Wednesday, August 19, 2009

ALERT 08/19/09: The Recovery and the China Syndrome

Doug Fabian's
Making Money Alert | Wednesday, August 19, 2009
In This Issue:

» NEW! Video Alert
» The Recovery and the China Syndrome
» ETF Talk: Polishing up Silver
» A Summit by the Bay
» Are You Ready for the "Presidential Bubble"?
» The Power of Ideas
By: Doug Fabian | Editor, Successful Investing | President, Fabian Wealth Strategies
The Recovery and the China Syndrome

Stocks gapped down heavily on Monday, but during the past two trading sessions, equities have recovered much of what they lost at the outset of the week. Still, the sharp move lower in equities (a 2%-plus decline nearly across the board on Monday) shows that this market is very vulnerable to strong selling pressure.

Now, one area of the world that was thought to be somewhat immune from the global economic downturn is China. The country has long been thought to be the engine of the world's economy, and its industrial growth, production capacity and its citizen's ginormous appetite for all types of commodities has kept its chief stock market measure -- the FTSE/Xinhua China 25 index -- much higher than its U.S. counterpart, the S&P 500 index.

Take a look at the chart above, which shows the SPDR S&P 500 (SPY) plotted alongside the iShares FTSE/Xinhua China 25 Index (FXI). The red and black line is SPY, and the solid black line is FXI.

Here we see that FXI easily has outperformed SPY. Yet, since August the value of FXI has declined precipitously. What this tells me is that China is not immune to a big sell-off. Despite the faith put in China as a savior of the global economy, this country's equity markets still have a lot of risk.

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If you have equity exposure to China or other Asian markets in your portfolio, I would be very careful right here. If FXI and other China-related equity markets start to falter, it could mean a big ripple effect that could take down all of the world's equity markets.

It is because of the inherent volatility baked into nearly all the stock markets around the world that I recommend you have a sell discipline in place for all of your invested positions. Doing so will give you peace of mind, not to mention it will protect you from a potentially big loss.

If you want to find out how you can make sure that you have a proper sell discipline in place, then you need to check out my Successful Investing advisory service. To find out more, click here.

ETF Talk: Polishing up Silver

With inflation fears weighing on many investors' minds during recent months, gold has become a useful hedge. But silver's performance this summer proves that gold is not the only way to invest profitably in precious metals.

Increased government spending has caused the U.S. dollar to depreciate, and investors are turning to exchange-traded funds (ETFs) to protect their hard-earned money. One way to do this is by investing in precious metals such as silver and gold that are not linked directly to the U.S. dollar. Indeed, the performance of silver has continued to shine even though the dollar started to recover during July. In contrast, the price of gold has begun to weaken with the U.S. dollar starting to rebound.

There are good reasons why silver is retaining its luster. First, silver is less expensive to buy than gold. Second, silver benefits from rising industrial usage. Since silver is an electrical and thermal conductor, it is deployed in high-performance electronics and high-voltage circuits. Silver also has anti-bacterial properties that allow it to be used in the medical and water purification industries. In addition, the precious metal often is relied upon in food packaging and in solar panels used to provide alternative energy.

So when inflation threatens, silver offers a safe haven. Even when inflation worries subside, silver still retains appeal due to its many uses.

If you're attracted to silver, you might want to consider iShares Silver Trust (SLV). The trust is intended to reflect the price of silver, less expenses and liabilities. Although the trust is not an exact equivalent of an investment in silver, it lets investors participate in the rise of the silver market. It certainly can pay off, as SLV is up 19.46% so far this year.

Subscribers to my ETF Trader service already have received the benefits of holding a silver ETF this summer. We bought and sold Ultra Silver ProShares (AGQ) for a short-term profit in July.

For those of you who want advice about which ETFs to buy and sell, check out my ETF Trader service by clicking here. As always, I am happy to answer your questions about ETFs. To send me a question, please click here. You may just see your question covered in a future ETF Talk.

A Summit by the Bay

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This weekend, I am heading off to one of my favorite cities in the world, the incomparable San Francisco, Calif. I will be there for the annual investor summit by the Bay, otherwise known as the San Francisco Money Show.

At the show, I will be making several presentations on ETFs and how investors can use them in their portfolios. If you live anywhere near the Bay area, or if you are planning on being in the area this weekend, I cordially invite you to join me and my Eagle Publishing colleagues for all of the financial festivities.

Now, if you can't make it to the Bay area this weekend, you still can watch me give my presentation, "ETF Strategies in a Difficult Market" via your computer. To find out more about how you can view my Money Show webinar, and to get all the details about the show, click here.

Hope to see you in San Francisco!

Are You Ready for the "Presidential Bubble"?

President Obama has been in office now for nearly seven months, and so far his undeniably ambitious agenda has me very concerned. Regardless of which side of the political aisle you sit, there's no denying that the president's goals are increased government involvement in the economy.

This increased involvement includes more stimulus spending, more deficit financing, more environmental regulation, more involvement in the health care industry, more financial market regulation and, of course, higher taxes -- particularly on the so-called "rich."

If you're a Democrat, you may think that the Obama agenda is a good thing. If you're a Republican, you likely think the president is on the wrong track. But regardless of which side you come down on, there's no denying the fact that the president's plans will have a profound effect on the economy, the financial markets and your money.

In my humble opinion, the policies and legislation being thrust upon us by the president and a sympathetic Congress are not conducive to the economy, and they will not fundamentally help right our economic ship.

In fact, it is my opinion that the unprecedented intrusion in economic affairs proposed by the president will likely do much more harm than good in the years ahead, and that is why you, the well-informed investor, must prepare now for what I call the "presidential bubble."

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I strongly encourage you to check this out this FREE audio special report today by clicking here.

NOTE: Fabian Wealth Strategies is an SEC registered investment adviser, and is not affiliated with Eagle Publishing.

The Power of Ideas
"In a battle between force and an idea, the latter always prevails."
--Ludwig von Mises

In one of his many, many brilliant observations, Austrian School economist Ludwig von Mises succinctly reminds us about what we think has more power than any form of physical force. Ideas are what move the world, and as long as those ideas are sound, they will prevail in any clash between force and thought.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions that you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.
On the Radio:
Making Money with Doug Fabian Doug Fabian's Wealth Strategies airs live Saturday morning 10 a.m. Pacific Time on KRLA News Talk 870 AM, and in Phoenix, AZ, at 11:00 a.m. Mountain Time on KFNN 1510 AM. During these times you can listen to the show live from anywhere in the world and you can listen to archived shows at any time.

Now you can view Doug's daily market update, guest interviews and excerpts of his radio show at our new Video Archive.

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