) -- 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 how consumer spending is on the rise in Brazil, how ETF investors who bet on the dollar rally in December are now exiting the long side of that trade, and how rising loan activity may force Chinese authorities to tighten credit conditions.

Consumer Spending Drives Brazil

Posted 1/14/2010 1:49 p.m. EST

The Brazilian Institute of Geography and Statistics reported today that retail sales for the country in the month of November increased from a year ago for the seventh month in a row. This has been powering the

MarketVectors Brazil Small Cap Index

(BRF) - Get Report

higher, and I expect the fund's outperformance to continue.

BRF has increased by 81% in the past seven months in comparison to the only other long Brazil ETF,

iShares MSCI Brazil Index Fund

(EWZ) - Get Report

, which went up 42.7% in the same time period. Despite both funds performing very well, the larger gains of BRF are a result of the fact that domestic consumer spending is the central factor driving the Brazilian economy.

The index that BRF tracks allocates 30.3% of its holdings to the consumer discretionary sector and 4.4% to consumer staples, whereas EWZ allocates 3.9% to discretionary and 7.6% to staples. Therefore, in total, consumer spending accounts for 34.7% of BRF and 11.5% of EWZ.

This is healthy for Brazil because it does not rely as heavily as China on the success and continued purchasing of exports by America and Europe.

China has tried to make its economy more driven by domestic spending in the stimulus that it introduced during the past year, which was responsible for causing a huge spike in auto sales and other consumer goods. This drove the China equivalent of BRF,

Claymore/AlphaShares China Small Cap Index

(HAO) - Get Report

, to outperform its China ETF peers in the past year.

ETF investors looking at Brazil can still see EWZ as a less volatile play on the country's development, but it relies heavily on energy and materials producers and hence the continued recovery of other nations. BRF, on the other hand, is a purer play on the success of the country's domestic economy and will continue to outperform EWZ as Brazilians become wealthier and continue to increase their consumption.

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Watching the Exits

Posted 1/12/2010 8:27 a.m. EST

PowerShares DB U.S. Dollar Bullish Fund

(UUP) - Get Report

has been shedding assets in January, a sign of hot ETF money exiting the long-side of the dollar trade.

UUP finished 2009 with more than $3.2 billion in assets under management, after nearly $1.8 billion in inflows in December. But so far in January, it has reported a net outflow of nearly 500 million to $2.8 billion assets under management as of Friday, Jan. 8. UUP is down 1.6% this year.

Due to the massive size of the currency markets, which have daily volume in the trillions of dollars, it's extremely unlikely for a single currency or currency-index ETF to drive the market. But the fund flows are still a good barometer of investor sentiment. The latest outflow from UUP could signal that some of those betting on a near-term dollar rally have moved on.

In my view, the massive UUP inflows in December indicated a lot of traders and/or investors expected a big dollar rally, and they moved swiftly to position themselves. The future increases in the Dollar Index are likely to be as swift and as volatile as the one than sent UUP up 4.6% in the first three weeks of December. Nimble traders can wait for the next move, but dollar bulls with longer holding periods should begin to position themselves ahead of any move, which may come later this month on strong U.S. corporate earnings and the end of a Federal Reserve liquidity program on Feb. 1.

Investors also lost a bit of interest in

PowerShares DB U.S. Dollar Bearish Fund

(UDN) - Get Report

this month, where assets under management have fallen by around $30 million, to $290 million, since the end of December. While UUP is one of the only ETFs to play a strong dollar, investors can choose from any number of international ETFs to gain foreign currency exposure, in addition to any number of commodity funds used to profit from a weaker dollar. Therefore, UDN's flows tend to be less representative of the larger market trend.

China Lending Flashes a Warning Sign

Posted 1/11/2010 5:55 p.m. EST

New loans in China during the first week of 2010 were reported to be nearly twice as much as the monthly average for the last half of 2009, according to


. Rapid loan growth may force the government's hand and lead to tighter credit conditions -- bad news for the financial-sector-heavy

ETF iShares FTSE/Xinhua China 25 Index

(FXI) - Get Report


The Chinese government has said that fiscal stimulus and supportive economic policies will still be essential in 2010 to ensure that the country's economy continues to recover. However, the statistics on lending so far this year may force the government to reconsider how hot it wants the economy to get.

Inflation is becoming a concern, and the base of the economy is already doing well enough to warrant the removal of stimulus, as exports rose 18% in December.

There is also the possibility that the extraordinary amount of new loans thus far is the result of borrowers rushing to access credit before the government tightens.

Depending on how large and how long this condition lasts, the government may be forced to act, hurting FXI with its 47% allocation to the financial sector -- the most among China ETFs.

All China ETFs would see their upside limited if bubble concerns caused the government to tighten too soon or too much, but ETF investors have options for to reduce the problem.

My favorite is

Claymore/AlphaShares China Small Cap Index

(HAO) - Get Report

. In contrast to FXI, the fund allocates only 8% of its holdings to financials, and tighter credit should affect HAO the least of all broad China ETFs

In the first week of January, HAO increased by 6.2% while FXI only increased 3.9%. In reaction to the news on lending and exports in China, FXI gained 0.2% today, whereas HAO moved up by 1.2%.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion was long EWZ, UDN.

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.