To no surprise, Vanguard’s latest ETF offering has arrived and started trading a couple of weeks ago. It’s called the Vanguard Europe Pacific ETF (VEA) and it has 1,134 holdings and a low expense ratio of 0.15%. This is quiet a contrast to the average ETF expense ratio of 0.42%.

This new ETF tracks an index of stock performance in 21 countries in Europe, Asia and the Far East. It will be tracking the EAFE index and competing with EFA, the second largest ETF (0.35% expense ratio) in the world. If performance turns out to be similar, then Vanguard will most likely have the edge with its low fees.

However, before adding this new fund to my dbase, I want to see close to a year’s worth of price data to be able judge and compare its performance and to establish a trend.

While there are a variety of duplicate ETFs in various orientations on the market, I welcome that as it increases competition for lower expense ratios, which will benefit the investing public.

As a result, ETF assets have risen dramatically. Sooner or later, many of the bloated and underperforming mutual fund companies may get the hint and finally wake up to the fact that, if they don’t start competing seriously, the interest in their products my continue to wane.

Yesterday’s rebound, which recovered just amount all of last Friday’s losses, was a welcome relief but huge one day market moves, whether up or down, are rarely indicative of a trend.

As I mentioned last Friday, I liquidated a few volatile positions with sector and country orientations. The sell stop points were clearly penetrated and, if this is in fact only a temporary bounce, we’ll be glad to have taken some volatility out of our portfolios. If this rebound turns out to be the resumption of the long-term trend, we’ll be looking for other opportunities.

Right now, I prefer to err on the side of caution. Our Trend Tracking Indexes (TTIs) recovered as well and remain above their long-term trend lines as follows:

Domestic TTI: +2.61%
International TTI: +2.53%

Most of my domestic and international positions have stayed above their sell stop points, and I will hold them until market activity tells me otherwise.

All eyes are now on the Fed for any hint that they are willing to throw an assist should the markets need it. Well, even the “Donald” (as in Trump) has thrown his name into the game on CNBC as he called for a rate cut. Hmm, he just can’t stand not being in the limelight.

I touched on this last week, but the WSJ also had a blurb on Sowood Capital’s admission that its hedge fund had lost more than 50% of its value, or about 1.5 billion. I posted Saturday, that the loss at the time had been 25%. Oh well, things are happening so fast, what’s another 750 million? It’s only mad money.

The hedge fund manager detailed how Sowood bet on senior debt positions and hedged itself by betting against stocks and more risky debt. However, the corporate debt tumbled in value and did worse than the stocks. Very concentrated positions along with leverage ended up crippling the fund.

I’m sure they’ll be paying the hedge fund manager a big bonus out of remaining assets before he gets kicked out. Is there a chance that he will be banned from the securities industry for life? I doubt it because hedge funds are unregulated, and I believe that they may even be allowed to use certain zoo animals for selection of their investments.

Continued failures of institutions/funds will increase fear that the current credit crunch may get worse, and I am sure that some have already looked towards the Fed for help (translation: bailout).

Last week, however, St. Louis Federal Reserve President William Poole dismissed any Fed involvement to bail out the stock market by saying:

“The Fed should respond to market upsets only when it has become clear that they threaten to undermine achievement of fundamental objectives of price stability and high employment, or when financial-market developments threaten market processes themselves.”

Hmm, let’s see if the Fed sticks to that game plan.

A few months ago, I read Gregg Easterbrooks’ book “The Progress Paradox,” which carries the intriguing sub title “How Life Gets Better While People Feel Worse.”

He draws on three decades of research and thinking to support the idea that almost all aspects of Western life have greatly improved in the past century—yet today, most men and women feel less happy than in previous generations.

He delves into the emerging science known as “positive psychology,” which tries to understand what causes a person’s sense of well-being and offers an alternative to our culture of crisis and complaint. He makes a compelling case that optimism, gratitude and acts of forgiveness not only make modern life more fulfilling but are actually in our self-interest.

He talks about subjects like “Abundance Denial,” “The Tyranny of the Unnecessary” and explains that we have more of everything than any generation before us except happiness. I liked this quote:

“From the standpoint of happiness math, it should be reiterated that it is far better there be millions of free, prosperous people who have the time and leisure in which to become depressed—many undergoing depressions in nice houses and attempting to distract themselves with nice vacations or nice dinners out—than numerous possible alternatives.”

He references very interesting studies about ‘self-reported’ happiness by a psychologist of the University of Illinois that offers some interesting facts and explanations. I won’t disclose the details here, but it’s a well written book, which could give guidance to many that are wondering why they’re doing well but not feeling it. I enjoyed it and give it thumbs up.

In a recent post, I talked about Bear Stears’ closure of 2 hedge funds that were essentially worthless.

A few days ago, Bear Stearns (BS — hmm, I’m not sure if this is a fitting abbreviation) halted investors’ redemptions from another $900 million Asset-Backed Securities Fund, as worried investors were trying to pull their money out as fast as they could.

Here’s where the fear factor sets in. BS said that only 0.5% of the fund was invested in subprime, or high-risk, loans. Yeah right; maybe so, but once you lose credibility, no matter what you say, investors will assume the worst.

That’s a clear indication that the subprime virus has spread, and will continue to do so, even to institutional investments that may have very little exposure to it. Herein lays the danger that perception may take a hold of reality and pull asset classes down that are not directly related or connected.

Here are some more tidbits from infected parties. Sowod Capital Management acknowledged that it had lost 50% of its value in July and sold most of the assets for fear of not being able to meet margin calls. Australia’s Macquarie Bank said two if its hedge funds could face losses of 25% in July.

It is stories like these that, if continuously fed to the media, will eventually spillover and severely influence stock market direction as well, which may have already happened. This phenomenon is also called reaching a “tipping point,” where the viral effect takes over and feeds on itself.

Again, my point simply is that you need to be alert to any change in investment climate and be ready to pull the trigger on your sell stops should the need arise. Stick to my rule number 1 of investing: Never invest in anything unless you have established clearly defined exit points.

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

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

Today’s sharp sell-off brought several of our sell stops back into play. We will liquidate those positions on Monday. For more details, please see the above link.

Our Trend Tracking Index (TTI) for domestic funds/ETFs fell but still remains +1.45% above its long-term trend line (red) as the chart below shows:

The international index has now moved to +1.21% 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.