ETFs For QE3

Click on the link below to find out what 4 ETFs I feel will benefit from another round of quantitative easing by the Fed (QE3).

Click Here.

Investing is Hardest Job

This is according to an interesting article I came across on the internet this week. Below is the article. I suggest anyone investing their own money or doing it for a living like myself should take a few minutes to read the entire article.

Being a professional investor is the hardest profession on the planet.

Not because the financial markets are global and 24/7.  Not because the markets are full of extremely driven and intelligent competitors.  Not because the emotional highs and lows can be soul crushing.

It is because of the constant and measurable competition against passive benchmarks.
Each day, month, quarter and year a professional investor’s performance is measured against both the benchmark and their peers.  Outside of professional sports, I’m not sure there is any other industry that generates such objective and continuous measurements. And even in sports, there is no equivalent of a “passive benchmark”.  If a player is struggling, teams do not have the option to replace that player with a benchmark that guarantees them the averaged production of every player at that position .

Benchmarks are the most ferocious of competitors.  They show up for work everyday. They never get sick.  They don’t take vacation.  They are always 100% invested so their results are continuously compounding.  Most importantly, they’re not aware of their own performance.  The S&P 500 will never enter the 4th quarter feeling it needs to really press to have good numbers for the year.  Nor will it take December off to “lock in” a good year.

Not only is the pressure unrelenting, but your failures are public on a scale that again only professional athletes can relate to.  If you do become a successful professional investor and overcome all of the above, there is always the question of skill versus luck.

No fan in their right mind believes they have a chance of beating a Kobe Bryant or LeBron James at basketball.  Yet any investor can now buy a portfolio of index funds and have a good chance to outperform not just a few, but the majority of mutual and hedge fund managers.

This inconvenient truth is like a little voice in the head of every successful investor – “Am I really good at this or have I just been lucky?”.  A voice that never goes away as it only takes a couple bad years to destroy an lifelong track record.

A few quick thoughts I had after reading have to do with short-term results versus long-term investing. For example, investors love to know how they did last month or so far this year. When in reality they will not touch the money for at least 10 years if not longer. The real way to measure is over several years as there will always be up and down years. When basing long-term investing on short-term goals is the strategy, the odds of beating the market are very low.

 

It also hit home with me as an advisor that not only deals with the markets 24/7, but also with many different views on the market via my clients (basically my many bosses). I really think this article will open the eyes of all investors and I suggest you pass it along to your friends.

Must See Chart #2

Earlier this week I shared a must see chart. Here is chart #2.

The chart shows the flow of money into equity funds and bond funds. As you can see the amount of money going into bond funds is astronomical as money continues to come out of equity funds. This major spread between the two asset classes is often a sign of a buyers market for stocks. The exact opposite occurs when the spread is flipped.

Look just before the tech bubble in 2000 and the financial collapse in 2007 - both times money was flowing into equities at a much higher pace than bonds. The result was market crashes. Now that the spread is opposite, is it a signal of a market that is poised to rally? I would have to say the answer is yes for long-term investors that have at least a 5-10 year time horizon in the market.

Top Sector ETFs in August

The S&P 500 is near a 4-year high and the month of August has been good for stocks in general. The SPDR S&P 500 ETF ($SPY) is up 2.3%.

The chart below shows the performance of 6 sector ETFs along with SPY. It is interested to see that the sectors outperforming are those that are perceived as "riskier" and the more "stable" sectors such as the Utilities ($XLU) are lagging.

The best performer is Technology ($XLK) up 5.3% as the Utilities are down 2.6%; an 8% difference in just over two weeks is significant and it shows how money can quickly rotate from one sector to another. If the SPY breaks out it will be good for the riskier sectors such as Technology, Financials ($XLF), Consumer Discretionary ($XLY), and Materials ($XLB). The Utilities and Health Care ($XLV) will likely lag behind.

To view the chart please click on the link below.

Comparison Chart

My Appearance on BNN

Below is a link to my appearance today on Canada's BNN (Business News Network) talking about the markets, my favorite sectors, and some stock & ETF ideas.

Click Here to Watch.

5 Stocks Sitting on Support

My morning stock scan was focused on stocks with strong uptrends that have pulled back from recent highs and are now near support levels and that have moved close to oversold levels. Five stocks that fit the bill are listed below.

• Public Storage ($PSA) - Stock was mentioned yesterday, the REIT pays a 3.0% dividend and has a solid business model and long-term chart.
• Realty Income Corp ($O) - REIT that invests in commercial retail real estate and pays a 4.3% dividend.
• Ultrapar Holdings ($UGP) - A Brazilian oil & gas company that pays a 2.6% dividend.
• Coca-Cola ($KO) - Warren Buffett's favorite stock pays a 1.3% dividend, but is a little pricey for me at current levels.
• Franklin Electric ($FELE) - The most interesting stock with a PEG ratio of only 0.44 and a 1.0% dividend yield. Keep an eye on this relatively unknown company.
  

Stock Market Predicts Obama Victory?

Is the action in the stock market predicting an Obama win in November?

More Positive Housing News

The NAHB Housing numbers were released this morning and it came in better than expected with a reading of 37 versus expectations of 35. Last month the reading was 35.

The components that give readings on current sales conditions/traffic and expectations rose to their highest level in 5 years. 

There was one interested note that the builders are frustrated with inaccurate appraisals and continued difficulty to credit for potential home buyers. This is what happens after a bubble bursts - the extremes flip.

After the numbers the iShares U.S. Home Construction ETF ($ITB) is up 0.25%.

2 REITs Looking Good Entering the Day

Sifting through my charts this morning I came across a significant number of strong charts that are at or near oversold levels. Two that caught my eye were in the same sector - REITs.

• Digital Realty Trust ($DLR) - Owns facilities that are leased mainly to technology companies to house their electronic equipment (think cloud computing). The larger servers and storage devices need to be in well maintained facilities that DLR offers. Stock is holding above support at $75 and pays a 3.9% dividend yield.
• Public Storage ($PSA) - Sitting on support at $142.50, the REIT owns and operates storage facilities around the country. The current dividend yield is 3.0%.
  

ETF of the Day - US Bonds Breaking Down

Shares of the extremely popular iShares Barclays 20+ Year Treasury Bond ETF ($TLT) are down 1.3% today and are trading at the lowest level in over two months. This action has occurred as the yield on the 30-Year Treasury yield is back to 2.83%, well above the 2.45% hit just a few weeks ago.

As money flows into stocks and out of bonds the price of U.S. Treasuries will fall and yields will increase. ETFs that invest in U.S. bonds will also fall in price as they have an inverse relationship to the yield on the Treasuries.

As TLT and its peers fall, the ETFs that are short U.S. Treasuries will rise. The ProShares Short 20+ Year Treasury ETF ($TBF) is up 1.4% today and have risen 6% in the last two weeks. Investors that are ready to give up on TLT can either sell their shares or be more aggressive and sell and turn around and go long TBF.

Breakout Stocks

As the S&P 500 sits within 1% of a new 4-year high there are a number of stocks leading the breakout charge to new highs. Several we own for our portfolio management clients at Penn Financial Group and others are on our WatchList. A few that I find interesting are below.

• Brookfield Infrastructure Partners ($BIP) - The stock is up for the 10th consecutive session and is at a new all-time high. Over the last year the stock has gained 32% and even after the rally it still pays a 4.3% dividend yield.
• Philip Morris International ($PM) - Apparently people outside of the U.S. continue to smoke at a solid pace as the stock is back to a new all-time high. The dividend yield is 3.4%.
• Ocwen Financial ($OCN) - The mortgage servicing company is on a tear recently and is up 83% in the last 12 months. This stock could move higher, but needs a sizable pullback before the next leg higher.
• Packaging Corp of America ($PKG) - A multi-year high for a company that provides packaging goods for other corporations tells me the economy is not that bad. If demand for PKG's products is high it correlates directly to the health of the economy.

ETF Assets over $1 Trillion - Are you Missing Out??

With ETF assets increasing at a steady pace and set to overtake mutual funds in the coming years there are still a large number of individual investors that are not using the investment vehicles. Exchange-traded funds (ETFs) are cheaper, more transparent, and easier to buy and sell than their dinosaur cousins the mutual fund.

If you are not yet embracing the world of ETFs you need to contact Penn Financial Group immediately for information on how to take advantage of the options available.

Phone: 1-877-383-7366
Email: info@pennfinancialgroup.com

Investing in CDs vs. Stocks

The average interest rate on a 5-year CD has fallen below 1.0% for the first time in history.

Basically you will lend the bank your money for 5 years with an annual interest rate of 0.99%. Wow, now that sounds like one heck of a deal for the BANK. Yes the bank, not you!!

With rates so low it will likely lead to more cash going into stocks, corporate bonds, home improvements and maybe even a new home purchase.

If I had to choose investing in a 5-year CD or a quality diversified exchange-traded fund that invests in stocks the choice is a no-brainer - Stock ETF wins all day!!

Must See Chart

The stock market tends to move in a long-term pattern that includes 16-18 years of a bull market followed by a similar timeframe of sideways movement.This pattern can be traced back over the last century.

The chart below shows the Dow Jones Industrial Average dating back to 1945. The area that I want you to focus on is from 1966-1982, where if you invested in the Dow you would have gone absolutely nowhere in 16 years. More importantly during that time the percentage of total household financial assets in stocks and mutual funds fell to record lows.

During the current 12 year sideways movement the percentage has also dipped dramatically to the lowest level since the last 1980's. What does this mean to you and I? Well it means that when investors give up on stocks due to under performance it is the best time to begin building a portfolio of stocks.

The percentage began to pickup in early 1982, similar to the bottom in early 2009. For the next 18 years the stock market rallied to new all-time highs. Could a similar situation be upon us? I am not sure the rally lasts two decades, but what I do know is that this chart is evidence that using a contrarian strategy for investing will work over the long-term.

Low Volatility - High Dividends

In this crazy market there is an overwhelming demand for investments that pay high dividends and that are not caught up in the daily swings of the market. One area that is often overlooked is Preferred Stocks.

They hybrid between stocks and bonds have been a top choice of wealthy investors for years, but the average investor steered clear. We have owned preferred stocks for our clients as well as ETFs that investment in them for years.

Our favorite preferred stock ETFs for clients and subscribers of The ETF Bulletin is always available to our members. I am not going to give everything away today. However, there are 2 preferred stocks that have caught my eye recently and I will share them with you.

Annaly Captial Preferred A ($NLY-PRA) has a yield of 7.1% and has been moving sideways for months as the stock ($NLY) has done the same, but with much more volatility.

Public Storage Preferred P ($PSA-PRP) has a yield of 5.7% and has been on a slow uptrend for the last year. The stock ($PSA) has had a better overall return, but a lower yield and significantly higher volatility. 

There are pros/cons to both preferreds versus the common stock and they are not the best fit for all investors, but they are worth a look.

Junk Municipal Bonds Hit the WSJ

In this weekend's edition of the Wall Street Journal a columnist looks at the allure and relative value of high yield municipal bonds. The "junk" status bonds are often viewed as risky due to an elevated default risk, however the article shows that they are actually less likely to default than high yield corporate bonds.

Here at Penn Financial Group we have been investing in junk municipal bonds for years and after Meredith Whitney's terribly wrong call on municipals I adamantly backed the sector on TV and in the major newspapers. We have owned the Market Vectors Municipal High Yield Bond ETF ($HYD) for well over a year and have some big unrealized gains.

I suggest you look over the article if you are interested in learning more about the sector.

Click Here to Read.

Also give us a call/email if you wan to learn about other ETFs we are investing in before the major media find them.

1-877-383-7366
info@pennfinancialgroup.com