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ETFs That Fight Inflation

Is It Time to Buy a House Yet?

Not according to this chart.

This article, Is It Time to Buy a House Yet?, was part of today’s Must Read newsletter from Seeking Alpha (a good resource for investors). It caught my attention. I like to read stories about housing. But what really caught my attention was the chart you just saw.

Do we really have a few more years of downturn? I think so. I don’t think we’re out of the woods yet. But as with everything, and especially money issues, you never know.

Mr. Smith does have some valid and interesting points. Here a few.

Simply put: if the bubble took seven years to reach its blow-off top, then its decline will typically take a similar length of time as prices fully retrace to pre-bubble levels.

As for supply: it is common knowledge that hundreds of thousands of homes are currently in the limbo of “shadow inventory”–homes the lenders won’t foreclose on for fear they can’t be sold, homes held off the market by owners who are deeply underwater on their mortgages, etc. As soon as demand appears, then supply rockets up as those anxious to sell move properties from the “shadow inventory” into the market.

Interesting article to read.

Where to be in 2010? Investor picks.

Just the type of an article I like in the latest Barron’s, The Best ETF Bets for 2010

John Mauldin, Millennium Wave Advisors
“A healthy dose of cash and other forms of fixed income may be the best prescription for 2010.”

Mauldin recommends putting money temporarily in short-maturity corporate and municipal bond ETFs like Vanguard Short-Term Bond (BSV) and Market Vectors Short Municipal (SMB).

He sees the economy headed for a second recessionary dip later this year, and so recommends rotating into defensive funds — particularly, high-dividend-payers like Utilities Select Sector SPDR (XLU) or iShares S&P Global Utilities Index Fund (JXI).

Mauldin also likes health-care funds, especially those with biotechnology exposure such as Health Care Select Sector SPDR (XLV). He is bullish on biotech: One of the purer plays is iShares Nasdaq Biotechnology Index Fund (IBB).

“Wait for the real buying opportunity.”

Longer term, Mauldin recommends gradually shifting portfolio weights from securities of developed countries whose valuations “are out of whack” toward higher-growth markets through ETFs like iShares MSCI Emerging Markets Index Fund (EEM) or Vanguard Emerging Markets (VWO).

“Be patient and wait for markets to come to you,” he counsels. “Patience is a position, too.”

Stephen Blumenthal, President, CMG Capital Management Group
“If the recent past was the equivalent of a bungee ride, the year ahead will be more like a roller coaster. The market should continue chugging higher until April or May, when he expects a plunge, perhaps followed by another upturn before year’s end.”

“To cope with that uncertainty, it’s best to play fixed-income-based ETFs during the first quarter at least.” favorite vehicle is SPDR Barclays Capital High Yield Bond ETF (JNK)

Anticipating prolonged weakness in the U.S. dollar, Blumenthal recommends gradual acquisition of Pacific/Asia commodity producers/users represented by ETFs like iShares MSCI Pacific ex-Japan Index Fund (EPP). He finds the iShares MSCI Australia Index Fund (EWA) particularly attractive as a simultaneous play on commodity-rich Australia, its relatively strong currency, and China. A rebound in China, the world’s largest commodity consumer, should lift Market Vectors Steel (SLX) and Market Vectors Coal (KOL) as well as agriculture. CMG recommends Market Vectors Agribusiness (MOO), PowerShares Water Resources (PHO) and, for exposure to so-called soft commodities like rice and cotton, Elements/Rogers International Commodity Agriculture ETN (RJA).

“Sell the rallies and trade tactically until we get a correction,” Blumenthal advises. In other words, take profits when common measures of investor sentiment are bullish, and shop for bargains on market dips.

Thomas Orecchio, Modera Wealth Mgmt.

He uses international bond funds like SPDR Barclays Capital International Treasury Bond ETF (BWX) to balance U.S. dollar-heavy portfolios.

Even though their share prices have run up lately, developing countries have better growth prospects than developed economies, he says. Modera also is rotating into international bond funds like iShares S&P/Citi International Treasury Bond (IGOV) and SPDR Barclays Capital International Treasury Bond ETF (BWX) for fixed income, but gradually.

This year, Orecchio expects to see many more new ETFs like the IQ Hedge Multi-Strategy Tracker (QAI), which uses hedging techniques to offset risk

New Frontiers: Emerging Markets Funds

Here are some funds that offer diversified exposure to the emerging markets in Europe, Asia, Africa/Middle East, and Latin America. These are taken from the latest BusinessWeek, Dec 28th edition.

Sorted by 2009 Total Return

Easter European Equity (VEEEX)
98% Europe, 1% Asia, 1% Latin America

Fidelity Emerging Europe, Middle East, Africa (FEMEX)
70% Africa/Middle East, 30% Europe

SPDR S&P Emerging Middle East & Africa (GAF)
100% Africa/Middle East

Claymore/BNY Mellon Frontier Markets (FRN)
51% Latin America, 26% Africa/Middle East, 17% Europe, 6% Asia

Templeton Frontier Markets (TFMAX)
50% Africa/Middle East, 25% Asia, 22% Europe, 3% Latin America

Bets for a Sagging Dollar

There is a very good article on investing in the latest Kiplinger’s (Feb 2010) “Make A Buck Off A Sagging Dollar.” Their view is that the dollar is on the decline, and you better diversify. They have a few suggestions how you can do that.

I also think the long term the dollar does not look so good. Especially when comparing it to emerging markets.

Read on…

You can invest in emerging-markets bonds through  Pimco Emerging Local Bond (PLBDX). “Pimco invests in 15 markets, including Poland, South Africa, Mexico, and Thailand.” It’s on the expensive side, though, with an annual cost of 1.35%. I try to stay under 1%, but this might be worth the price.

For a lower cost alternative, check Wisdom Dreyfus Emerging Fund (CEW). “This exchange-traded fund, launched last summer, uses futures contracts to provide exposure to money-market rates of 11 emerging markets currencies, including the Polish zloty, Chinese yuan and Chilean peso.” Annual fee is 0.55%.

2.4 Million Foreclosures in 2009

NY Times reports:

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

I agree that we should let the process, however painful, correct itself and not try to interfere with it. By doing so, we’re just delaying it!

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Continue reading U.S. Loan Effort Is Seen as Adding to Housing Woes

Duffy: VXX, GRX, WMT

Barron’s: Are there any sectors of the market that you do find attractive?

Duffy: We are long consumer staples, discount retailers and pharmaceuticals. One way to participate is through the Gabelli Healthcare & Wellness Trust [ticker: GRX]. It holds roughly half health care and half global consumer brands in high-quality names like Danone [DA], Nestlé [NSRGY] and CVS Caremark [CVS]. It trades at a 20% discount to net asset value, though it has a fairly high expense ratio of 2.16%. If you look at Big Pharma, during the tech-stock and growth bubble of 2000, these companies traded as growth stocks, with an enterprise value to annual research and development spending of about 50 times. Today they’re trading at 10 to 15 times. We like fallen growth stocks that are cheap, like Wal-Mart Stores [WMT]. The stock has gone nowhere in the last decade, but gross profits have grown 2.7 times.

We like the VXX, an exchange-traded note that’s based on S&P 500 short-term volatility as measured by the VIX index. It’s down 67% this year, and fits into the whole idea that complacency is very high.

Reference
Barron’s Interview

Quote: Removing Waste

Any healthy system needs a way to correct error and remove waste. Nature has extinction, the economy has loss, bankruptcy, liquidation. Interfering in this process lengthens feedback loops. Error and waste are allowed to accumulate, and you ultimately get a massive collapse.
–ROBIN GOLDWYN BLUMENTHAL
in Barrons

Ivy League Model Portfolio

Invest 10% in all of these 10 ETFs and you got yourself something close to what an Ivy League portfolio looks like. For more information, check theivy.portfolio.com

iPath S&P GSCI Total Return Index (GSP)
iShares Barclays TIPS Bond (TIP)
PowerShares DB Commodity Index Tracking (DBC)
SPDR Dow Jones International Real Estate (RWX)
Vanguard Emerging Markets Stock (VWO)
Vanguard FTSE All-World Ex-US (VEU)
Vanguard REIT Index (VNQ)
Vanguard Small Cap (VB)
Vanguard Total Bond Market (BND)
Vanguard Total Stock Market (VTI)

Reference
Kiplinger’s Magazine – 11/2009 Issue

I’m Skeptical on Housing

There is a lot of conflicting, mixed news about housing lately. Some believe housing recovery is well under way. This group is largely supported by the month-over-month sales increases. Yes, the recent 7% increase is impressive.

The second group is much less optimistic. Foreclosure level just reached a record. (I am referencing a few articles.) Recent sales increases are driven by the $8K tax credit. Also, summer is usually the most active period.

I believe housing is not out of the woods yet. Until several conditions improve, it’s going to be a slow ride. Mainly unemployment, foreclosures, and supply of homes for sales. Until these improve, they will hold housing in check — read, slow down the recovery.

I read an excellent, and sobering, view on housing yesterday, Prime Mortgages Are Also Going Sour. There was a similar article on WSJ yesterday.

The percentage of residential mortgages either in foreclosure or with at least one payment past due hit 13.16% in the second quarter, the highest percentage ever recorded by the Mortgage Bankers Association, the industry group reported on Thursday.

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