ETF Expert

When it comes to transportation stocks in the iShares DJ Transportation Fund (IYT), some wonder whether the third time will or will not be a charm. The unnerving reality is that a number of broader market barometers have hit ”higher highs” in September, October and November. Yet IYT has failed to reach new intra-day highs first notched back in mid-September.

This may be a bit disturbing for Dow Theory proponents. Most of these theorists would suggest that transporters should be rising first. The reason? Truckers, shippers, air deliverers and railway operators see profits rise when they move ”stuff” from manufacturers to big industrial companies.

Granted, you do have superstars like Warren Buffett acquiring Burlington Northern Santa Fe (BNI) as part of a “bet” on U.S. economic resurgence. And IYT has been rallying alongside the Dow Jones Industrials Trust (DIA) in November.

Yet the relative weakness of IYT to DIA is worthy of note. In fact, we probably shouldn’t ignore the relative weakness in airline stocks in the Claymore Arca Airline Fund (FAA) either.

The international economic story may be a bit more cheerful, however. The Claymore Global Shipping Fund (SEA) registered “higher highs” in September, October and November… much the same way that popular stock benchmarks have been registering.

All tallied, though, “transports” haven’t been celebrating as we approach the holiday season. And here’s why:

1. Producer Prices. On an unadjusted basis, from October 2008 to
October 2009, prices for finished goods fell 1.9 percent. That’s the eleventh consecutive month of year-over-year declines. While this helps keep inflation in check, it still shows that the “makers” may not require as much supply and are unable to pass on price increases to intermediaries or end-users.

2. Consumer Sentiment.  If consumers are 2/3 of GDP, people simply aren’t planning to fly as often as they have in the recent past. For the first time in 10 years, holiday travel is expected to decline and $4 billion in revenue won’t be realized. While some believe that conditions are at least stabilizing, rather than deteriorating, Claymore Arca Airline (FAA) has been in a near-term downtrend since falling below its 50-day moving average in mid-October.

3. Contrarian Concerns. The world is so enamoured with Berkshire’s pick-up of Burlington Northern. Yet this has been Warren Buffett’s baby for years and years; he merely went “all in” on a good company. Unfortunately, most investors don’t have Buffett’s money to weather losing 1/2 their portfolio in a vicious bearish landslide, let alone the patience to wait decades to see if it pans out.

If you’d like to learn more about ETF investing… then tune into “In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

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