) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his


blog, anticipating which ETFs will be in play next. Among his blogs this week were the following, in which he wrote about caution signals for emerging market currencies, John Paulson's plans to set up a gold fund and what it means for gold investors, and the short-term weakness in the financials.

Caution Signals for Emerging-Market Currencies

Posted 11/20/2009 2:36 p.m. EST

The discussion and implementation of capital controls is a barometer for the currency market, and investors in emerging-market currency ETFs should take heed.

In the past month, Taiwan moved to block hot money from sitting in time deposits, and Brazil initiated a tax on foreign equity investors.

Hong Kong reports that in the six weeks between Oct. 1 and Nov. 13, close to $75 billion flowed into the country. To put that in perspective, Hong Kong's GDP was $215 billion last year. Stock market capitalization exceeds $2 trillion, but 50% of the market is made up of Chinese firms. Hong Kong's government is concerned about the huge inflows, and it is not alone.


also reports that, "Officials from India, South Korea and Indonesia are among those expressing concern over overseas capital stoking stock and real estate prices."

These nations remember the 1997 Asian crisis well and do not want to suffer a repeat. The main focus of their concern is the ultra-low interest rate on the U.S. dollar that is fueling the carry trade. Emerging markets are seeing increases in asset prices along with their currencies, and it may eventually cause global imbalances that will be corrected via another currency crisis.

While emerging-market equities still have room to advance, the easy currency gains are gone. It's impossible to know when the current currency trends will end, but the growing concern from South America to Asia is a sign that we are entering the middle phase of the current rally. Note that the policies are unlikely to change the market; rather, by the time the slow-moving governments finally act, the market has already shifted.

Investors in emerging-market currency ETFs, such as

WisdomTree Dreyfus Emerging Currencies

(CEW) - Get Report

do not need to sell now, but I would not add new positions.

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Another Reason to Go With Gold

Posted 11/19/2009 4:44 PM EST

John Paulson's announcement that he is setting up a gold fund sends a bullish signal to gold bugs and retail investors that the yellow rock still has room to run.

I currently hold the

Market Vectors Gold Miners ETF

(GDX) - Get Report

and the

Market Vectors Junior Gold Miners ETF

(GDXJ) - Get Report

as a play on the mining industry, and the

iShares Comex Gold Trust

(IAU) - Get Report

as a play on the actual commodity.

I would advise investors to hold on to gold ETFs for the time being. Although prices of the metal dipped from their record highs on today, I feel the current economic environment is well suited for further upside.

For Paulson, investing in gold is not a new endeavor. In fact, according to

The Wall Street Journal

, the hedge fund manager's firm has amassed considerable holdings in both

AngloGold Ashanti

(AU) - Get Report


Kinross Gold

(KGC) - Get Report

throughout this year. Both AU and KGC are top holdings in GDX.

Paulson, who pocketed $20 billion shorting the housing market prior to the downfall, has made a name for himself by successfully forecasting recent events. He also practices what he preaches: he reportedly followed up his announcement by saying that he would invest a quarter billion dollars into his own new fund.

I personally like GDXJ for its small-cap exposure. Although it is a more volatile play on the gold industry, any moves on the upside in the sector will be magnified by holding the smallest firms. Less risk-tolerant investors can aim for larger-cap exposure with the GDX or physically backed

gold ETF funds

such as IAU and the

SPDR Gold Trust

(GLD) - Get Report


Look for More Lagging From Bankers

Posted 11/18/2009 12:48 p.m. EST

One sector displaying short-term weakness is the financials, although there are some bright spots in long-term momentum.

WisdomTree International Financial


was the best-performing financial ETF in recent weeks, with a 1.5% increase in the past month and 17.5% gain in the past three months through Nov. 17. It ranks highly in both short- and long-term momentum; the downside is that it only trades about 18,000 shares a day and has about $18 million in assets. (It is the only financial ETF with strong short-term momentum.)

DRF has had the best performance of a group of international financial ETFs, which includes

iShares S&P Global Financials

(IXG) - Get Report

, the most liquid option. IXG gained 13.2% in the past three months. These returns are mostly due to the strong euro, however, the same factor that helped international utility and telecom ETFs outperform the strictly U.S.-based ones.

After the international financials, no other subsector of financial funds has performed especially well, though two individual ETFs are worth considering.

SPDR KBW Insurance

(KIE) - Get Report

has good long-term momentum, as does

PowerShares Global Listed Private Equity

(PSP) - Get Report

. They've returned 11.8% and 15.0%, respectively, over the past three months.

After those financials, momentum drops off quickly. After passing

iShares S&P U.S. Preferred Stock

(PFF) - Get Report


iShares Dow Jones U.S. Broker Dealers

(IAI) - Get Report

, which rank in the middle of all ETFs, the weakest funds are found in

PowerShares Dynamic Banking



iShares Dow Jones U.S. Regional Banks

(IAT) - Get Report


PowerShares Dynamic Insurance

(PIC) - Get Report


PowerShares Dynamic Financials

(PFI) - Get Report


On Oct. 2,

I warned on financials, specifically IAT, PJB, and


(KBE) - Get Report

. Since that time, these three have returned 2.8%, 0.6% and -1.3%, compared to an 8.6% rise in the

iShares S&P 500 Index

(IVV) - Get Report


This underperformance in banking will continue. Investors' best bets are with DRF, IXG and PSP thanks to the weak U.S. dollar, while investors looking for a strictly domestic financial ETF for the near-term should go with KIE.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion held Market Vectors Gold Miners ETF, iShares Comex Gold Trust and iShares S&P Global Financials.

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.