ETF Flexibility
Research for Online Investors

by John Dalt

6/02/09

ETFs have taken over many investors’ portfolios because when you invest in an ETF you do not have exposure to one company’s peccadilloes. Your portfolio will not be slaughtered by an accounting fraud, or oil spill. You invest in a broad index that may own 50 stocks, or 500, so one company’s problems will just be a blip, not a disaster. The opposite of this is also true; one company’s great success will not make an ETF move higher. ETFs work well to take advantage of a broad based movement in an index. If you feel that financials are oversold, you can buy an ETF that targets financials.  ETFs have low fees, lower than mutual funds, .08% vs. 2.2%.  Another advantage with ETFs is liquidity.  You can buy and sell ETFs whenever the market is open, mutual funds can only be sold after the market closes.

Today’s topic is ETFs that do not own the underlying stocks or commodities.  These ETFs can be Ultra, Inverse and Triple ETFs.  These ETFs use derivatives to track the targeted index.  Put simply they buy options or futures contracts to replicate the movement of the index.  Because they use derivatives they can also double (Ultra) the movement, inverse the movement, or Triple the movement ON A DAILY BASIS.  If the index is up 10%, an Ultra should be up approximately 20%, an inverse down 10%, and a Triple up 30%.  These can also be mixed together, so you can have an Ultra Inverse, down 20%.  You can also have a Triple Inverse, down 30%.

These TRADING vehicles can help you as a long-term investor, if used for specific purposes. A good example; you own 15 of the Dow 30 stocks in your long-term portfolio, and do not want to sell them and trigger capital gains taxes. If you were convinced that the Dow is destined to go down, buy the DXD Ultra ETF, it would increase in price twice as fast as the Dow went down, on a daily basis. When the market falls sell your shares in DXD at a profit, and buy more of your favorite stocks at a discounted price! There are lists of ETFs under Investor Resources, and other articles that will help you become a better investor.

Do you feel poorer?  USA today reports that your family’s share of the national debt increased 12% in 2008.  Your family now owes $546,688; remember that does not include the share you have to carry for the people that do not work, or your deadbeat brother-in-law.  You can have some of mine if your want it!  I wonder if my daughter, that just graduated from college knows she owes a half million when she starts work.

Treasury Secretary Turbo Tim Geithner addressed students at Peking University yesterday.  Reuters reports, he told them the Chinese Government’s investments in the U.S. Dollar were safe…that “we (Obama Administration) believe in a strong dollar”, the students laughed at him.  Evidently, the Chinese students are required to study basic economics.

The Fed has spent $132 billion buying treasuries with printed money, as of Tuesday Morning.  This is called “quantitative easing”.  More will be spent this week to hold interest rates down, with little success.  Our government is borrowing fifty cents out of every dollar they spend.  How long could your family last on that budget?  Would the bank eventually cut you off?  China is our banker.

The article in Pravda can be seen at “American Capitalism Gone with a Whimper”  Whoever thought the Russians would raise the bugle to warn us.  Maybe we should listen.

Have you set your trailing stops on all your long-term holdings?  The markets are pushing higher into resistance.  Many believe the market needs to drop a little and take a breather.  It seems the market sentiment has changed and buyers are waiting to buy the dips.  The problem to watch is if the selling begins feeding on itself.  You should decide now what your stops are for each position.  Are you willing to ride it all the way down?  A good way to answer that question is to remember how you felt on March 6, when the SP500 was at 666.  Did you kick yourself for not selling earlier or did you sell that day?  We are watching 850, if the market sells through that level; it may continue down to retest the lows.  If it retests the lows, it may go even lower.  Right now, with a lot of green on our computer screens, is a good time to assess each stock and a stop loss that fits your comfort level.

We monitor trailing stops, make 26 recommendations a year, send out alerts, and email you a weekly recap of holdings when you belong to Galt's Long-Term Portfolio Service.  It only costs 49 bucks a year, less than I used to pay my broker for one round trip.

Your congress and OH! Bama are working to nationalize health care.  Ask your doctor if he likes the idea of being a government employee.  They could turn the Post Office into a clinic, or the DMV, those places run so smooth and efficiently.  Maybe the Veterans Hospitals, we all should get the same care our veterans get, NOT.  One of the silent shames of our country is the health care provided to citizens who have been injured defending our country.  Imagine how the politicians will treat us, the great unwashed.

Under National Health Care, Old People get Free Cigarettes!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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