S&P is negative for the year

It is now official that our market is in a correction, and near a bear market. Dow has declined more than 10% since its October peak. Investors often call a 10% pullback a correction and a 20% fall a bear market. Given our current market condition, it is making investing a more difficult task. Let’s start with the overall landscape of the U.S. market. Prices of U.S. Treasury bond soared as investors fled to their relative safety. Banks are suddenly retreating, and consumers who had been loose with their spending are counting their pennies more carefully. What results is the there will be a pullback in the willingness for bank to lend on all fronts. Summarilarily, we have our first correction since 2003, when we invaded Iraq.
Fears that financial institutions will reduce access to loans for businesses and consumers at a time when they most need them are lading some economists to revise their forecasts. Some are warning that a recession now looks like a bigger threat. And oil at $100 a barrel certainly does not help.
So why is the Fed not lowering rates more? Some may ask. Well, if the Fed lowered rates further, it might encourage investors to dump the dollar in favor of higher-yielding currencies, which would contribute to further slumping of the dollar. Also, the Fed is holding onto their forecast that U.S. economy would still grow in the coming year, albeit around 1%.
In the current market, it would be a good idea for investors to look to emerging markets. Two ETFs that I recommend are Austria Index Fund (EWO) and the Netherlands Index (EWN). These funds track the emerging market of the two European nations, both of which are forecasted to outpace U.S. economy. This is a time where being behind during the last few years while Asia has taken off, actually puts these ETFs in a good position to grow. China and India have been red hot, and U.S. also had its glamour while housing market was red hot. Now, it’s these developing nations turn.
If you have little faith in the emerging markets, here is also another play. DBA is an ETF that invests in agricultural products. With the world's population is expected to double by 2050, food is becoming more and more expensive. Ethanol production is also pushing up prices of corn to record numbers. While these benefit countries and sectors of industry that traditionally were never looked at by the market, investors can jump on the wagon by investing in these companies. U.N.'s food program reported that food costs increased by 20% in the last year. That's stuff like corn, wheat, sugar…pretty much stuff in find in your own kitchen. If you don't invest now, with everything around you shooting up in prices, pretty soon you'll find your paycheck shrinking in reality.

Stocks to own

After getting emails from several of you about individual stocks to own, for a volatile 2008, I've came up with a few picks. Before I give those out, I want to hammer in points from a previous article. The point is, you must diversify across the globe, to ensure a gainful 2008. There are way too much risks in the market right now, especially the U.S. So in order to protect yourself, you must not put all your eggs in one basket.

But for those brave souls, here is a play you can consider. Try the defensive stocks. Note the difference between defense stocks, which are more weapons/arms companies like Lockheed, and defensive stocks, such as food stocks. In a volatile market, it serves us well to not be too brave and optimistic. So well known players like Coca-cola, Altria, Colgate-Palmolive, Clorox, and Avon are good investments. They still pump out good earnings, real profits (which is hard to come by nowadays, and are products that consumers must purchase as necessities.

You could even look into bonds, and preferred stocks. Citigroup, in their dire need of cash flow, is issuing a 7.85% preferred stock. Contact your broker for those shares, as they provide great returns, and Citi is extremely unlikely to go bankrupt on you. Good luck!

Think global, diversify

Anyone nearing retirement is old enough to remember the recession of 2001. If you want to keep your nest egg, invest in global value funds now.

While the experts were debating whether the country really was in a recession -- and if so, when it would bottom out and when the recovery would start -- your portfolio was probably losing value.

It's rotten enough to see your nest egg decimated when you have 10, 20 or more years for it to recover.
But millions of Americans on the cusp of retirement experienced the devastating effect of a recession on their portfolios just prior to, or shortly into, their retirements.

Now, six years later, the news is peppered with stories of a slowing economy and talk of a possible recession. If retirement is in your near future, or even if it's years off, consider taking steps to protect your assets against a potential downdraft in the stock market.

The main thing people have to understand is that there is a lot of risk in our market. People get a false sense of security when the market has been up for quite some time that, this time, it's going to be different. There really is risk in the market and unless people have a well-thought-out plan, there's no way they can protect themselves.So the first thing that has to happen is they have to have a written plan; they have to know how market fluctuations will affect them. They have to know what percentage of their money they can afford to lose before they have to get out. Most people don't know where their breaking point is. They don't know how it affects their ability to retire or how it affects their overall plan because they don't have a written plan.

Most people invest for what I call an absolute rate of return, which is looking at how much money can they make without regard to how much risk they are actually taking in order to gain that return. In their plan they should know what kind of risk-adjusted return they need. How much risk do they need to take in order to get to the return that they need to accomplish their written objectives?

There's no question that there's some sort of downturn on the horizon. You can't see a market that goes up for five years in a row like we've seen without some sort of substantial downturn. I think by late 2008 is when the real pain will start.

I believe that any time you're in the position like we are today, that you must have defensive strategies in place to help protect you from a potential market downturn.
It's all about greed. It's all about how much can I make on the upside. Our contention is, it's not how much money you make, it's how much you get to keep that's most important. Bad markets can take a heck of a lot of money away. When you're 40 years old, you've got lots of time to recover. The bulk of our boomers are past 50 and there are no mulligans after that age. The only mulligan you get is to work for 20 more years.

I think we have some room to go before the recession hits and that technology is going to be one of the leaders over the next several months. In any industry, when a new product comes to market there's zero market penetration for that product. It takes quite some time to get from a zero percent market penetration to 10 percent. And then you have a very rapid movement from 10 percent to 90 percent. It takes as long to get from zero percent to 10 percent as it did to get from 10 percent to 90 percent. And then it takes as long to get from 90 percent to 100 percent as it did to get from zero percent to 10 percent. Most of our major technologies that have been driving our economy for the last 16 to 17 years are at about 80 percent market penetration. Once we hit 90 percent market penetration, that technology will cap out and the profits in those companies will begin to fall. But companies are going to fight to get that last 10 percent. I think it will create some euphoria in that arena that will allow technology to make a splash.

I think the area you want to avoid right now is financials. By and large I think the subprime issues and how deeply involved were the banks in loaning to hedge funds -- those are things that are kind of unknowns at this point in time.

I think you also want to avoid the small-cap stocks now.

They tend to perform best in the early part of a bull market and they perform the worst in the latter part of the bull market, and what we have seen lately is that small caps have begun to lag pretty significantly behind large.

And large caps will typically perform best at the latter part of the bull market.

So in this bear market right now, you want to look to diversify your portfoilo. One way to do that is to invest globally, and not just concentrate on one industry.

Are you shorting Financials?

The Federal Reserve's balancing act between weakening growth and rising prices is getting tougher. Fed Chairman Ben Bernanke said that since the Fed reduced short-term interest rates a quarter of a percentage point to 4.5% a week ago, concerns about credit-market strains have intensified while rising oil prices threaten to fuel inflation and put "further restraint on economic activity."

Mr. Bernanke's testimony to the Joint Economic Committee of Congress yesterday echoed the Fed's statement last week that it saw the risks of economic weakness and higher inflation as roughly balanced, a signal it thought no more rate cuts would be needed.

Since then, stocks have sunk on worries about the prospect of bigger mortgage-related write-offs by banks and other financial institutions. That has renewed expectations the Fed will cut rates, perhaps as soon as its Dec. 11 meeting. That expectation has contributed to a weakening of the dollar, which tends to fall when U.S. interest rates decline while foreign rates are steady or rising, and put upward pressure on oil, gold and other commodity prices.

Now the banks might not be able to pay the dividends, as rumors are floating on the Street, investors really are runing away from the Financials. It is a good time to short those stocks, or play the short ETFs.

There seems to be no end in the short run, for Financials to keep sliding. Some analysts think that this is an oversold situation, but I highly doubt that. The market ran up after the subprime disaster back in August all becuase of rate cuts. There were no "real" reasons for the Dow to jump up back over 14000. I mean, what was the driving force? Not the economy, not the write-offs every bank was posting, not inflation, not oil prices, and certainly not the USD currency. So this correction is long overdue, but due. Play it safe, short some Financials.

Bubble's gonna burst

Signs are being put up all over the places for the biggest bubble of the century to burst now....yes, I'm talking about China. The clearest sign came in Monday, when the multiples of Chinese stocks are going ever higher, while a batch of H shares are revising down their estimates for next year. When P/E ratios is going higher, while companies are putting up lower numbers, that is a classic sign of a bubble. The market is flushed with liquidity, and high hopes, instead of reason and educated investing.

Today, a simple discussion of combining S shares and H shares, sent Chinese stocks down and Hong Kong stocks up. These HK stocks, are really the same companies as the S shares, but available to everyone. So in reality, the same company's stock is down inside mainland exchange, and up in HK exchange. If you think that makes no sense, you are absolutely right. It is not unwise to sell your Chinese stocks and ETFs now...rather than be caught when the biggest bubble of the century bursts.

Some argues that the authoritarian government will not allow the stocks to go down prior to the summer Olympics. While true to a certain degree, I am not sure how much they are willing to do, given their market has gone up more than 10 times in 4 years. Unless you bought into China 4 years ago, there are a lot of room for the stocks to "correct". But, hey, one can always keep their fingers crossed.

Investing in GE

GE is just about the only stock you can buy, that emcompasses the Dow component. This company is large enough, and owns enough subsidiaries in each segment of the market, that when you buy GE, you are pretty much buying the Dow index. In times of volatility, and yet you are betting the economy to stablize and recover, GE would be a very safe bet.

After sliding back into the mid-thirties in March, shares in General Electric have gained nearly 12% this year as market participants focus on the company's strategic position in a healthy global marketplace. With three quarters under its belt now, 2007 has proven to be a strong year for General Electric.

In terms of its capital structure, the company has sold off slower growth and profit businesses, utilizing the monies to strengthen its portfolio by investing in higher growth areas including energy and infrastructure. It has also reduced its cost footprint and has returned cash to shareholders. Today, shares are trading lower after GE reported earnings of $0.50 per share, in line with expectations. The results included six cents in restructuring in continuing operations and another penny as result of the credit turmoil. Revenues grew 12.3% from the prior year period to $42.53 billion versus the consensus estimates of $42.4 billion.The ongoing bullish themes were organic revenue growth of 8% and strong order growth of 20%, which bodes well for the medium-term growth outlook and visibility.

The company's fourth quarter guidance of $0.67 to $0.69 cents per share brackets the consensus estimate of $0.68.The disappointment, which is likely weighing on the stock, is the fact that GE wasn't always able to convert growth into profitability. Within the infrastructure segment, order and topline growth remained robust, but earnings failed to keep up with the pace as margins fell 70 basis points. The reason is that equipment orders continue to outpace services which in turn dampens margins. Commercial finance was also a bit lighter than expected at $1.4 billion (up 12% vs. 15% guidance); Industrial $513 million in earnings before interest and taxes (up 6% vs. 10-15% guidance); Health Care $692 million in earnings before interest and taxes (-1% vs. flat guidance). On the upside, NBC continues to gain momentum.

The unit achieved $589 million in earning,s up 9% for the quarter as the network gains strength with its fall line up helping to boost advertising rates.

Overall, while the quarter was a bit mixed, Ithink investors should continue to focus on GE's strong long-term growth prospects, global footprint, diversified portfolio of higher-growth businesses, strong financial position, and emphasis on bolstering shareholder value.

For the full year, GE expects to reach $2.19 to $2.22 per share, excluding items. That is in line with the consensus estimate of $2.21.

Buy that damn ETF. Do it!!!

Crude oil futures held above $80 a barrel Wednesday in Asia after falling three straight days from last week's near-record levels. If this is not a bubble, I don't know what is...

Light, sweet crude for November delivery rose 16 cents to $80.24 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The Nymex crude contract fell 19 cents to $80.05 a barrel Tuesday.
Many analysts say investors taking advantage of the weak dollar drove oil prices to record levels above $83 a barrel in September. The supply and demand fundamentals of the oil market simply don't support such high prices, these analysts argue.

The dollar has been rebounding against several currencies, though, and dollar-denominated commodities have become less of a bargain.

Investors have also begun betting that oil prices have hit their highs for the year. Oil prices typically fall off between the peak demand of summer driving season and before winter demand for heating oil kicks in.

Still, prices could jump to new records on news of a hurricane or a bullish government petroleum inventory report. So, while keeping one eye on the dollar, futures traders are also anticipating Wednesday's inventory report from the Energy Department's Energy Information Administration.

Analysts surveyed by Dow Jones Newswires expect, on average, that crude inventories fell 400,000 barrels in the week ended Sept. 28, while gasoline inventories grew 400,000 barrels.

Refinery use likely rose by 0.4 percentage point to 87.3 percent of capacity, the analysts said, while inventories of distillates, which include heating oil and diesel fuel, likely grew 700,000 barrels.

November Brent crude rose 6 cents to $77.44 a barrel on the ICE futures exchange in London.

This is the best time to invest in ETFs, namely DUG. DUG is a fund that shorts securities in oil and natural gas. Knowing this is a bubble that is likely to extend to only early next year, this is a good time to put in that "buy" instruction. So, the higher the price of oil and gas goes, the lower DUG would be. Therefore, the inverse is true. If oil/gas prices drop in the future, DUG (trading at 52 week low) would rebound. You can email me if you need more clarification on how shorting works, or ETFs in general.

Here's the deal with Natural gas, that too, is building a bubble. Nymex heating oil futures rose 0.52 cent to $2.1675 a gallon, while gasoline prices added 0.30 cent to $1.9858 a gallon. November natural gas futures, meanwhile, rose 4.5 cent to $7.472 per 1,000 cubic feet.

Natural gas futures bucked the rest of the complex Tuesday in the U.S., rising 37.7 cents to settle at $7.427 per 1,000 cubic feet. Some analysts think investors are reacting to a storm system in the southeastern Gulf of Mexico that they believe could threaten critical gas and oil infrastructure.
Other analysts said natural gas investors are only looking ahead to winter demand and betting the Northern Hemisphere winter will be colder than the last.