Dynamic Growth: ETF Portfolio
NEW BUYS:
None
NEW SELLS:
None
SWITCHES:
None
Here are our Top 10 ETF's for the week of March 3rd:
1) DBA: Powershares DB Agriculture Fund- .714
2) SLX: Market Vectors Steel Index Fund- .551
3) EWZ: Brazil Index- .584
4) EEB: Claymore ETF BNY BRIC- .531
5) FXF: Currency Shares Swiss Franc Trust- .484
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .434
7) OIH: Oil Services HOLDRS- .394
8) PGJ: PS Golden Dragon China Fund- .352
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated
Honorable Mention:
INP: India Total Return Index- .310
Notes:
Here are a list of the top sector ETF's. Despite their leadership positions, I find these sectors severely overbought, and due for a correction. This being said, momentum traders can continue to fuel the run in these assets for a few more months.
As long as fear exists in the US financial system, and inflation remains a problem, traders will continue to invest in commodities such as gold and energy as a hedge against inflation.
Bonds: US Government Securities, Treasury Bonds, and TIPS.
Commodities: Gold, Precious Metals Funds, Select Commodities & Materials.
Oil: While due for a pullback of $10-15/bbl, a major sell-off will not occur unless a political shift occurs in Washington.
Brazil, the BRIC nations, Steel, Agriculture, the Swiss Franc, Oil Services, and China continue to be very strong investment themes. Our long term bet on the Financials continues to make sense, especially if the Federal Housing Administration (FHA) gets the ok to buy up to 1 million mortgages over five years to help prevent foreclosures.
Foreign Currencies: Euro, Canadian& Austrailian Dollar, Mexican Peso
Here are our Top 10 Fidelity Sector Funds for March 2008:
1) FSESX- Energy Services +5.6%
2) FNARX: Natural Resources +2.6%
3) FDFAX: Consumer Staples +9.5%
4) FSENX- Energy +7.3%
5) FSCHX: Chemicals +4.2%
6) FSMEX: Medical Equipment -1.8%
7) FSCGX: Industrial Equipment -9.7%
8) FSDPX: Materials +2.1%
9) FWRLX- Wireless -17.0%
10) FSRBX: Fidelity Banking Portfolio -4.7%
Honorable Mention (Holds):
FSDAX: Defense & Aerospace +2.1%
Notes:
The percentage gains or losses above indicate our results based on the original purchase price. Overall, the Fidelity Sector Fund portfolio is down -1.1% versus much larger declines for the DJIA, S&P, and NASDAQ.
As far as our over-weighted positions in Energy, we believe we can ride this trend for another month or so.
One sector I am looking to add is the Select Home Finance Portfolio (FSVLX). This is another contrarian play, but the fund is down -9.62% ytd, and down -42.37% in one year. Since its inception in December of 1985, the fund has returned 12.33% over the life of the fund.
There will always be a need for consumers to finance their homes, so logic tells us that after the current credit crunch is resolved, home finance profits will return to their historical norms. I am looking to add this fund to the DG portfolio sometime in March or April.
Here are the top 10 stocks in the Select Home Finance Portfolio.
FANNIE MAE
HUDSON CITY BANCORP INC
ANNALY CAPITAL MGMT INC REIT
FREDDIE MAC
NEW YORK COMMUNITY BANCORP INC
WELLS FARGO & CO
COUNTRYWIDE FINANCIAL CORP
WASHINGTON MUTUAL INC
PEOPLES UNITED FINANCIAL INC
CHIMERA INVESTMENT CORP
Pretty scary stuff, huh? Yep, that's when we want to buy.
The Week in Review:
The longer it takes to solve the current credit crunch, the more volatile and gut wrenching the markets will become.
Last week I said that politicians were working on a plan with the Federal Housing Administration (FHA) to allow the US Government to buy up to 1 million mortgages over five years to help prevent foreclosures, and more credit losses by banks.
The FHA was created by congress in 1934 to help borrowers get loans while reducing the risk to the lender. FHA is basically a Depression-era agency that insures loans made to borrowers with poor credit.
In reality, the Federal Government really has no other choice. If or when this happens, the light at the end of the liquidity crunch tunnel will become clearer. This will also be great news for and banks and finance companies.
If the Federal Government does not okay the FHA bailout, interest rates will continue to decline, and inflation will continue to roar. If nothing is done, the stock market may hit the downside targets I have been discussing for several weeks;
% Declines from DJIA High of 14,198:
10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624
Investors fear that the subprime mortgage write-downs may spread to next level of mortgages- Alt-A- which is a larger market than subprime. If the US government is going to act they need to do so quickly before the credit crunch spreads to new parts of the market previous thought of as safe.
Last week, UBS said that credit losses could top $600 billion and AIG reported a more than $11 billion write-downs.
The FHA option seems to be the best medicine for what ails the economy. Once the Government begins to guarantee loans, traders in energy and commodities will begin to sniff out the possibility of an economic recovery, and the dollar will begin to stabilize.
Economic News
-Consumer Confidence hits a 5 year low
Higher inflation and increased job losses are taking a toll on consumers.
Producer prices jumped 1% in January, more than the 0.4% economists had expected. Gas prices were up 2.9%, heating oil was up 8.5%, and food prices were up 1.7%.
Last week the CPI was up 4.3% in January. The core rate was up 2.5% over the same period, the fastest pace since February 2007.
-Home sales & prices are plummeting
New home sales prices fell 2.8% in January, and existing home sales fell another 0.4%. Single-family home prices fell 5.1%, and inventories rose to a 11.3-month supply. According to the Case-Schiller index, home prices dropped 8.9% last year, which marked the largest decline in 20 years.
The median price of homes dropped to $201,900, down 12.3% from their peak of $230,200 in July 2006
For the week:
-Gold closed at $975.00/oz +27.20 for the week. Last week gold closed at $947.80, and was trading at $906.10 two weeks ago.
-The Commodities CRB Index closed at 412.69, up from 398.67 last week, and up from 384.23 two weeks ago.
-Crude Oil closed at $101.84 /bbl up from $98.81 last week and up from $95.45 two weeks ago.
Oil prices are in a tug of war between a weaker dollar, and the potential for a weaker economy.
In the weeks ahead we will probably 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.
If oil and commodity prices do not correct substantially, the US economy will be in serious trouble.
-The U.S. Dollar close at 73.70 down from 75.52last week, and down from 76.04 two weeks ago.
The dollar has dropped to new all-time lows on expectations of more rate cuts by the Fed.
We are looking for the markets to re-test the lows set in January. As such, 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
