ETF/No Load Fund Tracker StatSheet
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Friday, December 2, 2011
A BORING END TO A BIG WEEK FOR MAJOR MARKET ETFS
In a relatively low volume and flat day, the S&P 500 dropped a mere 0.02%. European and Asian indices finished on the upside. The VIX increased a paltry 0.40% in a week where risk simmered down a bit.
However, the 10-year Treasury rate fell to 2.04%, which might indicate some anticipation of markets heading back south again.
A headline, such as the S&P 500 having its biggest week in 3 years with a 7% gain, may have investors itching to get equity exposure, but I must reiterate that this is the time to be careful as Europe’s woes are unresolved. Forgotten in that news blurb is the fact that the S&P had just lost 8.3% during the 2 weeks leading up to this rebound.
Today’s U.S. jobs numbers may appear to show some solid improvement on the surface as the unemployment rate dropped to 8.6%. However, there were 315,000 people who exited the labor force, which helped to push unemployment down.
The apparent job improvement is marred by the fact that some people have given up looking for work or don’t qualify for unemployment benefits anymore. Thus, economic headwinds are still in full force.
Trying to do what it can from within, the Eurozone has been increasingly using the ECB as a shoulder to lean on. The ECB lent out $8.64 billion today, its highest amount since March. As credit tightens and banks start to feel the hurt, further ECB lending is quite likely unless the IMF and outside nations step up big time to provide funds.
Although Europe has come to the realization that it needs outside financial assistance, knocking on China’s door may prove futile. China’s vice foreign minister stated that the country’s foreign reserves ($3.2 trillion) shouldn’t be used to help bail out Europe.
Meanwhile, Sarkozy and Merkel are intent on fiscal unity, but any bid to save the Euro will require at least one Eurozone country getting shown the door. Unless bond yields drop substantially, heads are going to start to roll.
As of today, the Domestic TTI (Trend Tracking Index) was +2.81% above its long-term trend line, while the International TTI continues to reside in bear territory at -6.84%.
As we’ve seen in the last couple months, the international picture remains bleak. And although the Domestic TTI is above its trend line, additional negative European news can quickly change that.
The question now is whether we’ve seen the calm before the storm that will rear its ugly head next week. I’ve been maintaining low equity ETF exposure while having a fixed income ETF overweight.
This week may have had me scratching my head but the fundamental issues plaguing markets haven’t faded away, so I’m prepared to deal with a big market drop whenever it occurs.
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 Vicky:
Q: Ulli: So for the person who never understood bonds…if there is a flight to US Treasuries, which is probable at some point, will the bond ETF’s you are holding increase in their asset value or decrease (be worth more or less)? And why? Thanks.
A: Vicky: I treat bonds like any other asset class. I invest in them when their major trend is up and hope for more appreciation as the economy weakens and demand from flight to safety drives prices higher. I protect myself against downside risk via my 5% trailing sell stop discipline.
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