Dynamic Growth ETF Portfolio
NEW BUYS:
OIH: Oil Services HOLDRS- .430
NEW SELLS:
None
SWITCHES:
To Honorable Mention:
EWM: iShares MSCI Malaysia (Free) Index Fund- .420
Here are our Top 10 ETF's for the week of September 17th:
1) FXI- iShares FTSE/Xinhua China 25- .623
2) ITA- iShares DJ Aerospace & Defense-.589
3) PGJ: PS Golden Dragon China Fund- .588
4) IXP: Telecommunications Sector Index Fund- .548
5) EWS: iShares MSCI Singapore (Free) Index Fund-.537
6) IAH- Internet Architecture HOLDRs Trust-.535
7) PPA- PS Aerospace & Defense- .530
8) OIH: Oil Services HOLDRS- .430
9) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .433
10) IHI- DJ Medical Devices- .430
The Week in Review:
Oil has finally broken into our top 10 this week. The new addition is the Oil Services HOLDRS, symbol OIH.
Also moving up in our rankings are commodity related ETF's like the PowerShares DB Commodity Index Tracking fund (DBC).
Last week I said that major currency ETF's were registering high marks in our rankings. The rally taking place with currencies, commodities, and energy tells us that investors are betting the will Fed lower the fed funds rate at its September 18th meeting.
One of the adverse affects of lowering interest rates in an inflationary environment is a weaker dollar, higher energy and commodity prices.
So, this being said, I think Bernanke will throw the hedge funds, private equity, and investors a bone, but...
I don't think we will see a series of rate cuts like we saw in 2000-2002. In fact, I believe the Fed will lower rates a notch or two, and then resume raising rates after the turbulence in the credit markets die down.
Below is a chart of the Fed Funds rate. Notice what happen to the Fed Funds in 1998 when rates came down from 6% to about 4.25-4.5%.
Shortly after a tightening cycle in 1994, rates held steady for about 4 years, and then were lowered in 1998 to temper fears over the collapse of the hedge fund Long-Term Capital Management.
I think what we are seeing is a replay of 1998. If the Fed Funds rate is reduced, it won't stay down for very long.
To back up my theory, on Sep 7, 2007, "Former Federal Reserve Chairman Alan Greenspan said the current market turmoil is "identical" in many ways to that which occurred in 1987 and 1998.
I rest my case.
The Markets
1) For the week, the DJIA gained 329.14 points to close at 13,442.52 (+2.51%). The S&P closed up 30.70 points to 1,484.25 (2.11%), and the Nasdaq closed up 36.48 points to 2602.18 (+1.42%).
2) Commodities surged this week as the CRB Index closed at 428.54, up from 418.53 last week and 413.49 two weeks ago.
3) Gold closed at $711.00, up from $703.00 last week and $675.80 two weeks ago.
4) NYMEX crude oil rose to $78.09/bbl up from $75.62/bbl last week.
5) Consumer spending was much lower in July to $7.5 billion. Spending in June was revised down to $11.9 billion after originally being reported at $13.1 billion.
In our opinion the chances of a recession in 2008 are favorable.
We raised our allocation to the stock market by another 5% when the Dow dropped below the 13,000- 12,800 mark, and the SPX fell below 1400.
At Dow 12,000 we will raise our allocation to the stock market by another 5%.
Our asset allocation is as follows;
70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative
