The reasons for the risk-on gains may be easy to identify, from the notion that U.S. economic prospects are improving to the feeling that Europe will contain its debt crisis. Throw in the need for short-sellers to cover their profits in the most beaten down sectors (e.g., alternative energy, metals mining, European financials, etc.), and one’s recipe for a rally is nearly complete.

Going forward, however, one country’s decisions will be more critical than any other. China’s.

Consider the state of world affairs near its most bearish in 2011. What turned the tides… was it the hope that Angela Merkel would mortgage Germany’s future by agreeing to euro-bonds? Did investors believe that the Fed would eventually bail out Europe with the purchase of Spanish or Portuguese debt? In truth, the first spaghetti to stick on the Wall was the mid-September rumor that China might buy Italian bonds.

Of course, China doesn’t just hold the key to debt crisis containment. The world’s second largest economy is the primary driver of global economic growth.

Last year, Chinese officials were busy taming the inflation dragon with tighter banking policies. Leaders steadily raised bank reserve requirements as well as interest rates, causing commodity prices as well as resources-rich nation ETFs to plummet.

This year, though, China’s leadership has shown an increasing willingness to lower bank reserve requirements and/or refrain from additional rate hikes. The result?

Theoretically speaking, reversions to average P/Es should be enough to stoke a fire for equities. That said, we’ve already seen stocks trade for 440-plus consecutive days below 50-year average P/Es. It follows that we’re far more likely to see stocks get a lift from evidence of a “soft” economic landing in China as well as any decisions China may make to keep Europe from the abyss.

Regarding the former, Goldman Sachs Group Inc. and JPMorgan Chase & Co. both believe that China is likely to buy less copper in the next few months. What’s more, China’s January PMI may show economic contraction when it is released tomorrow. If that is the case, and if China officials continue to wait on potential rate/bank reserve easing, stock assets would have an enormously difficult time climbing higher.

With respect to eurozone debt, China doesn’t necessarily need to act as Europe’s financial savior for stocks to move higher. Yet China’s involvement will be crucial. Nobody knows this reality more than German Chancellor Angela Merkel who heads to Beijing on Thursday. On the agenda? Merkel may push for greater commitment to the International Monetary Fund (IMF) by China as well as a Merkel speech on the eurozone crisis to the Chinese Academy of Social Sciences.

Will China eventually lower rates and bank reserve requirements to stimulate its economy? Will China become more engaged in the eurozone debt crisis? Checking the price movement for SPDR S&P China (GXC) will give you insight into what the markets themselves think. Greater certainty would be reflected by an ability to climb above and stay above the 200-day long-term trendline.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

One country alone is responsible for about 40% of the world’s copper reserves and roughly 35% of copper exporting. That country is Chile.

In 2011, with emerging nations battling inflation and the European Union fending off member country bankruptcies, copper prices dropped into the septic tank. The perceived weakening of demand for industrial commodities weighed heavily on Chile’s economic prospects and the share price of Chilean stocks.

In recent weeks, however, copper has made a startling comeback. The iPath DJ Copper ETN (JJC) has risen a startling 25% off October lows and it is currently sitting atop a long-term 200-day trendline.

Why is copper suddenly surging? Give credit to China’s recent shift from monetary and fiscal tightening to more stimulative economic policies.

Of course, not everyone wants to invest in volatile commodities, let alone a non-diversified commodity note. It follows that a safer way to invest in copper may be through the country (Chile) that benefits most by an increase in demand.

The iShares MSCI Chile Investable Market Index Fund (ECH) tracks the collective performance of 40 companies that trade on the Santiago Stock Exchange. In 2011’s strong dollar environment, this unleveraged exchange-traded vehicle experienced bearish declines of -25.3%. That said, the Chilean peso appears poised to rebound against the greenback, benefiting those who invest in ECH here in 2012.

It should be noted that the domestic economy in the Latin American nation remained vibrant in 2011, due to an exceptional labor market as well as strong external investment. Even with more moderate GDP anticipated for 2012 (3.5%-4.0%), investors should benefit from ECH’s diversification across sectors; specifically, utilities account for 22% of the fund’s make-up, while materials, financials as well as industrials each account for 18%.

From mid-2009 through the end of 2010, ECH was one of my top holdings for clients. Interventions by the Chilean government to keep the Chilean peso from excessive appreciation as well as efforts by China to fight inflation resulted in a need to take profits. Nevertheless, I’m once again intrigued by the relatively modest emerging market beta risk associated with ECH.

Keep in mind, Chile ranks in the world’s Top 10 on “Economic Freedom.” In addition, China appears set to resume a remarkable level of raw material consumption. Chile (ECH) is likely to be a major beneficiary.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

For instance, in 1999, nearly every investment in the Janus stable held 4 or 5 stars. The primary reason? Janus products demonstrated superior performance on a relative basis in most stock categories over popular time frames (e.g., 1 year, 3 year, etc.).

Did Morningstar adjust for sector risk? Did they analyze individual holdings of funds? Did they re-rate funds when a manager departed? Not really. In fact, when tech-heavy Janus vehicles crashed with the NASDAQ in the 2000-2002 bear, 4-star and 5-star ratings didn’t adjust until after the dot-com disaster. In other words, Janus mutual funds didn’t receive 1-star and 2-star ratings until it was too late for investors.

Yet, to be fair, Morningstar has come a long way in a very brief time. The company improved upon their mutual fund rating system in the 2000s, hired qualified financial analysts to research and rate individual stocks, as well as add ETFs to their assessments. Today, Morningstar can offer fair value estimates on scores of ETFs based upon proprietary valuations of the underlying stock holdings in the ETFs. That’s far more sophisticated than the old Morningstar method of using relative performance data alone.

Form time to time, I check in with the ratings giant. Premium Members are privy to ”ETF QuickRank,” where an investor can sort a variety of ETFs by a valuation rating. Based on an ETF’s current price as well as a proprietary methodology for determining fair value, Morningstar may designate an investment as “overvalued,” “fairly valued” or “undervalued.”

Undervalued designations will have some of the lowest “P/FV” ratios in the database. And for the purpose of this exercise, I wanted to take a look at 3 of the lower P/FVs around:

1. Market Vectors Steel (SLX). Morningstar currently shows an overall, 1-star rating for SLX. It seems a bit ironic to give the lowest possible rating to an ETF with one stroke of the keyboard, then serve up a quick-rank “undervalued” valuation rating with a P/FV of .72. In fact, you won’t find a less expensive price tag than this steel-producer investment in the entire Morningstar quick-rank listing.

There may be a critical reason for why the most undervalued bargain on the board receives the lowest overall rating (1 star) possible. I imagine it is primarily a function of the dramatic underperformance of steel producers in 2011, particularly international steel producers; iron ore prices have been erratic and global demand plummeted. That said, if China is indeed on its way back from the “forgotten,” resources-related investments may bounce back in a big way in 2012. 

2. iShares DJ Oil & Gas Exploration (IEO). Exploration and production of oil and natural gas may be a risky endeavor, but the potential reward for selecting IEO may be worthy of the investment risk. Not only do the folks at Morningstar give IEO an overall rating of 4 stars, but the current price is roughly 20% below the fair value estimate (P/FV =.81).

On the other hand, IEO is highly dependent on the price of oil and natural gas — commodity prices that are prone to extreme fluctuations. Natural gas is so cheap in the U.S., in fact, that many of these corporations are hoping to export their discoveries abroad. The political risk involved with exporting fossil fuel makes it even more difficult to identify IEO’s prospects.

Here, then, it might be best to incorporate favorable fundamental ratings with some technical analysis. Below, we can see that IEO is above its 50-day and 200-day moving average. That said, IEO made a similar move in November that didn’t hold up.

3. iShares DJ Telecom (IYZ). At first glance, I was a bit surprised to see telecom on the undervalued list. After all, Verizon and AT&T constitute 1/3 of the investment returns. And with the stocks of both companies performing so well recently, I would have expected IYZ to receive a less attractive ”fairly valued” rating.

On the other hand, telecom giants are increasing part of the TV/Internet picture. (They’re not just for phone lines anymore.) Moreover, businesses are using networks to move data from point A to point B. And the ever-increasing world of mobile services accounts for a substantial portion of telecom revenue. Plus, IYZ would need to climb 16.5%… just to get back to previous 52-week highs.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Consider the performance of some of the castaways from 2011. Market Vectors Nuclear Energy (NLR) rocketed 2.4%. PowerShares Global Water (PIO) swam upstream for a formidable 3.2%. And Market Vectors Coal (KOL) corralled a smoking hot 5.6%.

Is this the evidence one needs for climbing back aboard the ”Natural Resources Express?” After all, even a European recession can’t put a permanent dent in the global growth story, as industrializing nations are still consuming more and more energy.

Unfortunately, the idea that worldwide demand will continuously outstrip global supply may be flawed. We’ve already seen how natural disasters can come close to destroying an entire industry like nuclear energy. We’ve also seen how systemic shocks can beat down infrastructure plays like water.

In contrast, some of the the very same forces that may cripple other resource-related investments (e.g., uprisings in the Middle East, nuclear tensions with Iran, etc.) may actually benefit the producers of “black gold” as well as the price of the commodity itself. Take a look at the differences in performance between oil-related and non-oil-related ETFs (and total commodity ETFs) below:

Granted, other than the ever-deteriorating value of natural gas prices stateside (we’ve got a century’s worth of this stuff), all of these resource-related investments soared out of the gate. On the other hand, the resilience of crude oil in 2011 should give investors a clue on the better way to play global growth; that is, the energy sector via funds like iShares DJ Energy (IYE) or the commodity via United States Brent Oil (BNO) may have a better shot at weathering — even profiting from — the next storm.

Oil bulls might also want to take note of the price on iShares DJ Energy (IYE). It has risen back above its 200-day, long-term moving average.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Fundamental valuation wonks have little cause for celebration either. Some of the most remarkably profitable and successful firms from the technology, energy and industrial sectors began the year trading near decade lows for respective P/E ratios. Did it matter? Earnings may have grown at double-digit rates while prices logged -10%, -20%, even -30%.

Apparently, geopolitical concerns from the Middle East to Europe to Asia (think North Korea) have caused so much uncertainty, neither the “bull” nor the “bear” is taking charge. Instead, we’ve seen little more than erratic price swings.

There are, however, 3 ETF trends that the perma-bears may use for debate. I point them out because it is foolish to ignore these particular facts… not to make the case that stocks as an asset class are doomed.

For example, throughout the year, gold held a special place in the hearts of risk-averse investors. And for most of 2011, funds like the SPDR Gold Trust (GLD) rewarded believers in the yellow metal’s superiority over fiat currency.

Granted, gold has taken a swift kick in the backside lately. Credit the flight to treasuries, the hoarding of cash as well as profit taking by hedge funds. Even still, the precious commodity raked in double-digit percentage gains through 12/28/11.

Gold’s rise should have been a boon to miners big and small. Yet even the established producers in Market Vectors Gold Miners (GDX) collectively set new 52-week lows and 18% year-to-date losses. It’s difficult to see the trend as anything but bearish for metal and mining production.

Here’s another unsettling ETF trend. If someone offered you a diversified investment of global transporters with a collective P/E of 8, a P/S of 0.6 and a yield of 7.5%, would the possibility pique your interest? It should. However, the Guggenheim Shipping Fund (SEA) has been on a painful voyage to nowhere.

Last, but hardly least, 2011 has been the year of the “euro.” U.S. stock assets and the CurrencyShares Euro Trust (FXE) climbed in tandem throughout the first four months of the year. The record run-up for equities in October can also be attributed to renewed Euro-zone confidence — albeit brief.

Of course, no matter how you dissect it, the price of FXE is far below its 200-day trendline. It has given up a stunning -12% from the April stock market highs. Equally disconcerting, FXE is trolling the depths of year-over-year lows.

In essence, it’s difficult to see 2012 breaking free from the Euro-net out of the gate. Risk assets may need a bolder initiative out of the region’s leaders. Moreover, if shares of mining companies and shipping companies can’t get on a more positive track, one might begin to see even more deterioration of resource-rich exporters from Australia to Brazil to South Africa.

On the flip side, there are many reasons to believe that China will come to the rescue — in more ways than one. Its leaders have deftly tamed inflation and are beginning to initiate accommodative fiscal/monetary policies. With it, we should see increased demand for more world resources as well as the shippers who ship those resources.

Additionally, if multinational transporters weren’t transacting a substantial amount of business, would the iShares DJ Transportation Fund (IYT) be above its 200-day MA? Would IYT be setting “higher lows” in three consecutive months, surging a remarkable 22% off the October lows? Clearly, the bulls have ammunition of their own.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Looking forward, however, there may be reasons to cheer. China has shifted from restrictive fiscal and monetary policies to more accommodating ones. U.S. economic data continues to show modest improvement. And European leaders will — one way or another – find themselves taking monumental steps to stabilize the region’s financial system.

These things alone should be enough to boost the prices of undervalued energy corporations. Yet now, there may be a reason to overweight companies that derive a substantial portion of revenues from the exploration, production and exporting of natural gas.

In the coming weeks, U.S. officials are set to determine the extent to which American energy firms can export the commodity. Suppliers like Conoco-Phillips (COP) are chomping at the bit to profit from markets like Asia, where natural gas prices are 3-4x the price here in the U.S. Can you say… “profit motive!”

On the flip side, government regulators worry that natural gas prices might rise precipitously if American energy companies ship away an abundant domestic supply. Of course, most studies (and outcomes) demonstrate that the free market does a better job determining fair market value than intrusive regulatory bodies.

Assuming U.S-based energy firms get the green light to export natural gas, one could expect an enormous boost in corporate profits. And, by extension, when earnings matter to the stock market again, one might want to invest in natural gas producers.

Rather than attempt to pick the ”nat gas” winner, keep an eye on First Trust ISE Revere Natural Gas (FCG).  This fund tracks an equal-weighted index of attractively-priced, exchange-listed natural gas producers, including Conoco Phillips (COP), Exxon Mobil (XOM) and Cabot Oil & Gas (COG).

The fundamental picture for First Trust ISE Revere Natural Gas (FCG), like many equity funds, is exceptional. Whether one is looking at price-to-sales (P/S) of 1.6 or P/E of 12.5, it’s clear that FCG is attractively priced.

On the other hand, this exchange-traded stock fund has yet to break through technical resistance levels. At the very least, one would want to see FCG rise above a 50-day moving average. For longer-term confirmation of a bull market uptrend, the current  price of FCG would need to eclipse its 200-day trendline.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

On these simple assessments, those who chose the PowerShares DB Precious Metals Fund (DBP) have seen their selection rise 22% over the previous 12 months; those who selected the PowerShares DB Oil Fund (DBO) have been rewarded with roughly 7% year-over-year.

However, other than a few choice commodities — gold, silver, oil — heavy exposure to additional exchange-traded commodity funds/notes have others feeling numb. Natural gas, grains, timber, copper, diversified agriculture and diversified industrial metals have underperformed U.S. stocks as measured by the S&P 500 SPDR Trust (SPY).

In part, the poor performance can be attributed to the growth slowdown in China. That said, Chinese officials recently shifted from a tightening bias to a loosening bias with a lowering of their bank reserve requirements.

In theory, the increased likelihood of a soft economic landing in China coupled with increased demand for ”stuff” should have boosted underperforming commodities over the previous week. In practicality, however, industrial metals jumped on the China news, whereas other Commodity ETFs/ETNs failed to fully support a “risk on” appetite.

It is possible, if not probable, that ongoing concerns over a pan-European recession is depressing commodity prices. What’s more, there is still an unusually high demand for U.S. dollars, dampening desire for commodity assets which are priced in greenbacks.

Nevertheless, one should continue monitoring China ETFs as well as China economic data. The more evidence for a soft economic landing in China, the more likely that commodities of all stripes would recover bullish momentum.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Greece is back on board? Very good… then buy Small Cap Australia (KROO) to profit from the “dollar carry trade.”

Investors of all sizes — individual, advisers, money managers, hedge funds – view risk differently in 2011. There’s less focus on tolerable loss through diversification and asset allocation; instead, many endeavor to eliminate any and all downside… with questionable results.

Shifting away from a “buy-n-hold-n-hope” world isn’t a bad thing. In fact, I built my asset management client base on avoiding catastrophic dot-com losses in the early 2000s, using stop-limit loss orders with exchange-traded index funds. That said, it would not have been possible to envision 6-month periods in the markets where major benchmarks closed 2% higher or lower on a daily basis.

Perhaps unfortunately, the level of intra-day volatility neither benefits a “hold-n-hoper” nor an active steward. The few who may benefit from crazy intra-day price movement are those who ”day trade.” Not all day traders, though. For every prosperous day trader, there are 100s of gamblers in search of a new game.

What can you do in a world where risk is a light switch in the “on” or “off” position? You can recognize that — when the CBOE Volatility Index (VIX) is above 25 — technical trends reign supreme.

Technically speaking, then, the price of Vanguard Total Stock Market (VTI) is above its 50-day trendline. It fell below in mid-July; it rose above in early October. And the day-to-day noise has little to say about a current uptrend for U.S. stock assets.

The uptrend for emerging markets may be less impressive, but it exists. The current price of Vanguard Emerging Markets (VWO) is above its intermediate-term trend as well. (And that means… yes, you may want exposure.)

While stocks have been looking better — while many risk assets are well above key moving averages (e.g., high yield corporate bonds, REITs, pipeline partnerships, emerging market bonds, etc.) — there is a critical laggard. Specifically, Commodity ETFs aren’t being scooped up.

A commodity break-through would lend support to the notion that a bull market is back. Higher commodity prices would signal greater demand from developed economies as well as the developing world.

However, bearishness still persists. PowerShares DB Base Metals (DBB) is still -20% below its July 2011 peak. And its not just the metals. PowerShares DB Agriculture (DBA) is below its 50-day moving average. In fact, Green Haven Continuous Commodity (GCC) demonstrates that the trend for aggregate commodity prices is down.

While I wouldn’t advocate jumping the gun on Commodity ETFs, readers should note that I’ve been talking about China’s resurrection since early October. For instance, 10/13’s “China ETFs Trampoline Off the Bottom” makes the case that resource-rich nations that export to China will fare particularly well when China eases monetary/fiscal policy. Resource-rich Country ETFs that have eclipsed 50-day trendlines include Australia (EWA), South Africa (EZA) and Malaysia (EWM).

Nevertheless, Commodity ETFs will need to join the uptrends soon. Otherwise, skepticism about the sustainability of current bullishness is likely to creep back into the picture.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Yet Fed Chairman Alan Greenspan first uttered the words on December 5, 1996. In fact, it took nearly 4 more years before the stock balloon popped in March of 2000. Equally worthy of note, the NASDAQ garnered 280% AFTER the Greenspan comment, rocketing from 1300 to 5000 in the time span. 280%!

The point here is twofold: (1) Sometimes a financial bubble can expand for many years before a painful deflation, and (2) It’s not unreasonable to ride a wave of ridiculous enthusiasm… so long as you have a genuine exit strategy.

For example, I purchased a number of residential properties in the 90s and early 2000s. By 2002, though, it became clear to me that the bear in stocks, the exceptionally low interest rate environment and ”no-skin-in-the-game” loans were contributing to a real estate bubble. Yet, at the same time, the 7-year up cycle that began in 1995 showed little signs of cooling by 2002.

So I decided to ride the speculative wave. I planned to sell when traditional affordability measures (e.g., 20% down, 28% PITI, etc.) fell below historical California lows and when the cost to own surpassed the cost to rent by 40%. (Note: By the summer of 2005, a 4-bedroom/3-bath in my neck of the woods rented for $2700 per month while the mortgage payment on the exact same home hit $4000 per month with 20% down. Not that you needed 20% down, but that was a 48% premium for the ownership privilege!)

I sold both homes by the fall of 2005. Keep in mind, the real estate boom went on through the end of 2006. Nevertheless, the point here is that I was able to execute an exit strategy. Moreover, even if my criteria had not been met, and the market had turned south beforehand, my approach had also included a stop-loss to lock in capital gains.

Consider, then, the most hotly debated “bubbles” in the media over the last twelve months: (1) gold, (2) treasury bonds and (3) Apple stock. Forget the fact that none, one, two or all three of these may be “bubbling” for a moment… I’m merely pointing to the assets that have been tagged over the last year.

Indeed, scores of analysts have been talking about a gold bubble since it hit $800 per ounce in 2008, and it is currently more than $1600 per ounce; the SPDR Gold Trust (GLD) has been in a technical uptrend for more than 5 years. For that matter, Apple (AAPL) has effectively been in an uptrend since the credit crisis abated in March of 2009.

Similarly, everyone from Bill Gross on down had described shorting U.S. treasuries as the trade of the century, with interest rates at all-time record lows and corresponding prices at record highs. Yet the same folks that encouraged dumping or shorting iShares 20+ Treasury Bond (TLT) have been cremated, while investors in TLT are up close to 20% year-over-year.

Again, I am not comparing these 3 different assets, nor designating them as “bubble” assets. I do own GLD and I deliberately hold a large stake in Apple via PowerShares NASDAQ 100 (QQQ) for 16% exposure to Apple. For the overwhelming majority of my asset management clients, however, I do not own U.S. treasuries.

It follows that I have different feelings about each of the 3 assets that have been tagged as ”hot air balloons.” Granted, Apple (APPL) may be sacrosanct in the public eye… a prerequisite for any bubble. However, there’s no reason NOT to own an investment where the uptrend is so favorable. Ditto for GLD. Specifically, you can buy or hold anything that is steadily moving higher regardless of the reason(s)… as long as you understand how and when you would sell.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Until now, that is. On 10/10/2011, the current price of the VIX closed below a key trendline.

In a similar vein, the S&P 500 hadn’t closed above a 50-day MA since 7/27/2011. Again… until now. (See chart below.) It has taken nearly the same 10+ weeks for U.S. stocks to demonstrate that a reversion to a bull market mean may yet be a possibility.

Considering just how many day traders, hedge funds and programs use simple moving averages to determine “buys” and “sells,” the simultaneous cross-overs are significant. On the other hand, investors are still caught in a S&P 500 range between an official bear (1096) and the end of corrective activity (1233); that is, the S&P 500 closing at 1194 merely represents ”a good start.”

Granted, Germany and France presenting a unified front for recapitalizing European banks is reason for cheer. That said, the logistics for a TARP-like response for protecting “too big to fail” financial institutions is still sketchy.

What do I mean? Well, if the joint announcement over the weekend were really enough to put the concern over the PIGS (Portugal, Italy, Greece, Spain) to rest, banks would ease up on their willingness to lend to one another. However, intra-bank lending is still a huge problem; 3-month LIBOR rates moved higher on 10/10/11, and have not stopped climbing since the third week of July.

Okay, so 2 out of 3 ain’t bad. Nevertheless, it’d be premature to stick a fork in a correction or a bear without credit flowing freely in the eurozone.

I am encouraged… don’t get me wrong. Yet I may be more apt to revisit some of the better-performing assets over the prior 3 months that were only recently trashed for cash. Put another way… which investments deserve the “baby” moniker in the “don’t throw the baby out with the bathwater” phrase.

Here are 7 ETFs that have been recently trashed for cash, yet demonstrate impressive relative outperformance over a 3-month period:

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expertis a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.