Wednesday, August 26, 2009

ALERT 08/26/09: Reading the Oil Pressure Gauge

Doug Fabian's
Making Money Alert | Wednesday, August 26, 2009
In This Issue:

» NEW! Video Alert
» Reading the Oil Pressure Gauge
» 7 Secrets of Success for ETF Investors
» ETF Talk: I'm Hungry!
» Are You Ready for the "Presidential Bubble"?
» Our Enemy, The State
By: Doug Fabian | Editor, Successful Investing | President, Fabian Wealth Strategies
Reading the Oil Pressure Gauge

This market keeps on trucking, as the optimism felt by investors this summer is keeping the bulls firmly in control. Now, keeping track of this market is essential if you want to make sound investment decisions. The main chart I like to watch, and the chart I put in the Alert each week, is a chart of the S&P 500 Index.

In the chart below, we see that the S&P 500 Index now trades above both the short-term, 50-day moving average (blue line), as well as the long-term, 200-day moving average (red line).

The chart also shows that we've come up very fast since falling to those March lows, and this fast run higher certainly has me feeling very cautious. But until the market proves it's no longer the place to be, I'll continue holding equities in my advisory services.

Now, in addition to following the trend in the S&P 500, there is another way to monitor the progress of the market. That way is what I call reading the oil pressure gauge.

Take a look at the chart below of the West Texas Crude Oil ($WTIC).

As you can see, the price of oil basically has followed the price of the market. Oil made its year-to-date lows in March, just like the equity markets did. And just like the S&P 500, oil now is trading above its short- and long-term moving averages.

You can look at oil as an indicator of economic strength. When people are bullish about the economy, they use more oil and bid up its price as the lifeblood of the economy. And when people are fearful about the economy, as they were in late-2008, oil prices collapse. If you are looking for another good way to monitor the economy and the markets going forward, then oil is certainly a great tool for doing so.

Seven Secrets of Success for ETF Investors

I just returned home from a fantastic trip to San Francisco, where I gave several presentations to attendees of the Money Show.

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I must say that this year's show was not only well attended, but most of the attendees I spoke with were brimming with enthusiasm and optimism about the opportunities in the market going forward. The upbeat climate was very refreshing, and it was a far cry from the climate at some of the Money Shows I went to in 2008, when it seemed like everyone was scrambling to protect themselves from financial ruin.

One of the seminars I gave this weekend was titled, "The Seven Secrets of Success for ETF Investors." Here's a quick sample of those seven secrets, taken directly from my Money Show presentation:

1) Transparency: Look Before You Buy

2) Volume Matters

3) Exposure Is Key

4) Gauge the Risk

5) Selecting the Number of Funds

6) Know When to Sell

7) Monitor Your Portfolio

I know these seven secrets require a little more elaboration, and I'm happy to do so. In fact, all you have to do to get my complete PowerPoint presentation is click here.

Finally, I'd like to take this opportunity to thank all of you who came to my presentations in San Francisco. This was one of the best Money Shows I've been to, and it's all because of you. I hope to see you all next year in the city by the Bay.

ETF Talk: I'm Hungry!

The recession has forced people to reevaluate many facets of their lives. Things such as a steady job, luxury goods, and a comfortable lifestyle should not be taken for granted by anyone. While people may be cutting expenses, they still need to eat. As a result, the demand for food should stay fairly steady, and exchange-traded funds (ETFs) that invest in agriculture may be worth considering as a way to profit in the midst of a recession.

One factor to consider is that consumers may substitute lower-priced food items for more expensive ones. Prime rib and filet mignon are tasty but you could scale back by enjoying Italian sausage and Polish kielbasa or even hamburgers and hot dogs. In fact, the substitution could extend further if cost-conscious people begin consuming less meat and more agricultural products, such as fruits and vegetables.

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In addition, consider the potential of soybeans as a source of high-protein animal feed. With meat consumption increasing in developing countries such as China and India, demand for soybeans worldwide could rise.

There is no reason to think that the food supply will change significantly in the short term. Do not expect much help from biotech crops, at least in the near-term. The International Service for the Acquisition of Agri-Biotech Applications reports that global plantings of genetically modified corn, soybeans, and other crops grew only 9.4% in 2008. Although President Obama may increase research funding for corn and ethanol-based fuels, it should not have any immediate effect on the corn supply.

However, a risk to the food supply could occur if farmers are unable to obtain credit due to lending constraints. If lending to farmers slows, the result could be reduced plantings, delays in purchasing new equipment, and cutting back in other ways. A significant reduction in credit availability might leave farmers struggling to buy fertilizer to grow their crops. As a result, do not expect much, if any, short-term increase in the food supply.

Demand for food only should rise, especially with the world's population still growing. In addition, people in China and India are enjoying improved standards of living and now are able to afford better quality food and more of it. For example, the 2008 per capital income in China reached $6,000 (USD) in purchasing power parity (PPP), which measures the cost of goods and services if each country used a common currency. It marks a dramatic jump from China's per capita income of just $439 (USD) in 1987, according to U.S. government sources.

How do you, as an investor, profit from this knowledge? Well, take a look at the following chart of the Market Vectors Agribusiness ETF (MOO), which now has broken above both its short-term, 50-day moving average (blue line), and the long-term, 200-day moving average (red line).

Since everyone needs to eat, agriculture always will be somewhat recession resistant. With expanding food consumption in developing countries, this sector may well escape the worst ravages of the current recession. While I am not recommending any agribusiness ETFs right now, you may want to monitor the sector. If it begins to flourish, you'll still have time to position yourself to profit. In that case, Bon Appétit!

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.

Are You Ready for the "Presidential Bubble"?

President Obama has been in office now for more than 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."

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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 likely will do much more harm than good in the years ahead. That is why you, the well-informed investor, must prepare now for what I call the "presidential bubble."

But what, precisely, can you do to protect yourself from this presidential bubble?

The answers to these questions can be found in my FREE audio special report, appropriately titled, The Obama Impact on Your Money . This one-hour audio presentation includes a complimentary work sheet to help you follow the key points presented.

I strongly encourage you to check 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.

Our Enemy, The State

"There are two methods, or means, and only two, whereby man's needs and desires can be satisfied. One is the production and exchange of wealth; this is the economic means. The other is the uncompensated appropriation of wealth produced by others; this is the political means."

--Albert Jay Nock, Our Enemy, The State

A colleague told me about the beautifully written and extraordinarily poignant work of writer and social commentator Albert Jay Nock. His anti-Statist masterpiece, Our Enemy, The State, should be on every American's must-read list. Crafted in the 1930s largely as a reaction to FDR's New Deal policies, Nock's brilliant insights are more relevant today than they've ever been. I highly recommend this timeless and philosophically enriching tome.

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 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.

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