While Financials Drag Markets Down, Five Ways to Stay in Play

By Jim Wiandt

Can I take a moment to be indignant, to be infuriated at where we find ourselves?

Matt Hougan's blog takes a look at the stunning fall from grace of AIG in the form of $61.7 billion in quarterly losses. Quarterly losses! Meanwhile, the U.S. government announces it's pouring another $30 billion to add on to the $150 billion we've already poured into the black hole that is AIG.

It all brings to mind images of semitrucks full of hundred-dollar bills pulling out of Baghdad in the wake of the last invasion. I've got a question: How do we, the U.S. government, only own 80% of a company that we've poured $180 billion into when it's only got a market cap (as of yesterday) of $1.13 billion? Isn't anyone in jail yet? Lined up at the gallows? It feels like the biggest heist in the history of the world—and we're lining up to write more checks.

Citibank (C)—a $50 billion welfare check. Bank of America (BAC)—another $45 billion for this welfare queen. Citibank! Bank of America! Are you kidding me?! It is appalling... and it's not exactly like we're saving the world here, folks, as the Dow has dropped into the 6,000s and there's just bleakness on every horizon.

And meanwhile I'm writing my check to the IRS. Why don't I just mail it into Citibank corporate headquarters and cut out the middleman? Is it just me, or is all of this very, very infuriating?

I feel like such a chump. $50 billion here, $150 billion there. Meanwhile, UBS takes what is claimed to be the largest quarterly loss ever by a financial institution at a mere 12.5 billion Swiss francs (a mere $10.65 billion). Chump change.

Sigh...

So am I a capitulator? I hardly have the heart to go in there and buy more of the Select Sector SPDRs - Financials (XLF), as I did early in the winter, I'll tell you that. But I am looking at buying more total U.S. market at these levels... despite the fact that the dollar makes me very, very nervous on the other side of this crash.

And outside of the U.S., I think some of the opportunities are even more attractive. I'm looking closely at some of the top Asian regional funds:

1. China: I'm looking at the iShares FTSE/Xinhua 25 (FXI) as one option, or perhaps even better, at some of the broader China ETFs like the SPDRs S&P China (GXC) or competing funds from PowerShares, which may be the preferred China access despite the popularity (and my ownership of) FXI.
2. Emerging Asia: State Street Global Advisors also offers the S&P Emerging Asia Pacific (GMF), which I find very appealing.
3. Fundamentals: From PowerShares, for you fundamentalists (and contrarians with recent RAFI performance), there's the FTSE RAFI Asia Pacific ex-Japan (PAF) or FTSE RAFI Asia Pacific ex-Japan (PDQ) offerings.
4. Regional: iShares also has some nice regional offerings now like the iShares Pacific ex-Japan ETF (EPP) or the iShares Asia 50 ETF (AIA).
5. Currency: And if you want to really make a bet, how about the Chinese yuan in the form of CYB - the WisdomTree Yuan currency fund. Doesn't move much now because of how it's pegged, but look out when the controls come off. Murray's doing a profile on that one in the next ETFR, I believe.

Right now, when your heart is weak and your strength is waning, this is when fortunes are made, right? Right? Anyone?

Comments

[Just Say Whoa!:]

>I feel like such a chump.

What's matter?

Are the policies of the past 28 years, i.e. Deregulation & Tax Cuts for Billionaires Trickling Down to the Not So Rich not working out for ya?

Mar 03 04:31 PM

[James Wilson:]

Isn't $ 50 BILLION a good rough estimate of what the SHORTS have taken out of the market so far ?

Who is on WELFARE NOW ?>>>>>

Mar 03 04:43 PM

[xsellside:]

A straddle could be interesting on CYB, it's a shame the options are traded so thin.

Mar 03 04:50 PM

[anarchist:]

I guess we don't agree on what's coming down here. I am long FXP, SKF, QID, DOG, RWM and the ETFs that short consumer goods and consumer services (cant remember the symbols) and have been for some while. If we do get a little rally here I will back up the truck for more. I do have a few small long positions in energy and a few tech stocks in Taiwan (a la Jim Rogers)but other than that I see more "blood in the streets-Wall that is" and I remain short.

Mar 03 04:56 PM

[buyitcheaper:]

HAO is a good option for China too.

Mar 03 06:40 PM

[mwfall:]

one of the biggest criminal rings in the u.s. is government worker pensions. my cousin worked for 20 years as a social worker. she retired after only 20 years with a pension equal to her last years pay plus benefits every year for the rest of her life. if she lives to 85 thats about $3 million dollars !

that means for her job as a counselor she will be compensated the equivalent of about $111.00 per hour.

are children are shouldered with the burden from the government criminals that vote themselves these pensions.

here's an article

www.bloomberg.com/apps...

Mar 03 07:45 PM

[Alan Young:]

Good outrage-- we need more of that where the Obamistas can hear it.

Your ideas for markets to trade in are good, but for two problems. One, everything is going down now since the US and European economies are crashing, so it's too early to find a bull market somewhere. Two, most of the ETFs you mention are very thinly traded, which makes a big spread risk for anyone who isn't sure of a long-term commitment to the position.

Mar 03 07:46 PM

[infp:]

Trickle-down economics are still working quite nicely. AIG executives keep all the money that they made (stole) during the past 6 years of derivative madness while average shareholders are completely wiped out. Isn't that how capitalism is supposed to work?

Mar 03 07:46 PM

[Vuke:]

Ahem! May I suggest gold (and silver) be added to the list.

China, currencies, Asia and so on may do well, or they may not. Gold, however, is a cunning investment, meant to preserve wealth in troubled times which, arguably, we're now in. To the neck at least.

Gold will see you through as presses around the world work their magic. Don't worry about the latest little decline, that's just a buy signal. Gold has never gone away, it just rests modestly in the corner when it's not needed. The USD is now hot. When that begins to decline gold will shine.

Mar 03 08:27 PM

[Tetrapod:]

I couldn't agree more! It seems like heads should roll. Citi, BoA, AIG assets should belong to the taxpayers lock, stock and barrel. The assets should be sold off, and new, unencumbered players should rise to take their place. Shareholders and bondholders should be washed out, and the heads of these companies should go to jail. Nothing can fall that fast without fraud. Most of all, the bond rating agencies should all be shut down, and there should be criminal prosecutions of SEC management. They blatently refused to do their job because they didn't believe in regulation.

Mar 03 08:31 PM

[2contango:]

Interesting how those Republican CEOs are pushing a Democratic administration to take a more active role in the economy by giving them more and more aid. And I thought that Republicans wanted smaller government. Evidently not.

Mar 03 10:25 PM

[Jolly_Rancher:]

That's it! I'm calling this the bottom. Why? Who knows. Why not? It seems like many people have called one bottom per month. Really, I'm not kidding. This is THE bottom. It's not gonna test or go sideways either or go straight up -- no "L" and no "V" and no "W", maybe a "Z" or a "B" and a "MACD."

Mar 03 10:39 PM

[MarvinMBA:]

Were just starting into a Depression that is going to take years to get out of.
Besides the turmoil here in the USA, the Europeans are in complete dissarray and unlikely to get out of its problems anytime soon. The best answers are to just take a low profile and keep your money where it cannot take a hit like short term CD's. The NAME OF THE GAME NOW IS NOT ON THE RETURN ON CAPITOL BUT THE RETURN OF CAPITOL. Your reward is increased buying power as thing ratchet down and down and down and your purchasing power will actually increase just by holding onto cash...keep away from gold...its a bubble thats starting to burst already...MarvinMBA

Mar 03 11:22 PM

[Moon Kil Woong:]

Those who want Banks and AIG money back, you can try getting it if you bankrupt them and then find there was fraud or other illegalities in their business dealings. It's called clawback. Ummm, unless they go bankrupt then the documents can be protected from being looked at. That may be why they are trying so hard to prevent any bankruptcies. If one goes under the cross relationship derivatives deals all start opening up to the astounded public.

Conspiracy no, common interest greed and avarice, most certainly.

Mar 04 12:41 AM

[Nikola:]

Yo, MarvinMBA, it's CAPITAL not CAPITOL.

Though, I would agree with you if you think about it in another way: the thing about it now is not the return on the CAPITOL (as in Democrats returning to the Capitol), but the return of CAPITOL, as in, we need to take it back.

Mar 04 12:59 AM

[mac.barron:]

Terapod makes some fine points here in follow up to the article which is itself on target. The current Government policy is madness and the future debt being created is going to crush us. If there is a mind to try to right the ship the easy and egalitarian way to do it without cranking out piles of fiat dollars is to sharply cap all consumer interest rates for a set time period: mortgage, student loan, credit card, etc. The other side of the coin would be to unwind the credit default swaps. No new currency would be required and the net result allow the economy to gasp for some air. Such action, in concert with deep, deep cuts into government services and a tax holiday for small businesses and the middle class, and we might be onto something good.


On Mar 03 08:31 PM Tetrapod wrote:

> I couldn't agree more! It seems like heads should roll. Citi, BoA,
> AIG assets should belong to the taxpayers lock, stock and barrel.
> The assets should be sold off, and new, unencumbered players should
> rise to take their place. Shareholders and bondholders should be
> washed out, and the heads of these companies should go to jail.
> Nothing can fall that fast without fraud. Most of all, the bond
> rating agencies should all be shut down, and there should be criminal
> prosecutions of SEC management. They blatently refused to do their
> job because they didn't believe in regulation.

Mar 04 01:51 AM

[Jim Wiandt:]

Lots of comments here. On the market side, I agree with many of them...including the gold nut. I've got that in me, too. And MIGHT it be too early to start playing the equity side (even in the right places)? Yes. But I don't thing we're too far at this point.

On the APPALLING developments w/ our government pouring money into the public sector...it looks like I've struck a chord. Here's one post on the lilly-livered side, posted to our own indexuniverse.com site as a comment to my original article. THIS post IS conventional wisdom among economists, even most moderates (my response follows):

On Tuesday, 03 March 2009 Dennis said:
well, I agree with U, butt?
what's the alternative?
Meaning. we let them Go Bust
Millons more Get laid off, go on Not just Unemployment, but Welfare/Public Aid that will cost , they say about the same or more and Hundreds of Thousands of More Homes go Belly up..
and in perspective? At every $100 Billion per let's say 50 million taxpayers earning teh Ave of $50k Yr? cost about $2,000 Each..

Paying it off say over the next 5 yrs? With 5% Interest? Less than About $475 a Yr or 0.0095% of that $50k yr Income..

Now if that cost you that to KEEP your Job? Would you be willing to pay it?
even if it allowed you to get a Decent Raise or Bonus at your Job? That raise or Bonus would more than off-set that $2k or $475 yr and beyond..

see, We can Justify Anything!

JIM WIANDT RESPONSE FROM THIS MORNING:

On Wednesday, 04 March 2009 Jim Wiandt said:
Well - this really is it, isn't it? It's the pussy-footed, weak-hearted justification of...well, anything. Because right now it IS anything goes. How does this "saving the world" project LOOK like it's going so far? To answer your question, I'd personally take a couple years of unemployment to get some spine back into this nation, into the global economy, because long-term my culture will have a tougher skin and be more reality-based in what it achieves. The great depression (and NO ONE will ever say it) gave this country CHARACTER & whipped things into shape long-term in our regulatory systems etc. That generation had SOUL. This generation has X-Boxes. Do I want a depression? Uh, no. But to sell out everything else that we believe in - is that a price we want to pay? Call me a nutcase.

Mar 04 03:51 AM

[donzelion:]

Constructe is on to something: why shouldn't the US vote as the 80% shareholder to "release the files"? They're our bloody files! (Lawyer in me says, "No, no! What about the non-disclosure agreements? Other lawyer in me says, "Who cares? Let all those other managers who played silly games stop hiding behind secrecy and face the rap).

Conspiracy probably plays a very small role in today's crises. Rather, there's a structural flaw for shareholders, who most often own shares through institutions (mutual funds, ETFs, pension funds, etc.). As a result, they let management get away with bloody murder - and management converts company accounts into their own piggy banks (so long as the managers concoct "earnings" - which, it turns out, with the right leverage process isn't too hard to do).

Mar 04 07:37 AM

[Bubba2:]

I am a banker. Apparently, one of the good ones who work for the thousands of community banks in this country. We are very sick of paying the bill for our Wall Street counterparts who abused the system and wasted their capital on self-serving "investments." The FDIC is charging all banks a "special assessment" to cover the losses they expect in the near future. The amount of the assessment will exceed 20% of our after tax income. Does this sound like an incentive to make more loans? The government continues to talk in one direction but drive in another. Is there any reason for people be responsible for their own actions? How about a reward for doing well? (Before the govenment takes it all.)

Mar 04 12:09 PM