11/28/07: ETF Expert’s Morning Review
28 November 2007 at 9:07 am by Gary Gordon
1. Real estate extends its slide. Patrick Rucker for Reuters reported that the downturn in home sales, as well as the decline in home prices, is deepening.
Median home prices have fallen 5.1% from a year ago. And there’s a monstrous 11-month supply of existing homes on the market. Tighter lending standards across the board is keeping away would-be buyers with questionable credit.
We know how this has played out on the markets already. The iShares Dow Jones Real Estate Index Fund (IYR) had dropped into bear market territory with a 28% loss over 9 months. SPDR S&P Homebuilders (XHB) suffered double the pain with a 60% top-to-bottom dive. For the last 2 days, however, the kings of the beaten-downs are nearly leading the pack.
Is all the bad new priced in? Have we finally seen a bottom? Not likely. For diversification sake, you might consider dipping the pinky toe into a diversified basket of REITS with the Vanguard REIT Index (VNQ). Repeat… a pinky toe! Still, we may need to wait until March of 2008 before a more convincing bottom in real estate investment trusts has formed.
2. David Fry of ETF Digest put it this way: " …down 200 plus, up 180, down 200 plus, up 200 plus, up 200 more. You’d have to judge market behavior as schizoid at best and at worst laughable."
David’s not fond of the U.S predicament; that is, we require wealthier countries vis-a-vis the weak dollar, and a Federal Reserve easy money policy, to push our markets higher. Short-term positive, long-term unknown.
Granted, January could be tough. But today’s back to back gains could be the end of the 3rd correction in 2007. And December could see that Santa Claus rally.
Best advice? Stay diversified across uncorrelated assets. Consider a combo of the S&P 100 (OEF), Vanguard All World excluding US (VEU) and Global Consumer Staples (KXI) for stock assets. Look to commodities with the iPath Dow Jones-AIG Commodity Index (DJP) as well as currencies like the CurrencyShares Swiss Franc Trust (FXF). Also, remember your international bond choices, such as the SPDR Lehman Intl Treasury Bond ETF (BWX) or the PowerShares Emerging Mkts Sovereign Debt (PCY).
