ETF Expert

The U.S. dollar hits another record low against the Euro. Commodities set new record highs. Meanwhile, inflation-protected securities sit near a 52-week peak.

Throughout 2007, I discussed the strength behind the Rydex CurrencyShares Euro (FXE) and the Dow Jones AIG Total Commodity Index (DJP). And those who may want easy access to inflation-protected U.S. Treasuries, it won’t get much easier than the iShares Lehman TIPS Bond (TIP).

The question that may be more difficult to answer is whether the prevailing trend will continue for much longer. For example, Bespoke Investment Group suggested that commodity ETFs are overbought and that they are, at the very least, due for a pullback.

In actuality, I think the bigger question may be, "When will domestic stocks be a competitive asset class again?"

When one compares the 1-year chart for the S&P 500 SPDR Trust (SPY) against alternative assets, one discovers two things. First, commodities, foreign currencies, and U.S. Treasury bonds have all outperformed stock assets. Second, and more importantly, diversification across ALL of the asset classes has provided investors with an ability to weather the stock downturn.

I did note in a recent column that there have been a number of economic sectors where company stock may be bucking the current downtrend. Specifically, the iShares Dow Jones Transportations Fund (IYT), the S&P SPDR Retail Fund (XRT) and the KBW Bank Index Fund (KBE) had recently climbed above a 50-day trendline.

However, it’s hard to take any segment breakout seriously when the total asset class is still suffering. At best, there may be new leadership beginning to form such that, the once maligned financial stocks and consumer stocks can lead the way out of the darkness. At worst, there will be more blood on the streets.

What’s a long-term investor to do? First and foremost, stay diversified. It is the only free gift that’ll optimize your returns while reducing risk simultaneously.

At the same time, I would continue to ride the momentum that exists in commodities and foreign currencies. When it aint broke…

Still, new cash should indeed be thinking value… thinking bargains. And bargains are not found in the momentum bin; rather, one uncovers bargains in the "the-stock-market-stinks" bin.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.