Don Dion's Weekly ETF Blog Wrap

This week on <I>RealMoney</I>, Don Dion blogged about his bullish outlook, Goldman Sachs and emerging-market ETFs.
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This week on RealMoney, Don Dion blogged on his bullish outlook, Goldman Sachs and emerging-market ETFs.

In the Dip-Buying Camp

Posted 8/27/2009 2:19 p.m. EDT

Doug Kass' excellent article yesterday

continues to generate interest. I don't foresee a market top here, but if Kass' call is right, I place myself in the

dip-buying camp

with Jim Cramer.

Kass says the market has topped for the year, but I'm bullish for the next 12 to 18 months and a dip sometime in the next four months would make me more bullish due to attractive valuations.

Low interest rates and

Federal Reserve

policies already healed much of the credit market and the Fed remains committed to its low interest rate policy. We're seeing a surge in home-buying as first-time buyers take advantage of the tax credit, the same way we saw a surge in auto sales. This will accelerate the drawdown of existing housing inventory and lay the ground for a solid recovery.

From speaking with clients and other business owners, the inventory need is real. Panic on Wall Street spread to Main Street and many businesses battened down their hatches. They didn't just deal with the tough economy; they anticipated the next shoe to drop. As they restock, we'll see fourth- and first-quarter earnings improvements. Favorable year-over-year earnings comparisons will build confidence and lead to a sustained recovery.

Consumers also increased their savings in anticipation of a worse situation and we're seeing consumer confidence improve. Savings in the bank are good for confidence and the move to higher savings rates will not move in the almost straight line we've seen in the past year, but adjust over years.

Finally, I'd say that if Kass is right about the top, should the ensuing selloff be significant enough to scare the public, concerns over health care and energy bills (and possibly even the deficit) are misplaced. There will be no significant legislation passed by the Democrats because they will face the prospect of losing control of the House of Representatives.

By this time next year, pundits will be discussing a political shift on the scale of 1994. That will either force Obama to the right, as we saw with Clinton, or it will pave the way for a total reversal of the 2006-2008 electoral pattern in 2012.

Recall that in the early 1990s, there were deficit projections as far as the eye could see, but following the Republican takeover, a political stalemate led to balanced budgets. Today's huge deficits will not materialize because the American people are even more anti-deficit today than they were when Ross Perot received 20% of the vote.

Kass nails all the concerns and trends as they stand today, but I'm looking out to next year and I see a different picture emerging. It takes time for the facts on the ground to work their way into economic statistics and political realignments, and if he's right on the market, I see it as reinforcing longer-term positive trends, not derailing them.

Goldman Sachs' Unwanted Attention

8/24/2009 11:12 a.m. EDT

Goldman Sachs

(GS) - Get Report

may rue the day it got into bed with the U.S. government if trends in public opinion continue to develop. From a

Rolling Stone

expose to political pundits and concerns about high-frequency trading, Goldman Sachs' name keeps turning up.

Now

The Wall Street Journal

is asking questions about its "trading huddle" where analysts and traders discuss thoughts on the market and, in at least one case, offered meeting advice that differed from a published report.

On the surface, it doesn't appear that Goldman did anything illegal nor is there clear evidence of unethical behavior. The meetings were focused on short-term trading ideas, not long-term ones found in analyst reports. Furthermore, one might ask why an investor or trader would be a client of Goldman Sachs if it didn't deliver an edge.

Instead of focusing on this specific incident, which doesn't show evidence of clear wrong-doing, I'd ask why the

Journal

ran this story on the front page. I believe the answer is that the public is not happy with financial institutions in general, and certainly not with firms that have benefited directly from cash infusions or indirectly through the selective bankruptcy of the competition and cash infusions that passed through other firms. In addition, Goldman's close ties to the federal government raise the ire of taxpayers miffed about huge deficits.

The end-result is likely to be tougher-than-expected regulations. As much as corporations are able to lobby Congress for favorable outcomes, they are almost powerless against widespread negative public opinion. Politicians who might normally favor less-stringent changes will not step in front of a runaway train.

President Obama and the Democrats are already looking at large losses in 2010 due to their botched efforts at health care reform. Deficits, climate change, bailouts and the stimulus are all losers for the party heading into next year as things stand today. Financial regulation could be an easy win because Republicans won't want to be seen as defending financial institutions.

ETF investors need to consider potential new regulations as part of their long-term planning. Commodity and leveraged ETFs have come under attack and regulation could eventually change the way investors access these asset classes. Financial regulation will be even more far-reaching, affecting everything from insurance to mortgages. Public sentiment suggests the industry is about to land in the government's crosshairs.

Turkish ETF Runs Ahead of the Field

8/25/2009 4:28 p.m. EDT

While several emerging-market ETFs have seen their returns wane in recent weeks,

iShares Turkey

(TUR) - Get Report

advanced to higher ground.

In the past month, developed markets were some of the best-performing ETFs, with

iShares Austria

(EWO) - Get Report

up 19.38%,

iShares Australia

(EWA) - Get Report

up 10.73%, and

iShares Belgium

(EWK) - Get Report

and

iShares Sweden

(EWD) - Get Report

close behind.

Market Vectors Russia

(RSX) - Get Report

was a strong emerging-market performer, up 8.66%, while

iShares Brazil

(EWZ) - Get Report

gained 7.29%.

TUR's 17.28% rally left these funds in the dust. I could cite some economic data, but the Turkish story is not so compelling that it necessitates such a large level of outperformance.

Year to date, TUR is up 86%, right behind RSX's 87% return, but RSX is up only 11% in the past three months, compared with 40% for TUR.

TUR has strong momentum and will rally as long as current trends persist, but the next closest emerging-market fund over the past three months -- with the exception of another outlier,

Market Vectors Indonesia

(IDX) - Get Report

, up 33% -- is

iShares Thailand

(THD) - Get Report

, up 21%. That suggests Turkey may have run ahead of itself.

At the time of publication, Dion owned TUR, EWO, EWD and THD.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.