Thursday, November 26, 2009

Putting ETF's To Work

Joblessness is rampant and spiraling. Banks are failing, haunted by toxic assets. Housing values are crumbling as foreclosures continue to mount. The dollar is dropping. One might conclude that it was time to bet against the markets. The rationale being that a reduction of purchasing power would indirectly result in a loss of consumer confidence. In a GDP-measured economy that is 71% consumer driven, who will be left to buy products when the consumer slams shut his wallet?

Wouldn't equities markets be inclined to a modest pullback - or even a waterfall plunge - under this scenario? Market diagnosticians Marc Faber, Stephen Leeb and Martin Weiss are a few harbingers that are heralding this tune. But doom and gloom predictions have, as yet, proven imprecise. That prospect might play out, but to date such dire forecasts have not come to pass. Wall Street is currently a bouyed market. Awash in liquidity provided by FED largesse.

Some individuals who listened are cying "Foul," and they're smarting. They thought that such advice meant it was time to jump into the short-the-market cadre. But their actions were precipitous and their timing off. If it does come to that? What if it seems to you as if there is an irreversible market plunge underway? What actions could you take, at that time, to offset losses and perhaps realize gains?

It takes an investor with experience to utilize puts. It can require extensive time in the trenches - to obtain that expertise, and implement those strategies - without getting blown up. Many
investors don't fully understand how to short individual stocks. Similarly, not everyone knows how to write covered calls. Luckily, for those investors alive today, you no longer need to have the skills of a Jesse Livermore.

Do you wish asset protection in these uncertain times? Do you desire to profit? If so, Pilgrim, listen closely. There are exchange traded funds designed to do just that. They've taken the guesswork out of the equation. The teacher is doing your assignment for you. She's already filled out all the answers, and even gone so far as to award a big fat pencilled-in-red "A" atop your paper. "Where can I learn about these ETF's," you ask, "tell me more?"

There is a sizable, and growing, group of Fund Providers now on the market. They offer a wide variety of both bullish and bearish funds. They cover a proliferation of investment opportunity. They permit you to participate in market movements in any direction, rather than be sidelined in cash. The largest in descending order include Barclay's Global Investors, State Street Global Advisors, Vanguard, PowerShares, and World Gold Trust. And there's more.

BONY/Merrill Lynch, Rydex, ProShares, Wisdom Tree, and DB Commodity Services are a few more which round out the field. I'm not offering endorsement of any one particular provider nor recommending purchase of a specific ETF. I am merely listing them here for the convenience of the reader, and to emphasize just how many ETF's now exist. This has revolutionized investing, subsequently encouraging avid market participation from increasing numbers of newcomers.

Finally, there are Inverse ETF's that offer to double or even triple the pricing action in declining markets. For example, those offered by Direxion Funds - that aggressively pursue triple the daily pricing action. Stay away from them if you're not an experienced, sophisticated investor who can monitor them like a hawk. Such Funds should only be utilized for short term, intra-day trading. Hold them for no more than a day or two at most, to capitalize on market volatility.

During this upward market trend BGZ, TZA, and FAZ - the exchange traded funds from Direxion - have done poorly for those expecting a quick explosive downside move. Too early when they bought in, these investors wound up being proven wrong. They were betrayed by the capricious greed of others - who, goaded by the influence of excess liquidity - are driving stocks higher. Market direction is nothing more than a gigantic voting booth. Right now, the public is voicing its opinion that easy money will continue.

Perhaps those who stubbornly hold their position of an impending market decline are like an out-of-favor political party. Outnumbered and held in dismissive contempt by those holding the reigns of power. But still wishing to be heard. They obstinately refuse to shed their contrarian convictions, sure that a dire scenario will soon ensue. But from a profit perspective, this is a perfect example of "you have to know when to hold them, and know when to fold them."

Purchasing an ETF which focuses on your investment objectives may be a route you choose to take. I recommend that you don't take that road without this last bit of advice. Traveling down this current path of irreversible dollar devaluation is akin to embarking upon a journey with destination unknown. You wouldn't plan an itinerary without putting gas in the car. Fill up your tank first. Precious metals are the highest-octane fuel you can buy. Don't leave home without them.

Buy Silver. Buy Gold. Save Copper. Start Now.

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