Milk and eggs were warning signs: ThomWatch
10/14/2008 2:12:25 PM | Thom Calandra
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Tick-ticking tickers act as reliable indicators, say experts
Investors across the planet lament the whirlwind tempo of autumn’s fiscal storm, yet clouds were gathering more than 18 months ago.
The relentless rise of commodity prices, including eggs, milk and other produce at le supermarket, was one warning sign. So too were greater price ranges for those usually staid, dividend-yielding securities known as preferreds, particularly from banks and other lenders.
Alarm signals available to you and me included gradual but steady withdrawals from money market funds across Western economies and mercilessly rising debt levels at every level of life: individual, household, company and government. Who knows, maybe even your local church or community center?
In the U.S., which is in the King of Debtor Nations Club these days, total credit market debt is $51 trillion. The nation’s gross economic output is $14.3 trillion each year. Thus, debt is not just a chunk of GDP; it is more than three times economic output vs. some 2.5 times in 1929.
In addition, tick-ticking securities markets a year ago reflected the challenges facing mortgage lenders and packagers. Many of the so-called sub-prime lenders’ common stocks went through nasty ups and downs during spring 2007. I recall one, Accredited Home Lenders, whose common stock was trading between $35 and $4 a share before it was put out of its misery (bought out at fire sale price) by a private equity firm.
Accredited’s president, Joseph J. Lydon, sent out a letter to the world of mortgage brokers, the folks who were arranging home loans for less-than-stellar credit prospects. The warning letter from San Diego, U.S. headquarters was some 14 months ago. “The non-prime mortgage industry is facing a severe liquidity crisis that's affected even the largest players in our space. Currently, the secondary market for loans has shut down for all but conforming loans and the price for non-prime and Alt-A loans is well below par,” Lydon said in the letter … Effective August 22, 2007, we will no longer be accepting new loan submissions for approval. We will honor all outstanding funding commitments, and expect that the last funding commitments will expire in early September.”
So tick-tock, I did not catch all of the warning signs. But I did calculate two-minus-two. When the prices of eggs and milk rise markedly, the choice is clear: keep buying eggs and milk and put the mortgage on hold. In the food chain of lending, challenges facing the lowest rungs on the market ladder – meaning non-prime, sub-prime, eggs-and-milk time – were indicating later challenges UP the ladder.
“Besides Main Street in America, the reverberations of global economic turmoil have been seen in the United Kingdom, Ireland, Germany, Spain, Russia, China, Iceland, Indonesia, and many other countries. The belief that a slowdown in the U.S. would have little effect on the economic fortunes of the rest of the global economy has been shattered,” Craig Reisfield, a California manager of clients’ money via electronic trading funds, tells me.
Craig lives just around the corner from us here on the Tiburon, California Peninsula, and his Ridley Asset Management is a selective and intense selector of ETF instruments and indicators, some of them obscure. In the expanding world of electronic trading funds, which essentially are baskets of securities or commodities, you and I can more or less keep our eyes on everything: emerging markets, currencies, commodities, good debt, bad debt, geographic regions, industries, even, as I like to say, that platinum earring on the lobe of the nice lady swimming next to you in The Pool, if you so desire.
Craig, with whom I mountain-bike on occasion when I can keep up with the buzzer, uses several dozen long and short ETFs to handle his customers’ cash and to read the tea leaves, so to speak. Two of them are safe-haven gauges: the iShares Lehman 1-3 Year Treasury Bond (NYSE: SHY, Stock Forum) and the iShares Lehman (under One Year) Short Treasury (NYSE: SHV, Stock Forum). A cool one for inflation, or the reverse, is TIP (NYSE: TIP, Stock Forum), the U.S. ticker for inflation-indexed bonds.
Red button, blue button
Red-button gauges that are not in the headlines, but just a click away on your laptop, include the ETF for North American banks: ProShares UltraFinancials (AMEX: UYG, Stock Forum). There are the usual suspects, including the ETF for gold (NYSE: GLD, Stock Forum).
For emerging markets, Marc Faber, author, newsletter writer and Asia money manager, keeps an eye on the iShares MSCI Emerging Markets Index (NYSE: EEM, Stock Forum). Faber, who lives in Thailand, says this one and other emerging market indexes will be sharply up and down in coming days, but ultimately lower as investors take a let’s-wait-and-see attitude.
There are ETFs, and their appropriate tickers, that were born in Canada, London, the U.S., across Europe and elsewhere. Most of mine emanate from North America’s NYSE and AMEX markets, but when I am really desperate, I use tickers that come from ANYWHERE, as long as the instruments are reliable and represent deep baskets of securities or currencies or commodities – or eggs.
One country I keep an eye on is Brazil, because of its rich resources in metals, manpower, food crops and so on. The U.S. ticker for a Brazil index is EWZ (NYSE: EWZ, Stock Forum). Australia is another: EWA (NYSE: EWA, Stock Forum) in the U.S. market.
Being a diehard life-sciences investor who would like to live 100 years in entirely excellent health, I watch the PBE (AMEX: PBE, Stock Forum) and other genomic and biotech baskets.
Now, I am not saying that ETFs, which have reasonably low management fees from big operators such as Barclays Global and smaller outfits such as Rydex and trade much like a stock does, are wise investments. (Whew, long sentences, my voldy morts!) I am not entirely sure if baskets are good things, and right now we here at home (the clan) just own one ETF: SLV, the U.S. ticker for a silver ETF (AMEX: SLV, Stock Forum).
But sure as heck, I am a big believer in keeping an eye on the ETFs as gauges for good and bad. If you do, you will see that regional banks are actually doing OK. So are life-science companies … well, the larger ones anyway.
There are scores of companies and research outfits and operators who collect ETF ticker information and display it in friendly ways. I am not going to recommend any of them – just because I use my friends Craig and Marc and a few others to keep me posted.
One writer, Murray Coleman at Index Universe, seems to be working overtime keeping track of them all. He just pointed out that WisdomTree SmallCap Dividend ETF (NYSE: DES, Stock Forum) actually did quite well in the three months closed Sept. 30. I do not mountain-bike with Murray, and whilst his CV says he used to work at MarketWatch.com, which I helped to launch and nurture, I do not recall him. After my time, I suppose. At any rate, Coleman is also director of research for Index Publications LLC, the publisher of the Journal of Indexes.
That is it, voldy morts.
Note: My cosmos of holdings is listed on www.Stockhouse.com under the “portfolio setting” for user tcalandra. We own some gold coins and two of the worst performing gold stocks in history, one of them being Colombia Goldfields in a gorgeous nation that was briefly my beloved home. We also own the ETF for silver (SLV is the American ticker). We have inflation-indexed bonds in a retirement fund at T. Rowe Price. For more ThomWatch, please see ThomCalandra.blogspot.com.
TURBO THOMWATCH: For investors who profited from a meteoric rise of commodities, mining and life sciences companies, Thom Calandra acted as a beacon. Thom helped his audience find value in a quagmire of investment choices. He is not a titled investment adviser. He is a scribe who goes where the action is. Thom co-founded and was the driving editorial force and spirit behind CBS MarketWatch, MarketWatch.com and the long-gone FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom beat bushes for prospects. He fancied $300-ounce gold before that metal became an investment rage. Thom visited numerous biomedical companies, metals mines and scores of thin-crust pizza joints across the planet in his search for profit, fashion and food. Thom's latest project, the novel PABLO BY NUMBERS, was completed in summer 2008. He and Stockhouse this autumn will offer a DELUXE VERSION of ThomWatch as a subscription report for a select audience. |
