ETF Expert

Job growth slowed more than anticipated. Unemployment rose unexpectedly. (If an inability on the part of borrowers to repay debts hadn’t been enough to worry about… right?)

Well, there’s a bright side to the slower job growth and somewhat surprising jump in unemployment; that is, the last piece of the puzzle for the eventual reduction of interest rates by the Federal Reserve is now in place.

(Fed Chairman Ben Bernanke reveals the Federal Reserve’s intentions regarding interest rates on Tuesday, August 7.)

A bias towards a rate ease, followed up by a wintertime rate cut, would likely give stocks the impetus to end the year significantly higher. Investors would likely welcome the news with open arms. And the real estate world — agents, lenders, homebuilders, borrowers — would celebrate as well.

Yet, this "brighter side" outlook on weak economic news is far from a sure thing. Indeed, investors left stocks in a massive stampede this afternoon. (Many recall… all too well, I might add… the Fed’s legendary failures to act in a timely fashion.)

Moreover, there are other risks beyond subprime and interest rates that are playing out on the global stage; in truth, if the Japanese yen continues to appreciate against the U.S. dollar, this could thwart stock growth as well.

The chart below shows the rise of the yen above a 50-day moving average since July 19. And while the chart does not show today’s activity, the CurrencyShares Japanese Yen Trust (FXY) vaulted another 1% to close at 84.65. (It hasn’t been that high since the February/March market troubles.)

I do not view FXY as an attractive investment today, nor do I believe it to be a strong method for hedging against the U.S. dollar. That said, I do believe that FXY is currently an exceptional predictor of stock market activity.

(If one is interested in hedging against further erosion of the U.S. dollar, the CurrencyShares Australian Dollar Trust (FXA) and the CurrencyShares Canadian Dollar Trust (FXC) have been far more effective.)

There’s been one other big winner during the vicious market drop… gold. As I’ve been waxing philosophic for months in a variety of posts, gold’s a great diversifier. Moreover it’s highly desirable around the world for cultural and economic reasons. One way to own it… streetTRACKS Gold Shares (GLD).

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.