Market Analysis Videos

Here are two market analysis videos that were sent to my "Free Updates" list last week:

The Macroeconomic Environment
The Market's Technical Picture

Enjoy,
David Vomund

Investing For Income

The market is in a trading range and with slow economic growth for the foreseeable future the trading range can continue. That means one either needs to become a short-term trader, buying low and selling high, or he invests for income. Successfully trading is easier said than done. A more consistent and easy-to-live-with approach is to invest for income. In a sideways market dividends and interest payments play a large role in total return. Here are my articles from the Tahoe Bonanza on investing for income:

Investing for income:
http://www.tahoebonanza.com/article/20111121/NEWS/111129995

Dividend paying stocks:
http://www.tahoebonanza.com/article/20111019/NEWS/111019943

Utilities:
http://www.tahoebonanza.com/article/20110913/NEWS/110919990

Preferred Stocks:
http://www.tahoebonanza.com/article/20110816/NEWS/110819968

David Vomund
www.ETFportfolios.net

A Technical Look at the Market

The international news is crazy. There was an international bailout of Greece, including cutting the value of Greek debt in half. The market rallied. Then Greek Prime Minister Papandreou called for a popular vote on the new measure. The market fell. Papandreou changed his mind and removed the popular vote. The market rallied. Italian bond yields rose above 7%. The market fell. Italian Prime Minister Berlusconi resigned. The market rallied.

The news headlines are erratic, but the market's chart pattern is not. An S&P 500 chart shows a downtrend followed by a sideways basing period that lasted 2 1/2 months. The base was decisively broken to the upside in late-October followed by a retest of the breakout in early November. Thus far the retest is successful. This is a textbook trend reversal pattern. Astonishingly enough, I find most technicians are bearish.

The best news is the strength of our "stocks only" Advance Decline Line. Since October 27 the S&P 500 has made a series of lower highs. At the same time the Advance Decline Line (shown above) is making higher highs. In fact, the Advance Decline Line is at a multi-month high right now. Stocks are stronger than what the major averages are implying.

Bottom Line: Negative news dominates the headlines and the market is volatile. Yet when one steps back and simply looks at the chart the picture is increasingly bullish.

David Vomund

Past performance does not guarantee future results. Consult a financial professional before purchasing a security.

Q3 GDP Grows 2.5%

The U.S. economy is growing at its fastest pace in a year. That isn't a surprise to us:

http://www.tahoebonanza.com/article/20111011/NEWS/111019984

Here is this week's newspaper article covering the market environment:

http://www.tahoebonanza.com/article/20111025/NEWS/111029978/1061

David Vomund
www.ETFportfolios.net

Exchange Traded Profits Book

For information on our Exchange Traded Profits book, including a ranking of ETFs based on relative strength, please visit www.ETFtradingstrategies.com.

Profiting From a Panic

September, historically the market's worst month, was off to its worst-ever start the first three trading days. Investors were worried about economic growth and European debt problems. The selling was relentless and discouraging for investors, professionals included.

A month ago (August 8), the Dow plunged 635 points and more dramatic declines are certainly possible. They can be great buying opportunities for both stocks and income vehicles. For example, before August 8 the General Electric Capital 5.875% senior note (symbol GED), rated AA+, traded in a tight range of $24.93 to $25.59 since January 1. On August 8 it briefly traded at $22.75 where it was yielding 6.5%, then it quickly rebounded. Nimble buyers nailed down a 6.5% yield in a top-rated issue and quickly added a 10 percent capital gain. Sellers were foolish.

Amid near-panic conditions, securities that trade on light volume can go to fire-sale prices, and wise investors with cash available can seize the opportunity when panicking sellers using market (not limit) orders dump their securities. Those opportunities have often been in preferred stocks I've written about recently, including the Partner Re Preferred E.

What should you buy if panic conditions return? Look to those that recovered fastest in August. Most of the income securities I've been writing about -- far less risky than common stocks -- recovered within a day or two. For example, Western Assets Emerging Markets Debt Fund (ESD) quickly fell from 19.30 to 17.11, then roared back to 19.36. The S&P Utilities SPDR (XLU) plunged to 29.45 then made a bee line to 34.

The bottom line: triple-digit moves are now routine and volatility will be with us for the foreseeable future. When people are selling indiscriminately, oblivious to quality and risk, smart investors will have terrific opportunities in both stocks and income vehicles. But only if they have cash available. Set some aside and be ready...just in case.

— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the position mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

2010 Deja Vu

Why is the market falling?

Here is my take on the market's plunge:

http://www.tahoebonanza.com/article/20110809/NEWS/110809945

In the slow/no moving economy and a Fed indicating that rates will remain low for at least another two years, our Reduced Risk Income portfolio continues to be in the sweet spot. Moving forward, we expect most of a portfolio's total return will come from dividends.

David Vomund
www.ETFportfolios.net

Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

Income Investing

It is still a good time to be investing for income:

http://www.tahoebonanza.com/article/20110719/NEWS/110719938

David Vomund

Utilities

On Friday technology stocks Google and Apple fell sharply while the Utilities SPDR (XLU) rewarded shareholders with a dividend. This is telling:

Click here for newspaper article.

David Vomund

The Slowing Economy and What it Means for Investors

Interest Rates Will Remain Low. What is Working?

The economy is slowing and that is being reflected in the stock market. Home prices are still falling, consumer confidence is at a six-month low, the unemployment rate ticked up, and QE2 is about to expire. What does this mean for investors? Interest rates will remain low longer than what most everyone expected:

Vomund's Newspaper Article

This is bad news for savers and those in or near their retirement years that are in need investment income. That’s where our Reduced Risk Income Portfolio comes into play.

This portfolio, which is customized to meet each client’s needs, holds securities that yield close to seven percent. The preferred stocks, fixed income instruments, and high yielding equities are ideal investments for this market environment. That’s why this is our most popular program.

Information on David Vomund's money management service is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

The Economy - Slowing but Growing

Sometimes the best way to gage the state of the economy is to look at the markets. Whereas economic data are released with a time lag, the market is forward looking. As an example, stocks topped in the fall of 2007 and entered a bear market long before the financial crisis and Great Recession became apparent. Stocks bottomed in early 2009, long before most knew the economy was improving and the recession had ended. What is it saying now? Slowing, but still growing.

Utility stocks are among the best performing sectors over the last month. Investors are shifting away from riskier growth-oriented securities to ones that offer more stability and income. The utility industry’s earnings are fairly predictable and the stocks offer both yield and dividend growth. In a slowing economy utility stocks typically outperform, which is why the Utilities SPDR (XLU) is at a multi-year high.

Even more revealing is the recent rally in income-bearing securities. The iShares Preferred Stock ETF (PFF) rallied to a new 52-week high. Wall Street is pushing back the time that they believe interest rates will raise. That has pushed up the prices of the preferred stocks and debt instruments that I’ve listed in past columns. They continue to offer attractive yields that are well above the money-market rates.

Why are money-market rates so low? “The Economist” recently gave an explanation, and Ben Bernanke isn’t to blame. Fast growing emerging economies are piling up dollars, yen, and euros from trade surpluses and internal savings. It needs to be invested. Because those savers have so few safe and insured investments at home they continue to buy our Treasurys. We’re talking trillions of dollars. It is estimated that our Treasury’s annual financing need (at least $1.5 trillion) equals only 25 percent of the excess overseas savings looking for safe assets.

Investors are tempering their optimism about the economy. Still, it is growing and corporate profits are high, in fact at record levels. That’s why stocks are giving little ground. The main engines that have powered the market are still in place. Those are earnings growth, reasonable valuations, and a lack of alternatives.

— David Vomund is a Registered Investment Adviser. Information on his money management service is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

Receiving Income from Investments

A few week’s ago Bill Gross, PIMCO's "bond king," said his $236 billion Total Return Fund no longer holds any U.S. Treasurys. Selling his position was a gutsy business decision, one for which he may take some heat, but from an investment standpoint he was right. Not owning U.S. Treasurys now is a no-brainer.

I won't go so far as to say there was or is a "bubble" (think tulip bulbs and dot-com stocks) in the Treasury market, because holders know exactly what they will receive at maturity and there is no risk if they simply hold on. Bond funds, however, do not mature, so investors have risks holders of individual issues do not. For example, those who bought the iShares U.S. Treasury ETF (TLT) last August have already lost 17 percent. They'll lose more.

I, too, am avoiding U.S. Treasurys in my Reduced Risk Income portfolio. There are better vehicles with higher yields. Specifically, preferred stocks, emerging market debt funds and high yielding equities make more sense.

Preferred stocks represent an equity investment in a company, as do common shares, but rank higher in the corporate pecking order when it comes to dividends or assets (in bankruptcy). Like bonds they pay dividends regularly with yields for many today of approximately seven percent. They are primarily income vehicles, so there will be little if any price appreciation. One of our favorites the JP Morgan Chase 7% Capital Securities Series J.

Emerging market debt funds invest in bonds from less-developed countries. Their bonds have lower credit ratings than other sovereign debt, because of the increased political and economic risks. As a result, they reward investors with a higher yield and capital gains potential. The asset class is attractive now because emerging economies are growing faster than those in the developed world. You can invest through several ETFs. PowerShares Emerging Markets Debt (PCY) and Western Asset Emerging Markets Debt (ESD) are two. I like the latter, which yields seven percent.

When you think of high yielding equities utility stocks often come to mind. Utility stocks have lagged the market the past year, but investors have been rewarded with yields of four or five percent and dividend growth. Some consider utilities a safe haven and to some extent that is true. Most are monopolies with a guaranteed return on capital. That is not to say they are risk free. If interest rates rise their yields will be less attractive, so their prices will fall. Many are also heavy borrowers. Rising rates will raise their costs. The Select Sector Utility SPDR (XLU) is a good way to invest. It owns all the utilities in the S&P 500 Index.

Other equities have high yields as well. Many drug stocks have been out of favor and have yields as high as utilities. My favorite is Pfizer (PFE).

All income vehicles have risks, some specific to them and others common to all. Among the latter, the most important is the level of interest rates. When rates are rising more than a little, income vehicles give ground (the reverse happens when they fall). While that day is coming, it's not coming soon...except for U.S. Treasurys. I agree with Bill Gross. For income investors there are better places to be.

— David Vomund is an Incline Village-based Registered Investment Adviser. Information on his money management service is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

First Quarter Review

Stocks posted their best quarterly gain in 13 years and the first quarter was one of our best thanks to energy issues. Had you known three months ago what was soon to be in the news (Japan, Egypt, Libya, the dollar, soaring commodities prices, etc.), you would surely have expected tough sledding ahead for stocks, maybe even much lower prices.

One can't help but wonder what it would take to undermine stock prices since neither war, nor revolutions, high unemployment, the ongoing housing recession, or natural disasters seems to do it. I can answer that. A downturn in the outlook for economic and profit growth would surely do it. An increasing likelihood of a sharp rise in interest rates would do it, too, but that is not in the cards for months unless inflation accelerates. I for one worry less about inflation even though commodity prices have soared. Commodities are a very small (10 percent) component of the inflation calculation. The day will come when inflation will be two or three percent and interest rates will be higher. No doubt about it. But not soon.

Investing is all about the economy and future earnings, and that explains why stock prices are rising. The outlook on both fronts is improving. GDP rose at a 3.1 percent rate in the fourth quarter, faster than previously estimated. Little noticed was that had it not been for an inventory draw down, growth would have been more than double that rate. That’s a strong economy. When inventories are rebuilt, which is inevitable of course, look for GDP growth to top 4 percent.

The economy and strong corporate profits explains why 117 companies in the S&P 500 raised dividends in the first quarter by a record $16.6 billion. Last year only 78 raised theirs. Companies have $940 billion in cash on their balance sheets. Expect more good news on dividends.

The drivers of the bull market are solidly in place. Those are earnings growth, cash being put to work, stocks’ attractive valuations relative to other investments, and the Fed’s injections of liquidity. As for he last, there is an old (and time-tested) adage: “Don’t fight the Fed.” That was good advice two years ago; it’s good advice now.

Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

Is it a bull or bear market?

Expect, But Don't Fear, a Market Pullback

The market has risen in 12 of the last 15 weeks. Because of the strong market, many people are finally turning bullish. People are beginning to notice. January was the first month since last April in which inflows to stock funds exceeded withdrawals.

One of the easiest things to do when forecasting is merely to extend into the future the current trend in a straight-line fashion. Easy, yes, and mindless, too. It's usually wrong and costly. For example:

Eleven years ago, technology stocks were all the rage after they had already doubled or tripled or quadrupled (or risen even more). Like trees they would grow to the sky, we were told, except people forgot that in the real world trees don't really grow to the sky. Then Cisco, Intel, and Microsoft and scores of others collapsed and even today most are far below their 2000 peak.

The collapse showed how out of whack prices were at the top, driven even higher by those who for months paid more and more for less and less as the bubble inflated. Greed will do that. Fear has the opposite effect.

At the worst of the financial crisis post-Lehman in 2009 when bank stocks were plummeting, the collapse of the financial industry was imminent, or so we heard. No, it wasn't.

Those financial stocks so destined for the scrap heap were terrific buys for those who didn't simply assume that the steep downtrend would continue. Wells Fargo was 8, now its 32. Goldman Sachs has more than doubled. Buyers paid less and less for more and more. With the strong market, some profit-taking is to be expected.

When it does, the familiar naysayers, call them perma bears, will be paraded on the financial networks. Many of these people have made careers predicting things that don't happen. Don't let them scare you. There are too many positives -- earnings and valuation being the most important.

I'm in the bullish camp for another reason that few mention -- there is and there will be no acceptable alternatives to stocks if capital appreciation is your goal.

For people in their 30s, 40s, and 50s, and to a lesser extent older investors, appreciation had better be the goal, one that couldn't be reached this year with bonds or cash and won't be reached next year or beyond unless people own stocks.

Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

It's a Bull Market

Why are stocks going up? Whether one looks at earnings, valuations, interest rates, money flows or simply the lack of alternatives, it's not hard to make a bullish case for stocks. Investors are coming around, and money is once again flowing into stocks after years when people were net sellers. I still believe a lack of alternatives is a major factor. Mid-cap stocks are doing best (analysis). What could go wrong to derail the bull market? A significant rise in inflation and interest rates would be a biggest setback. Some believe that is exactly what lies ahead. Some always do. I do not, at least not soon.

Corporate America sees value in stocks as well, which is why we hear of acquisitions every week. Danaher offered to buy Beckman Coulter and ENSCO agreed to buy Pride, Int'l. There weresmaller deals as well. Is Corporate America running fast and loose with its cash (a record amount)? Far from it. They are buying value where they see it, including in their own stock.

David Vomund