Dynamic Growth: ETF Portfolio
NEW BUYS:
None
NEW SELLS:
None
SWITCHES:
To Honorable Mention
INP: India Total Return Index- .316
Back to Top 10:
PGJ: PS Golden Dragon China Fund- .341
Here are our Top 10 ETF's for the week of February 18th:
1) DBA: Powershares DB Agriculture Fund- .615
2) SLX: Market Vectors Steel Index Fund- .487
3) EWZ: Brazil Index- .484
4) EEB: Claymore ETF BNY BRIC- .452
5) FXF: Currency Shares Swiss Franc Trust- .411
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .358
7) OIH: Oil Services HOLDRS- .373
8) PGJ: PS Golden Dragon China Fund- .341
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated
Honorable Mention:
PGJ: PS Golden Dragon China Fund- .341
Here are our Top 10 Fidelity Sector Funds for February 2008:
1) FSESX- Energy Services
2) FNARX: Natural Resources
3) FDFAX: Consumer Staples
4) FSENX- Energy
5) FSCHX: Chemicals
6) FSMEX: Medical Equipment
7) FSCGX: Industrial Equipment
8) FSDPX: Materials
9) FWRLX- Wireless
10) FSRBX: Fidelity Banking Portfolio
Honorable Mention (Holds):
FSDAX: Defense & Aerospace
Notes:
As I continue to watch the wild fluctuations of oil prices, I can't believe the current supply and demand issues are as dire what we are lead to believe.
A political shift in Washington in the months ahead may or may not bring down the price of oil, but I am betting an all Democratic Government will have a negative effect on the profits of the oil companies.
In the 1970's, a windfall profits tax on oil was enacted by the Carter administration to deregulate oil prices. The result was lower production, and much higher oil prices. As prices soared, oil demand declined causing windfall tax revenues to be much less than the politicians had projected.
Going forward we have to consider owning ETF's that are made up of oil commodities (oil futures contracts) instead of oil stocks. A windfall profits tax will be a major negative for oil stocks while ETF's containing oil futures will prosper. I will be watching this very closely.
Last week's news that Venezuela’s President Hugo Chávez was cutting off oil supplies to Exxon Mobil (XOM) caused a spike in the price of crude. Chavez said on Sunday "that Venezuela was not planning to halt oil exports to the United States". Obviously this was a vendetta aimed squarely at Exxon, and not the US.
I have made mention of David Rockefeller's influence with US politicians, and since the Rockefeller family fortune is tied up in Exxon Mobil, he has got to be livid about Chavez's decision to cut off supplies to pet stock.
Chávez has said several times that the Bush administration is preparing an invasion of Venezuela, with the objective of gaining control of its oil reserves. If the US does invade Venezuela one day, we need to ask ourselves if Rockefeller had anything to do with it.
The Week in Review:
Today, the markets are closed for the President's day holiday. I find it interesting that the futures most mornings start out pointing to a higher opens. Despite all of the negative news someone is finding the courage to buy the S&P futures prior to the open.
It's obvious to me that the mystery-laced Plunge Protection Team is working overtime to drive the shorts out of the markets, and bring stability to the financial markets.
This is one reason I take comfort in being a contrarian.
At this stage of the market cycle, a shift usually occurs in which the leaders over the past few years become the laggards, and the laggards become the new leaders. I don't think this time will be any different.
As an example, the clear laggards over the past year have been the financials, consumer discretionary, and the homebuilders. Momentum investors would not touch these three sectors with a ten foot pole.
Value investors on the other hand know that buying these laggards now means they may have to wait 12-24 months before they begin to bear fruit. Momentum investors will not buy a lagging sector until it begins showing momentum, or gains 50% or more from their lows.
According to S&P leaders that continue to exhibit momentum are;
Gold
Oil & Gas Exploration & Production
Coal & Consumable Fuels
Agricultural Products
Health Care Services
Education Services
Integrated Oil & Gas
Industrial Gases
Oil & Gas Drilling
Oil & Gas Equipment & Services
Construction & Farm Machinery & Heavy Trucks
Construction & Engineering
Footwear
Computer Hardware
Internet Retail
Auto Parts & Equipment
Tires & Rubber
Diversified Metals & Mining
Fertilizers & Agricultural Chemicals
Oddly, momentum seems to be waning since the Year To Date return for these industries at the end of January was down -11.34%. During the same period the S&P was down -6.12%
While I respect the courage of momentum investors, I simply have a hard time being one particularly when I see momentum begin to stall. The key to sector rotation is not just owning the sectors that are performing now, it also calls for investing in sectors that will perform in the months ahead.
As we study the Sector Rotation Model above, we have determined that the Financials are clearly in the buy zone. The next industry group we will be focusing on in the months ahead will be the Cyclicals, followed by Technology, and the Industrials.
As for where we are in the economic cycle, I believe we are in recession, or right on the edge;
Stage of Economic Cycle : Early Recession
Consumer Expectations: Falling Sharply
Industrial Production: Falling
Interest Rates: Falling
Here is where I think we will be in the next 3-6 months;
Stage of Economic Cycle : Early Recovery
Consumer Expectations: Reviving
Industrial Production: Bottoming Out
Interest Rates: Bottoming Out
Here is where I think we will be in the next 12-18 months;
Stage of Economic Cycle : Full Recovery
Consumer Expectations: Rising
Industrial Production: Rising
Interest Rates: Rising
For the week:
The jury is still out as to whether we have successfully retested the late-January lows. The anemic rally has not been strong enough and volumes remain low. The base building process seems weak, and any short-term rally has to be viewed with a critical eye.
The damage done to so many stocks will take a few months to repair. On the positive side the overall market sentiment has extremely bearish. These bearish readings usually occur at important market bottoms.
I believe the economy will remain weak for the next 3-6 months. I also believe investors should use this weakness to increase exposure to the markets. As such, we are raising our exposure in our asset allocation model by 5% (see below).
The chart below says a lot. Dollar cost averaging in now makes sense based on these numbers;
-Gold closed at $906.10/oz -16.20 for the week. Last week gold closed at $922.30, and was trading at $913.50 two weeks ago.
-The Commodities CRB Index closed at 384.23, up from 375.67 last week, and up from 364.34 two weeks ago.
-Crude Oil closed at $95.45 /bbl up from $91.77 last week and up from $88.96 two weeks ago.
Oil prices are in a tug of war between a weaker dollar, and the potential for a weaker economy.
I still believe we will see an adjusted trading range of $75-$85/ barrel. This is why I refuse to overweight oil in the ETF portfolio despite of the current rankings in our system.
Adjusted for inflation, oil traded at $100/bbl a few weeks ago for the first time in history. This includes the highs set in the 1970s.
-The U.S. Dollar close at 76.04 down from 76.62 last week, and up from 75.48 two weeks ago.
We are raising our exposure to the market by 5%. Our current 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
10% Equities: (Normally 20%) Conservative
