I could not be more content. I am sitting on my deck overlooking the ocean with a 24 ounce coffee, Barron's and my dog by my side. I am watching some awesome waves --three to four feet -- perfectly breaking into the very high tide. The tide is as high as it has been since I built this place last year (yep, I did indeed top-tick the real estate market!) That's ok with me though, given the fact that I am able to write this column on my laptop, with this view.Watching the power of the ocean, I can't help but think of the amazing flow of money into the commodity trade over the last 12 to 18 months. Like the tide, money flows in and out of sectors. I have to admit that even with the commodity bullish perspective I maintain, I am surprised at the massive investment flow. It should come as no surprise that the sectors' whose tides have retreated, notably housing ( Hovnanian ( HOV), Beazer ( BZH) and Pulte ( PHM) and financials ( Bear Stearns ( BSC), Citigroup ( C), Countrywide ( CFC) and Ambac ( ABK), etc.). I have suffered the inverse fate of the oil trade, see the U.S. Oil Fund ETF ( USO), the gold trade
You may even be able to hear a collective sigh of relief by some investment bank CEOs who are torn between telling the Street exactly how much exposure they still have and hoping beyond hope that the market for their collateralized debt obligations (CDOs), credit default swaps (CDSs) and mortgage backed securities (MBSs) finds a bid before that day of reckoning. The day will come when it is safe to dive back into the financials. The signal will be a clear one. Headlines will read something like this: 'Home Prices on the Rise'. Now, the tide for buying is rising. The cool thing is that there will be opportunities everywhere. Billions of investable dollars are sitting on the sidelines waiting for that same bell to ring. We will be able to buy highs and sell higher. It's a trend-traders utopia. The thing is, I think this 'safe to get back into the water' bell is approaching. However, I am not ready to jump in with both feet yet. Until the horn sounds, I think a portion of your portfolio should remain defensive. I have talked about defensive ETFs in the past. My two favorites have been, and remain, the Consumer Staples Select Sector SPDR ETF ( XLP), and the PowerShares International Dividend Achievers ETF ( PID). XLP is a solid play because people will continue to buy the basic necessities, such as toothpaste, toilet paper, and deodorant, even if their home values slide and they feel the nasty sting at the pump. With this play you get exposure to Procter & Gamble ( PG), Wal-Mart ( WMT), Altria Group ( MO) and Coca Cola ( KO).
The other ETF is PID, which gives you exposure to stocks that pay high dividends...internationally! For example, Barclays PLC ADR ( BCS), Bank of Montreal ( BMO) and HSBC Holdings ADS ( HBC) are all in this ETF. PID has performed well because, by default, it benefits from the substantial slide in the U.S. Dollar. The dollars loss is the Euro's, Yen's, Real's, Yuan's gain, so an investment in PID is fortified by being "in" these currencies. Until the lifeguard tells us that Trader Beach is open, it is not a bad idea to diversify into a bit of defensive ETF's, which may provide a place to bank your investment bucks. Don't worry, missing the beginning of a tidal change is ok. The tide is strong enough to carry your portfolio even if you miss the first few percentage points. By waiting, you can avoid some early swimmers who get caught in nasty riptides. (Sorry for all the campy aquatic references...can't help myself given the view.)