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DOW 13000 – Whoo Hooo!

In spite of all of the big hoopla, the DOW simply isn’t what it used to be.

Source:  Peter Schiff

Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000.

The point to remember is that when it comes to records, it is real purchasing power, not nominal value, that counts. Measured by its purchasing power, the Dow has clearly lost value over the past seven years. Those who have remained invested in Dow stocks during that time period are clearly poorer as a result. Those who continue doing so will likely loss even more wealth in the years ahead, regardless of how many more nominal record highs the Dow sets.

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Caterpillar Profits on Global Growth

Caterpillar, a member of the Big Build-Out (BBO) portfolio, reported better-than-expected quarterly earnings today.  What’s exciting about the report is how they exceeded expectations.  The company raised its outlook, saying “exceptional growth” outside North America was offsetting weakness in the U.S. residential housing and on-highway engine markets.  Whatever happened to the saying “when the U.S. sneezes the rest of the world catches a cold.”

The key to making money in this market is to look for companies that have international reach – which is the objective of the BBO.  The following quote says it all.

Eli Lustgarten, an analyst at Longbow Research, said while Caterpillar’s results were lifted by an asset sale that contributed as much as 5 cents to earnings per share, “It’s a bigger quarter than we expected.”

He said the results showed while North American trucks and housing are “material markets,” they’re “not all that important because Caterpillar is so international and so diversified.”  

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Anatomy of a Stock Trade: Entry Techniques

I received an email from a subscriber asking for my opinion on when to enter a trade.  Do I prefer to wait for pull-backs or buy new highs?  Before I answer, let’s take a look at the different elements of a trade.

I believe that there are 3 elements to each trade – Entry, Exit and Risk Management.  According to Van Tharp in “Trade Your Way to Financial Freedom,” he estimates that 95% or more of the people attempting to design trading systems concentrate on finding a “great” entry signals.  He goes on to say that the entry only plays a small part in making money trading. Continue reading “Anatomy of a Stock Trade: Entry Techniques”

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The “Sail-Boat” Trading Strategy

There are two traps that I have fallen into in the past and refuse to do it again.   The first is becoming seduced by a statement such as the following: if you had invested $10,000 in XYZ Company X years ago it would be worth $500,000 today.  The second is XYZ Company dominates its industry.  There is no reason why it will not continue to dominate, so I am going to buy it and hold it for the long run.  Then in X years I can sell it and live happily ever after.  I call these traps, because they entice one to adopt a buy and hold or sail boat (if it hits I will be able to sail off into the sunset) mentality.  This mentality has cost me more money than I care to admit.

Both scenarios seem logical, but logic and Wall Street don’t always go hand in hand.  Continue reading “The “Sail-Boat” Trading Strategy”

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Is it Time to Double Up on Brazil in your BRIC portfolio?

BRIC is becoming a fairly common acronym amongst investors.  The term was coined in a research paper by Goldman Sachs in 2003 to describe an economic block composed of Brazil, Russia, India and China.  The combination has the potential to be larger than the G6 in US dollar terms by 2050. Since the paper’s release, investors have been scrambling for ways to leverage this theme.  Last fall, Claymore introduced the first BRIC ETF (EBB). 

Before the Claymore ETF, the easiest way to invest into the theme was to use country specific ETFs.  In the past, I have used EWZ (Brazil), TRF (Russia), IFN (India) and FXI (China) to capture the trend. An advantage of the country ETF approach is the ability to specify your own weighting for each country versus being locked in to Claymore’s weighting.  Continue reading “Is it Time to Double Up on Brazil in your BRIC portfolio?”