ETF Expert

Warren Buffett’s Berkshire Hathaway owns nearly 20% of the nation’s 2nd largest railroad company, Burlington Northern Santa Fe (BNI). Billionaire Carl Icahn has more than 50% in American Railcar (ARII). And each man’s stake in transportation companies has increased dramatically over the last 6-9 months.

What do the world’s richest people know that the rest do not? Primarily, they know that you can buy companies for quarters on the dollar when the economy is taking a licking.

Indeed, the U.S. economy is taking a licking. But even as it struggles to regain its composure, it keeps on ticking. And if you wish to know when the "turnaround process" will commence, track the progress of the Dow Jones Transportations Fund (IYT).

July/August 2007 is when the cyclical segments of the U.S. economy (e.g., transportation, consumer discretionary, etc.) first began to sweat. It is also when the financial sector noticeably struggled with the word, "subprime." And July/August is when the Fed famously did a 180 degree turn from rate hiking to rate cutting.

The chart below shows that transportation companies (e.g., railways, trucking, delivery service corporations like Fed Ex and UPS, etc.) collectively ended a long uptrend and began a long downtrend. What’s more, "transports" have stayed in that downtrend for more than 7 months now.

The Dow Jones Transportations Fund (IYT) is going to be an early indicator of a rebound in stock assets. For one thing, transports have always been a reasonably good indicator of broader U.S. economic well-being. Equally important, though, is the fact that many of the companies in the Dow Jones Transportations Fund (IYT) are deriving large portions of their profits from developed and emerging countries.

Granted, the railroads are not positioned to make money from overseas operations. They are profiting from increased infrastructure needs at home, as these companies deliver coal, metals and agriculture products in a cost-efficient manner.

However, UPS, FedEx and Overseas Shilpholding (tankers) are expanding abroad. Those companies that derive more and more of their profits from overseas set the stage for success in the years to come.

It may be as simple as this: The Dow Jones Transportations Fund (IYT) may be at the mercy of any deepening of recessionary forces; that said, IYT will gain "traction" before many other sectors ever do.

Wanna know when stock assets will get better? See when IYT moves from its lengthy downtrend back into a healthy uptrend. You may wish to see a 4-5% rise above the trendline.

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.