Vomund Investment Management

Our Competitive Advantage

2012-01-19T07:14:00.000-08:00

Here is a brief video on our company and how we suggest investing in today's climate:

http://www.etfportfolios.net/personal/20120117/

David Vomund
www.ETFportfolios.net

Looking at what 2012 may hold

2012-01-05T12:58:00.001-08:00

http://www.tahoebonanza.com/article/20120105/NEWS/120109977/1061&ParentProfile=1050

Market Analysis Videos

2011-12-15T08:15:00.000-08:00

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

2011-12-05T13:32:00.000-08:00

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

2011-11-13T19:43:00.000-08:00

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%

2011-10-27T09:26:00.000-07:00

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

2011-09-20T08:06:00.000-07:00

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

2011-09-09T09:59:00.000-07:00

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

2011-08-31T11:25:00.000-07:00

Why is the market falling?

2011-08-10T13:13:00.000-07:00

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

2011-07-21T11:42:00.000-07:00

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

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

David Vomund

Utilities

2011-06-19T06:53:00.000-07:00

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

2011-06-12T09:59:00.000-07:00

Interest Rates Will Remain Low. What is Working?

2011-06-03T12:12:00.000-07:00

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

2011-05-26T08:46:00.000-07:00

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

2011-04-14T12:12:00.000-07:00

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

2011-04-05T19:56:00.000-07:00

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?

2011-03-31T20:57:00.000-07:00

Expect, But Don't Fear, a Market Pullback

2011-02-24T11:37:00.000-08:00

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

2011-02-16T09:06:00.000-08:00

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

Just One ETF

2010-12-28T07:49:00.000-08:00

What is my single best ETF idea? My answer is posted at Seeking Alpha.

The Rising Stock Market

2010-12-22T10:03:00.001-08:00

All the pieces are coming together and it's clear that the economy is picking up steam. Industrial production is rising and with it capacity utilization, which is at a two-yer high. Retail sales are strong, especially online. The Index of Leading Indicators is rising every month; fourth-quarter GDP could very well top 4.0 percent and 2011 is looking better and better.

Wall Street analysts, money managers and yes, even a few ordinary investors, for months a gloomy group, are discovering reasons to be optimistic and buy stocks. Economists have turned positive as well, boosting their GDP estimates for 2011. That should be good news for stocks, but only to the extent that it's not already reflected in current prices, which are up 90 percent from the March 2009 low. For sure, to some extent the improving outlook is already reflected in prices. How much? No one knows, but I say not nearly enough.

Corporate profits, I should remind you, are the driving forces for stock prices. Not interest rates, not taxes, not politics. Profits are the mother's milk of stocks. The most important variable is the multiple (p-e) investors put on future profits, not on this year's numbers but those for next year and beyond. That multiple will depend on the outlook for rates, the allure of competing investments, and other factors -- some financial, some subjective. The focus on future results is why stocks don't move, as some put it, with "good" or "bad." They move with "better" or worse." Good and bad describe current conditions. Better and worse are clues to the future.

Valuations

2010-12-08T12:51:00.000-08:00

Goldman Sachs expects S&P 500 earnings to be $94 next year and $104 in 2012, which gives the index a price-earnings multiple of 13 on 2011's earnings and less than 12 on 2012's estimate. Compare that to the ten-year Treasury, which at a 3.14 percent yield trades for nearly 32 times earnings. And stocks can and will generate more and more income as payouts rise; the ten-year Treasury cannot. Investors looking over the landscape are increasingly turning to stocks, and you can see why. Bonds are going the other way, falling sharply.

Municipal Bonds

2010-12-02T10:12:00.000-08:00

Here is my North Tahoe Bonanza article on municipal bonds:

www. tahoebonanza.com/article/20101130/news/101139990

David Vomund

When Expectations are Too High

2010-11-01T11:54:00.001-07:00

This Tuesday and Wednesday are important. Tuesday is the election (people expect a Republican victory) and on Wednesday the Federal Reserve will in all likelihood announce another round of quantitative easing (QE) in which it will purchase Treasury securities in the open market. This much-anticipated round will raise bond prices, lower long-term rates a bit and perhaps boost the economy. The idea is to lower the returns on risk-free investments so much that we'll do something riskier. Another Fed goal is to raise the inflation rate. Investors are beginning to anticipate that and long-term interest rates are edging higher. Again, investors expect action by the Fed.

Expectations are often more important than the here and now. Whether is it good or bad for the country, Fed accommodation and huge Republican gains with an extension of the Bush tax rates expected by nearly everyone. Those are baked in the cake, as they say. But suppose nothing gets done in the lame duck session, which means taxes will be going up on January 1. Suppose the Fed buys fewer Treasurys than the market expects. Maybe Republican gains will not be quite as huge as most foresee. Any or all of those events would rattle the market. Stocks will not do well, at least temporarily. When expectations for important matters are as one-sided as they are today, the stage is set for disappointment.

There is a Wall Street adage, "Buy the rumor, sell the news." That may happen even if investors' high expectations are met. But profit taking would be short lived. Stocks do very well after mid-term elections regardless of the outcome. Ultimately, investing is about future earnings and earnings are strong.

Consult your financial advisor before purchasing any security.

Income Investing

2010-10-25T13:30:00.000-07:00

Here is our Tahoe Bonanza article covering how to invest for income in a low interest rate environment:

http://tinyurl.com/2fkym8y

Market Update

2010-10-25T13:10:00.000-07:00

Since September opportunities to join the rally are few and increasingly far between. We saw one last Tuesday, but you had to act fast. That's been the story for seven weeks, despite the background of a nearly flat economy, high unemployment, a falling dollar, the mortgage mess, etc. Those negatives are being more than offset by the prospect of political change, the improving earnings outlook and more.

Earnings reports, with few exceptions, are coming in better than investors expected just as they did three and six months ago. Across a broad spectrum of American business, companies are doing better and, even more important, they are becoming increasingly optimistic.

Investors and Wall Street have not been sufficiently optimistic They succumbed to the wave of negative data about the economy, data we have been seeing and hearing every day for many months. They forgot that investing is about the future, not about today or last quarter.

While my outlook for the economy and profits is pretty mainstream that doesn't necessarily mean stocks will languish. Because stocks are undervalued relative to earnings and interest rates, and the alternatives remain unattractive, there is ample upside. Add in the buying pressure as more and more investors put cash to work and you will have a recipe for higher prices. That's what lies ahead. Not in a straight line, of course. There will be periods of profit-taking, as we saw last week. Brief ones.

It's Okay to Be Optimistic

2010-10-14T19:54:00.000-07:00

Here is an article I wrote for today's North Lake Tahoe Bonanza:

http://tinyurl.com/2bzuu59

David Vomund

Jobs and Money

2010-10-10T20:57:00.000-07:00

Friday's jobs report underscored how difficult it will be to reduce the unemployment rate. There were 64,000 private-sector jobs created, less than half the number needed to prevent unemployment from rising. The story has been similar month after month. The economy is inching along.

Expect a second round of what's called Quantitative Easing (QE), which means the Fed will purchase more assets (mortgages, Treasurys, etc.), expand its balance sheet and increase the money supply. That would boost bank reserves, but those are close to one trillion now so more wouldn't have much if any effect. The economy doesn't suffer from a lack of capital, cash and reserves. There is plenty. Liquidity is one of the factors driving the market higher.

I know, I know. There are problems such as deficits, the sinking dollar, spending run amok, Social Security and Medicare, to name a few problems. But as investors we needn't fear problems that are well known because they are already reflected in current prices. And to the extent that the well-known problems turn out to be less severe than expected, that will become a positive.

Market Update

2010-10-01T07:02:00.000-07:00

The steady drip of slightly positive or merely "less bad" economic data continues. This week's data showed that second-quarter GDP grew slightly faster than first thought and CPI inflation was less. Housing numbers were better and prices actually rose. First-time jobless claims declined again and purchasing managers are more upbeat. The picture is becoming clearer. The recovery and eventual expansion will be slow, but it's coming.

In our last blog we said that sooner or later stocks would break through the upper end of the trading range that has contained them since the spring. They did so last Friday and the buying has continued. The month of September was the best since 1939. Short covering explains some of it, but the rest of the buying is by people who anticipate earnings growth. That's a good bet.

There are other reasons too. The largest: alternative investments are unattractive. Professionals know that and they're putting money to work but many individuals are still not on board. That explains why people continue to liquidate stock funds in favor of bonds, never mind the yields and risks of the latter. They'll regret it. Bottom line: stocks are going higher.

Trading Range

2010-09-13T11:33:00.000-07:00

So much for September historically being the market's worst month. Stocks are doing very well, rising in all but one session in September. The S&P 500 is at its highest level in a month.

Why the renewed interest in stocks after the August sell-off? The economic news, while still grim, is not quite as weak as investors anticipated, so being "less bad" is seen as a positive for the economy and in turn corporate profits. Couple that with the $3 trillion on the sidelines receiving next to no yield, and you can see why the market has rallied.

I should caution that when the S&P 500 has reached the upper end of its range (1130) the market has looked strong and at the bottom (1040) it has looked terrible. The market is testing the upper end of the range today. Traders who sold when stocks looked good at the top and bought when the market was weak at the bottom were right to do so. But someday they will be wrong. We think that day will be in October but it happen as early as tomorrow.

The odds favor a break through the upper end. Here's why: The negatives are well known: Debt, deficits, slow growth, unemployment, etc. That's old news and already in the market. Potential positives are not in the market. The $3 trillion on the sidelines can fuel a rally and the $1.7 trillion in cash on corporate books (other than financial institutions) will at some point be put to work. When investors expect the worst then the surprises are positive. In time the positive events that will drive the market higher will become known. We expect emerging market country ETFs and higher yielding U.S. equities will perform best.

Deflation

2010-08-10T17:47:00.000-07:00

From time to time we're hearing voices mentioning or even forecasting deflation. While few are predicting deflation now, most admit that the possibility is there and in fact rising. To hedge against that possibility investors are nailing down income-producing vehicles now, figuring that yields will be even lower in the future. We are seeing that with many preferred stocks. Most are at levels they haven't seen in a long time, or in some cases ever. While utility stocks have risen for the same reason and rose on Friday after the initial knee-jerk selling, they should be doing even better. Soon they will.

Although yields have fallen, this continues to be a better time to invest for dividends than it is to invest for capital gains. In a slow-growing economy, stock prices and corporate profits will do only a little better than track nominal GDP growth, so dividends and income will count for a good deal of total return.

I do not share a deep concern about deflation. Unlike our experience in the 1930s and Japan's since the late '80s, the Fed and Treasury have both the tools to combat deflation and the willingness to use them. There are few winners when deflation takes hold, but many losers. Stocks decline and businesses and individuals postpone purchases because prices will be lower later. Deflation feeds on itself. It is in the interests of most to see that it doesn't occur. The Fed is well aware of that. The Fed would prefer modest inflation and it has the tools to bring it about.

After Tuesday's Fed meeting it is clear rates will stay low well into next year. Income investors frustrated with returns and tired of chasing bonds higher and higher will increasingly turn to high yielding stocks, utilities especially. Our Reduced Risk portfolio holds these as well as high quality trust preferreds. It is well positioned for this market environment.

David Vomund

Market Outlook

2010-07-14T13:00:00.001-07:00

We’ve just entered earnings season and investors are reading between the lines in releases from Alcoa and CSX (a large railroad). Alcoa said their customers in China, Europe and elsewhere (here as well) are doing better across all lines and they increased their anticipated growth rate. CSX reported a rise in freight tons, a key indicator of future economic growth. Expect upbeat second-quarter reports from others and more optimism about the near-term future than we have heard for some time. Exports to emerging markets are booming. Capital spending is on the rise. A double-dip recession is really a long shot. Not going to happen.

What is missing is a spurt of new hiring at large companies. Many are understandably cautious about the future primarily due to uncertainty about health-care costs, taxes and regulations.

Despite the drumbeat of gloom and doom in the financial and general media, investors have little choice but to buy stocks as long as interest rates remain low. And they will remain low for the foreseeable future. They have also loaded up on bond funds, preferred stocks and other income vehicles. Longer-term bond funds are not a good bet. Investors have put many hundreds of billions of dollars into long-term bond funds to find income. When rates are so low, the market risk is high. Preferred stocks are attractive, however, and our Reduced Risk income portfolio is taking advantage. This is our best portfolio option in this difficult equity market environment. Receiving 7 percent in dividends is fun in a sideways market!

All that said, let's not get too carried away. There are no catalysts for GDP growth much beyond three or briefly four percent. The headwinds of rising taxes and ten percent unemployment are too strong. Still, the tailwinds of rising exports and surging earnings this year amid a low-rate environment will carry the day to higher prices. I find it very difficult to make a bearish case when prices are historically low and earnings are rising. As I've said many times, stocks are a bet on future earnings. Earnings trump all. The outlook is very good for this year, and fairly so for 2011. What stocks have going for them above all else is valuation. Relative to historical measures and today's returns in alternative investments, stocks are cheap.

Yesterday's Market Plunge

2010-05-07T08:37:00.000-07:00

The Dow was off 998 points at its worst level yesterday, but that was not valid. The 30 Dow stocks did not fall anywhere near that much on the NYSE. For example, Procter and Gamble was 61 on the NYSE when the exchange slowed trading for 90 seconds to keep an orderly market. Electronic exchanges continued trading, but since there are few bids under current prices in those markets automated selling programs kept hitting the bids again and again. In the case of PG, in 90 seconds it fell to 39. When trading re-opened on the NYSE 90 seconds later, PG was 60 or so. That 21-point slide to 39 in one stock took between 160 and 200 points off the Dow. The same happened to MMM, another Dow stock. Many of those trades will be broken. During those few minutes there were eight stocks that traded down to one penny. Accenture fell from 41 to zero. So did Centerpoint Energy and Excelon. The SEC will look into this. The NYSE performed well; the electronic markets did not. Rules don't apply to them. That has to change.

The Dow's closing level (off 347) was legitimate and reflects to some degree a concern for foreign debt and where we're headed, but that is a convenient excuse. It was mostly profit-taking. The panic -- to the extent that is the right word -- was in the bond market. I saw it begin the day before. Most bank trust preferreds trade lightly, so a little selling with market orders can knock prices for a loop. For example, the JPMorgan issue (J) fell from 25.15 to 19.28 before rebounding to 23.50. Most fell 10-15 percent at their worst. All then rallied, some even closing higher for the day. TEI, the Templeton Emerging Market Income fund, fell a point from 14, but in electronic markets the low was 6. The NYSE low was 11. Again, the electronic markets with little liquidity did not perform well. Many of those trades should be broken.

We have not heard the end of this. Late yesterday there was a report that a trading firm sold 16 billion index futures contracts instead of the intended 16 million. That caused the 15-minute slide of 700 points, mostly away from the NYSE where markets were orderly. Something has to be done to put people back in charge, not computers. Firms that do high-frequency trading can enter between 10,000 and 20,000 orders in the time it is taking me to type one character on this e-mail. Chaos ensued yesterday. We'll see it again. It was a similar story in 1987 on what was the best buying opportunity of our lifetimes, one created by program selling.

Yesterday's lows, to the extent that they are trades that hold up (many won't), will be at prices not likely to be seen again. That is surely the case for P&G, Accenture, Centerpoint and others. Also true for income vehicles.

The long-lasting impact of what happened yesterday is to further turn off ordinary investors, many of whom believe the deck is stacked against them in an insider's game. Just what they'll invest in remains to be seen. For now many are buying bond funds. Not a good idea. Others are buying Treasurys and selling the euro and pound. Treasurys are not a good bet at all. They are rallying as a safe haven, that's all.

Overview of the Economy and Market Conditions

2010-05-03T08:25:00.000-07:00

Here is a video on the economy and market conditions:

http://www.etfportfolios.net/videos050310/

David Vomund

Market Environment

2010-04-22T20:29:00.000-07:00

It is Earth Day, so here is a short video on the environment (the stock market environment that is)

http://www.etfportfolios.net/videos042210/

The above video makes of a video created in March 2009. For your reference, here is that video

http://www.etfportfolios.net/videos032009/

David Vomund

It's a Bull Market

2010-03-29T10:45:00.001-07:00

In “Reminiscences of a Stock Operator,” believed to be the autobiography of Wall Street trader Jesse Livermore under the pen name Edwin Lefevre, there’s a story of how a shred old-timer was asked by a newcomer for some investment wisdom. He said “it’s a bull market,” again and again that’s all he would say. The newcomer expected the sage to say “buy Union Pacific” or “short U.S. Steel.” The newcomer was disappointed until another investor told him he received the most valuable advice the sage could give. True.

So it is a bull market. Never mind those who insist that it shouldn’t be a bull market, or it isn’t really if you look at this or that. They are in denial. This is a bull market with a powerful, earnings driven tailwind. It has more room to run.

Why are stocks rallying? The reasons are rising earnings in a growing economy, relatively low interest rates, and literally trillions of dollars, pounds and euros looking for a better return than money-market funds provide. There are more reasons too.

Credit conditions are improving (bond issuance has soured) and we’ll soon hear that jobs are once again being created and GDP is growing at a good pace early in the year. Corporate America planned for a recession, or in some cases a depression. They slashed production, cut payrolls and postponed all but essential capital expenditures. This is reflected on the bottom line. Rising profits trumps all. That is driving stocks higher.

The Dollar

2010-02-16T09:12:00.001-08:00

There is currently an inverse relationship between the dollar and the stock market. When the dollar rises the market falls. The opposite is true when the dollar falls. There is also talk that a strengthening dollar will also put the U.S. back in recession. While it is true that a rising dollar hurts exports, it is wrong to conclude that a continually falling dollar is good for our country.

Yes, there are pluses from a declining dollar, but the country won’t benefit and you and I won’t be well served over the long term. I am not aware of a single instance where a country’s declining currency led to rising standards of living and sustainable economic growth. On the contrary, capital flows to countries with economic growth and relatively low taxes, and investors and foreign businesses buy that country’s currency, pushing it up and depressing the one they’re selling. Capital goes where it is treated best.

Market History

2010-01-27T12:10:00.001-08:00

Because of two bear markets, the 2000-09 decade was the market’s worst performer, surpassing the miserable 1930s. Despite this, the market ended on a high note with a dramatic turnaround from the 2007-09 bear market.

The turnaround is stunning. Emerging market stocks had their worst year on record in 2008 (down 53%) and their best year on record in 2009 (up 79%). High yield corporate bonds had their worst year on record in 2008 (down 26%) and their best year on record in 2009 (up 58%).

Compared with 13 bear market recoveries since 1929, the 2009 stock market rebound is one of the most robust ever. The S&P 500’s 65% rise from March 9 to December 31, 2009, is more than a third higher than the average 46% rebound in the first year of new bull markets. The 2009 rally even beats the average two-year return of 57% in prior bull market recoveries.

Despite the 2009 rally, the S&P 500 remains 29% below its level prior to the start of the bear market. That is similar to prior large bear markets. A year after the 1937-1942 downturn, the S&P 500 was still 39% below its pre-crash high. A year after the 1973-74 bear market, the S&P was down 29% from its prior high.

No one knows what will happen in 2010 and past performance does not guarantee future results. But historically, in 12 out of 13 bear-bull cycles, gains continued during the second year of the recovery, just at a slower pace. Let’s hope so.

Independent Firms

2010-01-04T11:59:00.000-08:00

Here is an interesting Wall Street Journal article on the turmoil within the big name brokerage firms. Brokers are switching from firm to firm, and many are leaving to use our independent model:

http://online.wsj.com/article/SB126256739671014281.html

I especially like the Morgan Stanley Smith Barney spokesman that says, “The majority of departures have been people with below-average revenue production.” Keep in mind they are talking about their own revenue instead of how well their clients are doing. With these firms, it’s all about commissions.

Independent firms like our own don't have a conflict of interest. We don't make money from trading commissions. Our fee-only system is based on assets under management, so the more we grow client portfolios the more we (and our clients) are rewarded.

David Vomund

Videos

2009-12-01T13:55:00.001-08:00

Here are two short videos on our managed account programs. They were filmed in mid-November:

http://www.etfportfolios.net/videos11/index.html

David Vomund

Economic Outlook Part II

2009-10-30T10:34:00.000-07:00

In our August 17 blog we boldly predicted the economy would grow by at least 3% in the third quarter. Thursday's report showed growth at 3.5%. We also said when that happens stocks would be far higher. Back then the Dow was at 9135. Now it stands at 9700. I expect slower growth in the fourth quarter, but still growth nontheless.

Those who invest in the market based on today's news will once again be on the wrong side. Notice the Dow's crossing of 10,000 was not a new buy signal. It was a time of profit taking. The positive GDP number was not a new buy signal. It will likely be a time to reduce market exposure. We moved client portfolios away from fully invested on October 15.

Video Series

2009-09-27T16:55:00.000-07:00

Here are three short videos on the market and our managed account programs:

http://www.etfportfolios.net/videos9/index.html

David Vomund

Bullish S&P 500 Chart

2009-08-24T08:09:00.000-07:00

Browsing financial websites it seemed nearly everyone fell into two camps …. the market would test the lows or the market would fall 5 to 10 percent. It was hard to find anyone that thought the market would hit new highs. The public’s skepticism and negative sentiment are hallmarks of a new bull market.

With the S&P 500’s move to a new high, an inverse head-and-shoulders bottoming pattern is complete. This pattern developed over a ten month period and is a further sign of bull market. I’m expecting a great fourth quarter.

David Vomund

www.etfportfolios.net

Economic Outlook

2009-08-17T10:02:00.000-07:00

It would be easy to be gloomy on a day like this. The market’s down big and the news headlines site the majority of economists point to a slow recovery (click here).

It is easy to be gloomy until you ask how many of these economists called the Great Recession. They were wrong then and I suggest they are wrong now. The pace of the recovery will be stronger that what most expect (with the exception of job growth).

The economy will bounce back quickly. The market may predict a “W” shaped recovery but it will be in the shape of a “V.” I expect this quarter’s GDP growth to exceed 3 percent (that’s not a misprint). It may even exceed 4 percent.

Never underestimate American’s appetite for spending. The worse recession since the 1930s is creating “pent up” demand. We can see this from the popularity of the Clunker program. Many of the clunkers being traded in could be sold for around $2000 on the open market, so consumers are only saving $2000. They want new cars.

We’ll find out if I’m right around the end of the year. If I’m right, stocks will be far higher.

The Current Investment Climate

2009-07-27T08:43:00.001-07:00

Here is a short video on today's investment climate:
http://www.etfportfolios.net/video/

This video refers to a series of videos created in March. To revisit these videos please visit:
http://www.etfportfolios.net/firesidechat/

David Vomund
http://www.etfportfolios.net/

Summer Doldrums

2009-07-10T09:19:00.000-07:00

The New York Times is full of stories of lost fortunes. They wrote, “if general insolvency is ahead of us, existing prices cannot be too low…they ought to be even lower.”

Times added, “Indicators of the U.S. economy flashed some of their gloomiest ever…depression in the housing industry…doubt among investors about the Administration’s ability to control the economy has sent the stock market in to a frightening slump…and the high cost of borrowing and the impossibility of selling new stock issues in a collapsing market make it difficult for companies to raise the money needed to expand or in some cases even to stay alive, thus intensifying the threat of recession, or worse.”

The quote from the New York Times is from 1932, just weeks before the Great Depression bear market ended. The quotes from Time Magazine are from the fall of 1974, just days before the bear market bottom was reached. So, don’t count on the media to tell you when things are improving.

The stock market had an exceptionally strong second quarter and is due for a rest or a retracement. As it gives back some of its gains, the media will be especially gloomy with talk about markets hitting new lows. All of this is normal activity.

David Vomund

News Headlines & the Market Video

2009-06-02T09:56:00.000-07:00

http://www.etfportfolios.net/videos/bvideo.html

Why Stocks Have Rallied

2009-05-26T09:51:00.000-07:00

Investing is part art and part science. Psychology also plays a role and that’s where investors get in trouble. People generally love the stock market when it is high and hate it when it is low. It’s backwards.

Most people remain bearish on stocks. That’s why money market assets are at an unheard-of 43 percent of market cap. Instead of seeing opportunity, they focus on the bad economic news and rationalize that stocks can’t (or shouldn’t) go higher. After all, we are in recession. Unfortunately, it doesn’t work that way.

Going back to 1926 there have been fourteen recessions. Looking at duration, stocks typically hit their low point about mid-way through the recession (after 17 months in our current recession, surely we have hit the mid-point!). That means that most of the time new bull markets start during, not after, a recession.

What about the dismal unemployment figures? Unemployment is bad and unfortunately it will get worse, but that headline-grabbing figure doesn’t mean stocks will fall. On average the market has bottomed and begun to rally seven months before the peak in unemployment.

We’ve seen a lot of bad stories that say “this hasn’t happened since xxxx,” usually pointing to the 1930s, 1974, or 1982. While the stories are negative, one should note that the year they point to was typically a great time to buy stocks.

When the market factors in the worst case scenario (it did), the news doesn’t need to be good for stocks to rally. It just needs to be less bad. That’s what is happening now, especially in emerging market securities, where they are hitting new seven month highs. Opportunistic investors are looking past the current headlines and are anticipating better days ahead.

Magazine Cover Stories

2009-04-24T09:04:00.000-07:00

Magazine covers have been used as a contrary indicator. It’s not that the magazine editor’s have poor timing. Instead, the editors choose a cover that reflects public sentiment and will sell well.

One of the most well known magazine covers is from an August 1979 issue of Business Week. The headline: “The Death of Equities.” Well, not quite.

Coinciding with the 2002 stock market low, the July 29 issue of Business Week ran the headline, “The Angry Market.” That marked the beginning of a five-year bull market.

How about the March 2009 low? Business Week ran “When Will the Bull Be Back? Most signs point to more stock market pain. But opportunities are emerging for very, very long-term investors.”

It is a bit unfair to point to magazine covers at important market lows because it ignores some other covers that didn’t coincide with the low. Nevertheless, the magazine covers reveal the public mindset at important lows.

David Vomund

www.etfportfolios.net

Mark to Market

2009-04-08T13:13:00.000-07:00

No single policy or event ever destroyed as much wealth so quickly as the mark-to-market accounting rules that depleted capital and destroyed earnings.

The infamous mark-to-market rules that were activated in the fall of 2007 (coincidentally as the market topped) are being relaxed to give banks and insurance companies leeway to use common sense and cash flow estimates to value mortgages and other loans, not merely a price set months before by a distressed seller in an illiquid market. Now banks are allowed to value assets as they would in an “orderly” market.

When a House committee held hearings March 5 on the impact of mark to market, members were aghast by the needless chaos and wealth destruction the rules were creating. Finally, politicians have gotten something right. The Financial Accounting Standards Board (FASB) heard them loud and clear. On March 9 the FASB said they would soon have changes to announce. As investors knew any change could only be positive for banks, stocks began to rally, and rally.

On April 2 the FASB released their new rules for valuing some assets. Banks and insurance companies have a lot more discretion now to be realistic, not reactionary. That will help earnings and boost capital, effective April 1. Now that mark-to-market rules have been relaxed, banks can spread losses over several years as they occur, not take them immediately in anticipation of losses that may or may not appear. This is progress.

Equities and Recessions

2009-04-01T21:08:00.000-07:00

During the second half of March I made many phone calls to those that had previously expressed an interest in our managed account program. After making these calls I overwhelmingly found that people did not want to get back into the stock market (a contrary indicator ???). As for reason, they cited the poor economy and bad news.

At this late stage in the bear market it is a mistake to be gloomy on stocks because of the bad economy. To see why, let’s look at equity price behavior during the past recessions dating back to 1926.

Going back to 1926 there have been fourteen recessions. Looking at duration, stocks hit their low point about mid-way through the recession (after 16 months in our current recession, surely we have hit the mid-point!). That means that most of the time new bull markets start during, not after, a recession.

On average stocks increase in value during the second half of a recession. That’s right, in the second half of a recession stocks typically increase in value despite the bad news headlines. That’s because stocks get cheap during bear markets and they are forward looking.

I am much more optimistic on equities and firmly believe that investors will look back at this time and wonder why they were sellers instead of buyers.

David Vomund

As always, past performance does not guarantee future results.

Fireside Chat Video Series

2009-03-23T10:40:00.000-07:00

One key to investing is to be more aggressively invested on the way up compared to on the way down. Unfortunately people do just the opposite. People loved stocks when they were high, but now that stocks have lost half of their value few have interest in placing new money in the stock market. That’s human nature, and it’s devastating to stock portfolios.

In order to help potential clients realize that this bear market should represent an opportunity, I’ve created a short video series highlighting the economic problems, what is being done about these problems, and how it relates to the stock market. Enjoy:

http://www.etfportfolios.net/firesidechat/

Please call me if you have any questions on the video or would like to receive a PowerPoint file showing the slides.

David Vomund
775-832-8555

Best ETFs for 2009

2009-01-06T08:25:00.000-08:00

The investing website, TheStreet.com, asked me late last year to give my picks for the best performing ETFs in 2009. Of course this is guesswork as things can change fast (remember 2008?), and when the road turns we have to turn with it. Nevertheless, predicting the winners is a fun exercise and I'm comfortable holding my selections. Here is the article:

http://www.thestreet.com/story/10455806/1/money-managers-top-picks-for-2009.html

David Vomund

Diversification Balderdash

2008-12-16T16:57:00.000-08:00

I recently read the December’s Investment Advisor magazine and found most investment advisors were touting their use of diversification to reduce the risk of their client accounts. Do people really buy into this rhetoric?

The issue was filled with articles and pretty pie charts explaining the benefits of diversification until the very last page where the article, “The Failure of Asset Allocation” appears. This article reveals the truth: Having a diversified portfolio has not protected investors from this bear market.

With the exception of U.S. Treasury Bonds, all major asset classes have lost value in 2008. Equity REITs and REIT mortgages were supposed to be a diversifier, but they are down 37% plus. Foreign stocks and emerging markets were supposed to diversify away some of the equity market risk exposure, but they are down 46-56% respectively. TIPs and high yield bonds were supposed to help “diversify” fixed income allocations, yet relative to plain garden variety intermediate government bonds they have underperformed by 18-27% respectively. Commodities were another “asset class” tossed into the theoretical diversification bucket, but they are down 26%.

Holding all of these asset classes was supposed to protect client assets by lowering portfolio risk. It didn’t, and it won’t. As the market recovers, the securities will become uncorrelated once again placing a drag on portfolios.

I prefer to place bigger bets on individual areas and as I perform research for a follow-up on ETF trading, I’m finding it pays to run our rotation model on the asset classes, making sure to include both long and short choices, to see where portfolios should be concentrated. By including securities such as long dollar and short dollar, we can be sure that there truly is “always a bull market somewhere.”

David Vomund
http://www.etfportfolios.net/

Radio Intervew

2008-11-03T11:56:00.001-08:00

Here is a 15 minute interview with the Big Money Show in Denver, Colorado. The recording took place November 3:

www.etftradingstrategies.com/interview.mp3

David Vomund
www.etfportfolios.net

Comparing Recessions

2008-10-29T15:30:00.000-07:00

Here is an article I wrote for Lake Tahoe's Bonanza newspaper:

http://www.tahoebonanza.com/article/20081029/NEWS/810289966&SearchID=73334455900429&parentprofile=search

David Vomund

Emotions of Investing

2008-10-15T21:29:00.000-07:00

In case you think individual investors suffer the emotional roller coaster of investing more than professional managers, think again. The same “thrill of victory and agony of defeat” forces are at work with everyone.

We believe active market timing is a tough and losing game. If we start day-trading performance will suffer. The Style Index portfolios program is designed to be almost always invested, unless there is an unusually difficult market environment. This is an unusually difficult environment.

We moved our Style Index clients to 100% cash on September 8. That doesn’t mean the stress stops there as being left behind in a rising market is one of the biggest mistakes retail investors make.

On Monday the 13th, while the rest of America celebrated a record breaking 936 point advance, we stressfully stared at quotes wondering if we should get invested. We stood with our conviction and stayed in cash. Overnight futures were up more that night (translation….another sleepless night!). The next day the market opened three hundred points higher. It didn’t help that my wife wondered why I hadn’t started buying yet!

That was the high and the market plunged back down to its lows shortly thereafter. Clients appreciated remaining in cash and they likely figured we had it figured out all along. Fortunately they didn’t see our nail biting as the market advanced!

We’ve handled trading differently with the Tactical Allocation program. Instead of moving to all cash, we’ve temporarily been running a long/short program. We are long some of the outperforming sectors, such as regional banks and health, while maintaining an equivalent position in a short S&P 500 ETF.

Eventually the market will become less erratic and we’ll return to investing for growth, but for now safety is prudent. Still, that doesn’t mean it’s easy….

David Vomund
www.etfportfolios.net

Sell Your ETNs

2008-09-29T17:06:00.000-07:00

Last February Lehman introduced several exchange-traded notes (ETNs) under the “Opta” brand name. Unlike exchange-traded funds (ETFs), which represent actual share holdings, ETNs are backed by the credit of the issuing bank. That didn’t seem like a big deal a few months ago, but it does today. The Lehman ETNs no longer exist.

Morgan Stanley has four currency ETNs. This firm moved to traditional banking status allowing them to more easily borrow from the Fed in an emergency, but the risk of default remains.

Barclay’s is a big player in ETNs and they are the most financially strong, but in today’s climate that can change fast. AIG was considered in good standing just two weeks before their failure.
The ETN market is much smaller than the ETF market. With today’s credit crunch, the ETN market may get smaller still. I see no reason to subject portfolios to the credit risk of ETNs.

David Vomund
http://www.etfportfolios.net/

2008-09-17T11:33:00.000-07:00

Investing is akin to driving. You start and point A and want to get to point B, but you don’t go there in a straight line. When the road turns, you turn with it.

The same goes with the market. Earlier this year TheStreet.com interviewed me asking for my favorite ETFs. At the time commodities were rising so I chose an inverse bond fund and an energy fund. The inflation road turned as commodities plunged. Inflation is less worrisome so an inverse bond fund is no longer appropriate.

Commodities have sold off but so have equities. So much for the theory of diversification helping an investor avoid draw-downs. The panic of the 2008 credit crisis is underway and people are re-evaluating their portfolios. Unfortunately the time to make portfolio decisions is not during a crisis. More on that in an upcoming blog. In the meantime, here is a short interview in today’s Tahoe Bonanza:

http://www.tahoebonanza.com/article/20080917/NEWS/809169965/1050&ParentProfile=

David Vomund

Bears

2008-08-18T12:42:00.000-07:00

The bears are attacking. No, I’m not talking about the stock market. Instead I’m referring to life in the mountains at Lake Tahoe. While watching the Olympics, a bear began to rip open our dining room’s screen door. Fortunately my daughter was in the kitchen and alerted us. It is bad enough for bears to be in control during market hours, but now they are making their presence known on weekends as well!

On another note, we were quoted in Investor’s Business Daily:

http://www.investors.com/etf/etfarch04.asp

David Vomund

Investing in the Energy Solution

2008-08-06T10:30:00.000-07:00

The price of oil has fallen these last few weeks but energy costs remain high, and some (including myself) believe the downtrend is temporary. Before discussing how an investor can profit in alternative energy, it is important to understand the energy problem. People blame high prices on speculators, OPEC, oil companies, the weak dollar and taxes. These may all play a role but when you step back to view the forest instead of the trees it’s all about supply and demand.

The demand story is well told. For all the attention paid to China and India (and rightly so), rising demand in Saudi Arabia and across the middle east is nearly as important. Since 2004, Saudi oil consumption has increased nearly 23%. Saudi Arabia and other oil exporters will meet their own demand before they attempt to meet the world’s demand.

The supply story is seldom told, but is the crux of the problem. The bottom line: The world’s big oil fields are producing less, sometimes alarmingly so. The most striking is in Mexico where output from the country’s once-mighty Cantarell field has plunged by a third in less than a year. The depletion rate of the world’s biggest oil fields is estimated as around 4.5% to 8% per year.

Despite the potential for profit in today’s high prices, crude oil production (just crude, not natural gas liquids) topped out in May, 2005, and that may stand as the peak that Matthew Simmons, author of Twilight in the Desert, and other “peak oil” experts have predicted was imminent.

High energy prices have turned the focus to alternative energy solutions. The success of the Toyota Prius, which still can’t be produced fast enough to meet demand, demonstrates the profit potential in energy solutions. Texas oilman T. Boone Pickens is turning his focus to wind power, funding the world’s largest wind energy plant. Innovation has never been greater in wind, solar, hydrogen, and other alternative energy methods. This is the upside to high energy prices.

Investors can participate and profit in the booming alternative energy market, but picking individual companies to buy is scary. If you purchased Pets.com in the 1990s because you believed in the power of the internet, then your investment was a bust. It’s disappointing to be right on the sector and wrong on the stock.

With exchange-traded funds (ETFs), investors can buy a security that holds a basket of stocks within a particular sector. For example, if you want to invest in solar energy, you can purchase the Claymore Solar Energy ETF (ticker TAN). This ETF holds the largest publicly traded solar companies in the U.S., China, Germany, and other countries. If you want to invest in wind energy companies, you can purchase the newly traded First Trust Wind Energy ETF (ticker FAN).

A more diversified choice is the popular PowerShares Clean Energy ETF (ticker PBW). This ETF holds the leading companies involved in renewable energy and technologies that facilitate cleaner energy.

These exchange-traded funds can be bought or sold just like a stock. They allow investors to participate in the alternative energy sector, a sector that is becoming increasingly important as our country becomes more energy independent.

David Vomund
http://www.etfportfolios.net/

Independence versus Hedge Funds

2008-06-23T11:04:00.000-07:00

My last blog covered the advantage of independent advisors over those associated with the big-name firms. With the recent news on hedge funds and the sub-prime mess, it is a good time to explain the advantage of independent advisors over hedge funds.

Hedge funds pool client funds. For that reason, clients rely on the hedge funds to provide them information on what their investments are worth. This information is provided either monthly or quarterly, and you trust the fund for its accuracy. There are many cases where portfolio values were fudged, making clients believe their portfolio values were higher than reality. This deception can only go so long.

In my small town of Incline Village a fund gathered millions and failed to report to investors its portfolio losses. Eventually the managers and sales team fled town, and investors lost their money.

Last Thursday the FBI arrested Bear Stearns hedge fund managers for fraud. In an email one manager wrote, “Believe it or not … I’ve been able to convince people to add more money …”

With independent advisors, the brokerage account is yours. You simply give the advisor authority to place trades on the account. I trade through Fidelity Investments so clients can monitor performance daily at Fidelity.com. There is no pooling of assets.

Independence Versus the Big Firms

2008-06-05T10:35:00.000-07:00

I have several friends that are brokers with large firms. Although we are all investment advisors, my friends work very differently. While they are with large firms, I’m a registered investment advisor (RIA) with my own firm. From my perspective, clients are far better off with independent RIAs like myself.

There is a commercial from a major brokerage outfit that says, “Our clients always come first.” Unfortunately that isn’t the case. Large public companies are responsible to their shareholders. As a result, decisions are made to maximize profits to keep shareholders happy. Revenue generation is the top priority so there can be a conflict of interest between placing client money in the best area versus placing client money into areas that generate the most income for the broker and the firm.

For independent fee-only RIAs, there is no conflict between serving the shareholders or the client. There isn’t the lure of receiving extra compensation when placing client funds in certain investment vehicles. We receive no commission from trading and there are no production quotas. We are only paid based on the value of client portfolios. It is in our interest to do what is best for the client.

Remembering David Martin

2008-05-03T23:05:00.000-07:00

A subscriber to my weekly VIS Alert.com newsletter, David Martin, unfortunately passed away last week from a freak shark attack.

http://today.msnbc.msn.com/id/24325640/

I met David Martin at AIQ’s fall seminars. He was a fan of my ETF rotation approach and used it in his own portfolio. At his last seminar we agreed that the following year we would go mountain biking after the seminar. Unfortunately that ride never happened. He seemed 20 years younger than his real age, always saw the glass as half full, and will be missed. Our prayers are for his family during this difficult time.

AAPTA Seminar

2008-04-29T10:24:00.000-07:00

A week ago I spoke at the American Association of Professional Technical Analysts (AAPTA) seminar in San Francisco. While my wife and children enjoyed the sights and sounds of the city, I was able to visit with some of the top technicians in the country.

The AAPTA organization was founded in 2004 and has around 130 members. This organization allows professional technicians to engage in networking and thought provoking dialog.

My session covered the strategies found in my ETF Trading Strategies Revealed book. Since Paul Desmond of Lowry’s Research was the next speaker, I was honored to be the warm up act! It is a bit intimidating speaking to this group but I quickly settled in when I humorously described what you hear on financial TV and what it really means. It goes like this:

"We have great values in our portfolio." translation - Our stocks have been massacred.

"The market sold off on technical factors." translation - We have no idea why the market went down.

"We are short term cautious but long term optimistic." translation - We want to be right no matter what happens.

Although the S&P 500 is near an important 1400 resistance area, I can unfortunately report that Linda Raschke and Paul Desmond remain bearish (both turned bearish at much higher levels). Stan Erlich was more constructive, however, pointing to a developing head-and-shoulders bottom pattern.

I had the pleasure of meeting Tom and Sherman McClellan. Surprisingly Tom knew me from my past appearances on a Los Angeles financial TV show. Tom is extremely knowledgeable on the financial markets. Another highlight was talking to Nelson Freeburg, author of Formula Research. I’ve always admired his detailed quantitative testing.

This was a good time and I look forward to next year’s event.

More on ETNs

2008-03-27T09:44:00.000-07:00

After posting our March 10 blog on Exchange Traded Notes (ETNs), a reader posted a question regarding the advantage of ETNs over Exchange Traded Funds (ETFs). In truth, there are only small advantages and disadvantages to each form of security and as a shareholder you likely won’t notice any difference between the two.

The advantage of ETNs is that they eliminate tracking error between the security and the index that it follows. ETFs have some, albeit small, movement away from their underlying indexes. For buy-and-hold investors there may be a tax advantage in ETNs as you can defer capital gains and income until the day you sell your investment. Then again if you need income distributions then ETFs have the advantage.

The disadvantage of ETNs is that they are secured by senior debt notes. Although a company like Barclays with $1.5 trillion in assets is very dependable, it will never be as safe as a central bank. If Barclays and other ETN issuers are forced to close their doors then we’ll have more problems than our ETN holdings!

I treat ETFs and ETNs the same. If I’m looking to trade a commodity and an ETN choice has more liquidity, then that is where I’ll go. There is a good web site called ETNCenter.com with lots of good information on ETNs.

David Vomund
www.ETFportfolios.net

Market Stress

2008-03-18T12:35:00.001-07:00

Today the Dow rose 300 points even before the Federal Reserve announced it will lower interest rates. A couple days ago stocks were falling because of a run on Bear Stearns. Without emergency Fed intervention, there may have been other runs on investment banks.

The market is volatile, and people’s portfolios are in the red. How does a portfolio manager react to these events? I reach for my Investor Anxiety Reliever pills (more accurately known as jelly beans!).

High emotions lead to bad trading decisions. Market lows occur when people, including myself, want to throw in the towel and sell everything. Instead of liquidating it would be better to buy more, but that is hard to do. Just think how many people were bullish when the Dow was at 14,000 compared to now when the Dow is 2000 points lower. It’s backwards.

This is a bear market but we finally know that the parts of the government that count (the Federal Reserve and the Treasury Department) are now engaged. The market will get through this, just like it did with the Savings & Loans crisis, but in the meantime it isn’t fun. Those who bet on worst-case outcomes will be wrong (again).

In the meantime, the market will be volatile (wow, what a bold prediction!). The more you trade the worse off you may be. So sit back, have some Investor Anxiety Pills, and look for a better second half of the year!

Exchange Traded Notes

2008-03-10T12:27:00.000-07:00

The general public is gaining awareness of exchange-traded funds (ETFs), but few have heard of exchange-traded notes (ETNs). That will likely change.

ETNs are similar to ETFs, but they take a different approach. Whereas ETF buyers own shares which represent a stake in a portfolio that holds a basket of assets, ETNs are long-term debt securities issues by the ETN parent company. They promise to pay investors the return of a particular index, minus fees. The good news is ETNs will track the market index. The bad news is it places credit risk on the investors.

To this point only iPath (of Barclays Global Investors) has offered ETNs. These have become popular because they track commodities, a hot area of the market. A few days ago, however, Lehman Brothers announced they are introducing a line of ETNs. Goldman Sachs is also a player. This almost insures that ETNs is where the market is going. Keep watch on this development and you heard it here first!

David Vomund
http://www.etfportfolios.net/

NPR Interview

2008-02-29T11:19:00.000-08:00

In January Sacramento’s National Public Ratio channel (KXJZ) contacted me for an interview for their Insight program. This was a thrill because this is a program that I often listen to. Insight’s moderator, Jeffrey Callison, is top-notch.

When the interview was scheduled, we planned on a discussion of the exchange-traded fund (ETF) rotation strategy covered in my book, ETF Trading Strategies Revealed. As I drove to the interview on January 23 the market was plunging nearly 4% followed by a reversal that I wasn’t aware of at the time. Timing is everything!

The shaky market was in the headlines so the interview turned into a discussion of the volatile market and how investors should respond. It turns out that morning was the market’s low point.
I didn’t talk to Mr. Callison before the interview so I didn’t know the questions, but the 15 minute session went well. At least I think it went well because I can’t listen to it….I hate the sound of my voice!

He surprised me with a question referring the wealthy people in my home town of Incline Village (sometimes called “Income Village”). Even Sacramento knows of my town’s reputation!

Here is a link to the interview. Depending on your internet speed, it may take a minute to download:

NPR Interview

David Vomund
http://www.etfportfolios.net/