ETF Expert

Turmoil in Egypt set the markets back for a single Friday on 1/28/11. In fact, since the Egypt crisis mummified equities, the Dow Jones Industrials Diamonds Trust (DIA) has embarked on a 7-day winning streak!

So… what’s the frequency of 7 consecutive days of gains? It’s only happened 8 other times in the past decade.

In spite of the odds that something… anything… might shake the faith, the bearish voices have been utterly silenced. Heck, the only bearish discussion in the media has been Meredith Whitney’s claim that U.S. municipalities will default on billions of dollars in debt obligations. No discussion of stock calamity or black swans… only muni bond woes.

Where have all the perma-bears gone? Weiss, Roubini, Hussman… if the bull has any chance of survival, we’re gonna need you to convince your followers to “go short” on this seemingly unstoppable uptrend. As of now, the short sellers haven’t completely thrown in the towel as evidenced by a put-call ratio that’s yet to fall below 0.35.

Think about the headlines that could have caused a meaningful sell-off. Last week’s jobs report was utterly pathetic… no matter how you define “unemployment.” The ongoing rise in bond yields is a legitimate threat to real estate. And the additional rate hike from China is, if nothing else, a constant reminder of inflationary pressures worldwide.

Correction or no correction, however, the real story is the exodus from emerging markets. The largest outflow in 3 years occurred last week, and the money has been heading for the seemingly sunnier shores of the U.S. of A.

In my estimation, that’s a mistake. It’s not necessarily a mistake to sell your emerger for a big gain when it has hit a stop-limit loss order off a November 2010 high. It’s a mistake to chase U.S. equities that, while not overvalued by fundamental Forward P/E standards, are overbought in ”standard-deviation-above-the-50-day-and-200-day” standards.

Essentially, as difficult as it is to be patient with your cash, you may have to practice delayed gratification. If you have confidence in U.S. companies, wait for a meaningful dip in the Dow Jones Industrials Diamonds Trust (DIA). And if you don’t have confidence in the ability of emerging markets to bounce back… you’re too fearful! So consider buying funds that fuel China’s middle class consumption.

Two of my favorites? Malaysia has manageable inflation, solid GDP growth and a trade surplus with China. The iShares MSCI Malaysia Fund (EWM) avoids interest-rate sensitive sectors like energy and materials, while capitalizing on China’s needs for simpler things like vegetable oil and rubber.

In addition, China’s likely to see its own version of an Internet boom in 2011-2012. Where do they get the products, services and expertise from? Taiwan. iShares MSCI Taiwan  (EWT) has a 60% weighting in Information Tech.

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