ETF/No Load Fund Tracker StatSheet
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Friday, November 18, 2011
AN UNEVENTFUL END TO THE WEEK, BUT UNCERTAINTY REMAINS HIGH FOR ETFS
It was quite a flat day for markets to say the least as the S&P 500 dropped only 0.04% despite having its biggest weekly descent in 2 months (-3.8%). Although the U.S. was somewhat calm, European and Asian markets had a more pronounced down day. The dollar remained steady at $1.35/Euro.
While this week hasn’t seen the big price swings witnessed previously in tandem with lower trading volume, the Volatility Index (VIX) is still quite high, finishing at 32 today after a 7.27% dip.
Especially with some ETFs hovering near their trend lines, a sudden upswing or downswing can really change the game day to day when trying to gain equity exposure, as you will see from the latest ETF Cutline reports, which I will post Monday morning.
As if the Italian situation wasn’t already bad enough, Italy’s 5 biggest banks may require $8.2 billion in capital due to the price erosion of Italian bonds. As the debt situation worsens, the restructuring via a Greek-esque bond haircut might be necessary. And as PIMCO’s Bill Gross states, the transmission of Eurozone contagion to the U.S. is very real if this pattern continues.
In relation to Greece, next week will be interesting as the country’s creditors will soon decide whether or not Greece will receive its next bailout package depending on the amount of political progress.
The Greek finance minister suggested that the budget deficit would shrink from a current 9% of GDP to 5.4% of GDP in 2012. But, given the level of public discontent regarding austerity measures, this budget cut might just be wishful thinking especially as Greece’s unemployment continues to rise.
All the while, there is growing division between Eurozone nations as to the extent that the ECB should intervene in bond markets. As Italy and Spain bond yields have skyrocketed, some Euro leaders are calling for the ECB to expand its responsibilities although President Draghi has advocated that the ECB not overstep its bounds by trying to help bail out distressed countries.
The Domestic TTI (Trend Tracking Index) is positive at the moment (+1.74%), so we will keep some domestic equity exposure. However, the international picture remains bleak as the International TTI is -9.11% below its trend line, so we’ll be staying out of international ETFs for the foreseeable future.
Despite the lack of major movements this week, Europe looks to be unraveling as the confluence of political disagreements and mounting financial struggles appears to be too much. I’m sticking to my bond ETFs and cash with a minimal equity ETF allocation until there’s a clear sign of a reversal in Europe’s fortunes.
Have a great week.
READER Q & A FOR THE WEEK
All Reader Q & A’s are listed at our web site!
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A note from reader Randy:
Q: Ulli: Thanks for your always helpful and insightful daily commentary.
You mention often about a cash and bond ETF mix. Do you recommend specific bond funds that specialize in certain segments such as junk bonds, TIPS, emerging markets etc. or are you referring to just a basic fund such as LQD or BND.
I’m not sure when you mention bonds what area you are referring to.
A: Randy: I use most of the ones you mentioned, in particular BND, TLH and some TIP. For those, I use a 5% trailing sell stop point.
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