NEW YORK (
) -- 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.
In the following three blogs from the past week, Don commented on how to hedge uncertainty with a gold miner ETF, why you shouldn't start unloading stocks willy-nilly because of the market's recent downdraft and how you can profit from the continuing uncertainty about Europe.
Hedge Uncertainty with a Gold Miner ETF
Posted 5/7/2010 1:09 PM EDT
Holding actively traded positions over a weekend can make for stressful time off. It's often hard to make bets on next week's news, and a lot can happen in two days even if major exchanges are closed.
This Friday, however, there's an ETF positioned to benefit from upcoming uncertainty. Investors should check out shares of the
Market Vectors Gold Miners ETF
GDX is an equity-based fund that tracks firms involved in the gold mining business. Because miners such as
have fixed operating costs, GDX has imperfect exposure to gold prices but leveraged-like exposure to their movements.
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In a blog two weeks ago, I advised readers to "
Watch Out for Gold Miners" ahead of results from
and Barrick last week. GDX rallied strongly after its components reported, only to sell off a bit with the broader market this week.
Looking forward to this weekend and next week, however, I find that Europe is a more compelling reason to scoop up GDX. What does Europe have to do with miners? Uncertainty about Greece's debt and broader contagion has played havoc on the euro.
It's hard to tell what's going to happen with Greece's bailout or Europe's currency from one day to the next. At first, investors fled with every negative news story and piled back in with every austerity promise -- but I think that everyone's becoming more aware of what they don't know: currency stability.
Investors should be skeptical both when they read stories about euro Armageddon and when they read stories about plans to fix the underlying problems. The truth is something different, and the only thing we can count on is continued uncertainty.
Uncertainty about currency has always been a good thing for gold. Physically backed funds like
SPDR Gold Shares
iShares Comex Gold
have been popular in recent weeks; while I favor these funds for longer-term exposure, tax implications make them less useful for short-term trading trends.
While GDX does not track gold directly, the fund will benefit from the influx into gold. Since it is equity-backed and liquid, jumping in and out won't be a problem for most investors.
Here's one more reason why I like GDX in the short term: the Bank of America Merrill Lynch Global Metals and Mining Conference begins Tuesday in Florida. GDX's top two holdings -- Barrick and Goldcorp -- will be presenting the first morning. I've found that when a company presents after good earnings reports, they usually have nice things to say. Confidence in GDX's top components could also lend a boost to this fund in the week ahead.
There's nothing we can do about the current uncertainty in Europe, so it is best to embrace the resulting opportunities. Check out GDX before you close down for the weekend.
Ride This Out
Posted 5/6/2010 3:43 PM EDT
Today's market reminds me of a roller-coaster ride. First there's the first trek upward, ticking and lurching slowly toward the sky. Even though it is thrilling to be inching toward the clouds, the feeling is tempered by the knowledge of what's coming next.
Investors have been feeling this way for months. The market has been climbing a "wall of worry," and most investors haven't been enjoying the view because they are worried about the drop.
That's what happened today. The market roller coaster ticked to the top of the first section of track and plunged. Remember that theme-park feeling? It's like your stomach is in your throat and there's no time to react. The only thing that makes it bearable is that you know there will be another section to the ride. Some people close their eyes.
Close your eyes, scream ... these are all viable options this afternoon. One thing I wouldn't recommend: unstrapping your harness and jumping off the coaster.
Market drops like this inspire a lot of irrational, emotional trading. This is especially difficult to watch in the ETF industry. Since ETFs have underlying values and you can tell what something is worth, panic selling is especially obvious.
After the first, precipitous drop, the market has already rebounded significantly. Remember that feeling when you hit the bottom of the first big drop and started the rest of the ride? That's where we are now.
Days like today are the reason why you should have a well-balanced, longer-term portfolio. While I have been bullish on the market with ETFs such as the tech-heavy
, I have also been encouraging investors to stock up on things like
SPDR Gold Shares
iShares Barclays TIPS
on the down days.
Instead of looking to hit homers every day, figure out ways to improve your game and win over time. Look at each day as an opportunity to work on one part of a balanced asset-allocation picture.
If you trade calmly and achieve a well-balanced portfolio over time, you'll be able to handle whatever turn comes in your path.
Profit from the Continuing Euro Mess
Posted 5/5/2010 7:29 AM EDT
Europe-related concerns prompted Wall Street's worst session in three months yesterday. From this selloff, it is clear that the troubles for the eurozone are far from over.
Investors can find opportunity amid this panic by using one of two ETFs. For investors with a longer outlook, there is
PowerShares DB US Dollar Index Bullish Fund
. For investors looking to make quicker trades, the
PowerShares UltraShort Euro ETF
would be an appropriate choice.
The panic that gripped markets yesterday was caused by concerns that Greece may not be the only European economy that will be crippled by debt problems. Investors ultimately were concerned that if larger European countries experience problems, it could derail the economic recovery on a worldwide level. In the eyes of many of those selling yesterday, Greece was just the tip of a European iceberg that could be the catalyst for the much-feared double-dip recession scenario.
I would advise investors to remain calm, dodge this hysteria and try to profit from it. They can do this by betting on the currency panicked investors are flying to, or by betting against the currency panicked investors are flying away from.
The euro is losing credibility as stronger countries in the economic zone are being forced to financially care for their debt-ridden brethren. The euro's losses will continue to mean gains for the dollar. Investors can make a more conservative bet on the dollar against a basket of currencies including the euro by using UUP. Investors who want to play the euro's slide more actively can buy the small peaks in the currency against the dollar by using EUO. Since EUO tracks twice the daily inverse performance of the euro against the dollar, that means buying the dips in EUO.
More losses on the euro against the dollar are likely, but they will not happen all at once. There will be events, such as details announced for Greek bailout packages, that temporarily perk up the euro. But the trend will remain downward, so investors can time their entries into EUO based on when the euro experiences small gains and then sell after the larger slides in the currency.
At the time of publication, Dion Money Management owned QQQQ, DVY, IAU TIP and UUP.
Don Dion is president and founder of
, 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.