, even as the evidence indicates that their efforts over the last 20 years have produced two epic bubbles. This story would strike any sane person as the stuff of nightmare. Sadly, it’s our waking reality.

While I have read a number of Bill’s articles over the years, there have been many I couldn’t agree with. This one, however, hits the nail on the head in that reality and the consequences of the unwinding of the bubble have not been accepted by Wall Street.

This is not a negative view of things to come, simply my realistic expectation that every cause has an effect and this one has not played itself out to a point where a painless turnaround appears to be possible.

Dodging A Bullet

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The market dodged a bullet yesterday doing what it does best when pushed sharply to the downside: Look for a life savor in the rumor mill. It eventually found one in the form of news of a possible bailout for bond insurer Ambac Financial Group. At this point it’s only a rumor, but it helped the market, with the Dow down some 220 points, to reverse course and only end up down 45.

Adding to weakness early in the morning were Fed Chairman’s Bernanke’s comments that more needs to be done to help troubled homeowners. His suggestions ranged from using loan modifications like lower interest rates, to an extension of the maturity of the loan, or even a write-down of the principal balance.

Yes, you read that right; I did not make this up. To hear the Fed chief make these kinds of suggestions tells you how bad things are in bubble land. Do I detect a bit of desperation here?

Be that as it may, the markets ended up mixed for the most part on day where another sharp sell off a la Friday was a distinct possibility. Here’s how our Trend Tracking Indexes (TTIs) fared:

Domestic TTI: -0.51%
International TTI: -8.57%

We’re still staying away from both of these markets and are hanging on to only a few sector positions. Many sectors have had their bull market for a while, and I will be watching closely with my trigger finger closely wrapped around our sell stop points.

FDIC Is Beefing Up Staff

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MarketWatch reports that the FDIC is hiring more bank examiners:

The Federal Deposit Insurance Corp. is planning to beef up its division of resolutions and receiverships, which handles failed banks, by 40% this year. The division currently has 233 employees. Considering that only three banks failed last year, why do they need more examiners?

For now, the FDIC is looking to bring back 25 retired employees with experience in the bank closures of the 1980s and 1990s. No, it’s not just a reunion of hard-nosed accountants who closed banks and savings and loans in notorious Friday night raids and liquidated their assets.

This is a real search for tough, experienced “lone rangers,” who set upon a bank or thrift institution on a Friday to take over as much of the assets as possible and open the following Monday with full assurances for insured depositors and firm answers for uninsured depositors. The latter group will get 100% on their insured deposits, probably 50% on the uninsured portion and “well, we can talk about it, and we’ll send you some more later.”

This week Fed Chairman Ben Bernanke put it bluntly: “There probably will be some bank failures.” Regulators have some real work ahead of them. The FDIC had 76 banks on its problem bank list at Dec. 31, down from 136 problem banks in 2002 and 213 banks in 1990. This past year’s three failures were the first since 2004. Apparently the FDIC expects to have a busy year.

The FDIC’s challenge means you should confine your bank accounts to insured deposits exclusively. Other safe harbors are Treasury-only money-market funds, money funds owned by large institutions (even banks) and maybe short-term Treasury bills.

The gist of this story is in the last paragraph. Not only should you confine your bank accounts to insured deposits only, you also have to make sure that your bank account assets remain below the $100,000 insured limit. If you have CDs or other bank deposits, be sure to spread your wealth around several non-related banks. You think this might be obvious, but I know of some people, who are handling family money and have exposure far above the insurance limit.

Don’t get caught in this trap. Make the effort and move your money as outlined—now! You will thank me later.

Muni Trouble

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Bloomberg reports that Munis have their worst month since 2003 on Auction-Rate woes. Here are some highlights:

U.S. municipal bonds are headed for their worst month in more than four years after collapsing demand for securities with rates set at periodic auctions sent debt costs for state taxpayers and hospitals as high as 20 percent.

State and local government bonds fell 4.17 percent through yesterday, including reinvested interest, based on Merrill Lynch & Co. data. That’s the most since July 2003, when they tumbled 4.59 percent. Florida had to pay 5.35 percent yesterday to sell 30-year fixed-rate general obligation bonds, almost three- quarters of a percentage point more than at its Feb. 6 sale.

The $330 billion auction-rate market froze after dealers stopped purchasing the bonds when buyers failed to bid. Their lack of support has spread to the broader tax-exempt market, sending yields soaring. Borrowers from California to New York City plan to convert the securities to longer-term debt, raising concern that a flood of bonds will overwhelm already sparse demand from banks and hedge funds.
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The auction-rate turmoil and slump in municipal bonds are the latest examples of how the fallout from subprime-mortgage delinquencies has spread, touching a market whose credit quality is typically second only to the U.S. government.
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Failures [at auctions] have increased as subprime-related losses at bond insurers led investors to question their creditworthiness and to shun securities carrying their backing, and banks refused to step in and buy unwanted bonds as they had in the past.
Dealers including Goldman Sachs Group Inc., Citigroup Inc., UBS AG and Merrill Lynch & Co. stopped using their own capital to support the sales, allowing some yields to rise to 20 percent. Investors and borrowers never knew the extent that banks propped up auctions because of scant public disclosure of bidding.
…
While households hold most of $2.6 trillion in U.S. municipal securities, either directly or through funds, rising demand from banks, hedge funds and other institutional investors dominated the market in recent years.

By borrowing at variable rates to buy higher-yielding long- term debt, they helped absorb the record $430 billion sold in 2007 and drove state and local debt to outperform Treasuries and corporates three straight years through 2006. Since then, municipal bonds gained 1.3 percent and their taxable counterparts rose 9 percent, Merrill data shows.

The unwinding or attempts to unwind such trades by hedge funds may be exacerbating the declines, investors said.

“The municipal market in the last week and a half or so has been in a free fall,” Warren Pierson, vice president and municipal portfolio manager at Robert W. Baird & Co., said in an interview from Milwaukee.

To demonstrate the severe change of closed end muni funds over the past few weeks, you only need to look at my StatSheet (section 7), which features a variety of muni funds. Take a look at the chart, which I posted the end of January containing data effective January 30, 2008.

Note the column on the far right, which shows YTD returns, without distributions (click on chart to enlarge):


Now fast forward a few weeks to February 27, 2008 and look at the same YTD column:


The difference is simply astounding with some funds having lost around 8% in only a few weeks. Keep in mind that muni funds have historically been very safe (less than 1% failure rate) and more stable than most equity investments.

The current credit turmoil seems to be spreading everywhere, even where it’s least expected. As I posted before, this is not the time for your to be a hero and take undue risk, because you simply can’t evaluate today’s risk with standards that no longer apply.

Until the dust clears and major trends become identifiable, keep your money safely in U.S. Treasuries and, if you’re more aggressive, invest in selected sectors that have successfully bucked the domestic markets.

Yes, I have said that before, and I will do so again. Why? Because based on some of the e-mails I have received, I have to say that most investors are not yet in tune with market reality.

Sunday Musings: Swallowing Money Market Losses

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I have repeatedly warned that some of the biggest investors in toxic Subprime mortgages are money market funds, especially those boasting above average returns. Let’s be clear about this. Any investment, even a money market fund, which offers an above average return, has to also take an above average risk.

Some firms will avoid passing on the losses to the investors for obvious reasons, such as creating a bad reputation, which will be bad for their business. The latest on this topic was the admission by Wells Fargo, that it had incurred a loss of $39 million from money funds:

Wells Fargo & Co, the fifth-largest U.S. bank, said on Friday it has recorded a $39 million loss tied to some complex debt that has lost value and which is held by its money market mutual funds.

In its annual report filed with the U.S. Securities and Exchange Commission, Wells Fargo said the loss relates to a capital support agreement for up to $130 million related to one structured investment vehicle held by some money funds that invest in non-government securities.

The San Francisco-based bank said it entered the agreement about a month ago to preserve the “triple-A” investment ratings for some of the funds. Wells Fargo said the $39 million liability reflects the guarantee it provided. The bank said it has about $106 billion of assets in money market mutual funds.

A Wells Fargo spokeswoman had no immediate comment.

Sure, why would they comment, it’s obvious they invested in some of the Subprime slime and, to keep investors happy, they chose to dip into their own pockets. Who else has similar troubles?

Wells Fargo joins several other companies with mutual fund operations to bail out or support money funds stuck with debt that became illiquid or quickly lost value, including Bank of America Corp, Janus Capital Group Inc Legg Mason Inc and Wachovia Corp.

Structured investment vehicles are off-balance-sheet entities that raise funding by issuing short-term debt and longer-term capital, and invest proceeds in such things as bank debt and asset-backed securities. Many have lost value as investors shunned complex debt and halted short-term funding, resulting in losses from forced asset sales.

Money funds are designed to maintain a constant $1 per share net asset value, and not lose investor principal. While fund sponsors need not make up investment losses, many do so to avoid investor redemptions and a loss of reputation.

As I said before, there are still way too many uncounted skeletons in unknown closets. If you have any money in high yielding money market funds, get out or change your selection to U.S. treasury only, if you can. When things really hit the fan, some companies may have no choice but to crack the buck and leave you holding the short end of the stick.