ETF Investments for the Current Fed Climate

Corporate resilience has been rather amazing. Bottom-line, top-line… who really thinks that companies aren’t hanging tough?

Apparently, with so many corporations doing markedly better, some market-watchers fear that the Fed may show too much faith in the overall economy’s standing. That is, would the Fed prepare a statement that hinted at a foreseeable end to near-zero short-term rates?

Not a chance.

The Fed had to “extend” the buying of long-term U.S. Treasuries into October from an original end date of September, a la quantitative easing. They’re not about to become inflation hawks with unemployment still rising.

For better or worse, the Fed will keep target rates right where they are for “an extended period.” In fact, the Fed has a long history of overshooting in both directions, so the smart money is on the Fed staying the exact same course. And that means the wording of the statement won’t change discernibly.

What does that mean for the ETF investor? You should expect the dollar to weaken, commodities to rise and stocks to rejoice. You should expect Brazil (EWZ) , Australia (EWA) , Chile (ECH) , Korea (EWY) , Metal Miners (XME), Global Energy (IXC), Copper (JJC), Gold (GLD) and Commodities (GCC) to finish 2009 in a better place.

I’m not saying that a correction would end simply because the Fed will stand “pat.” I am saying that the reduced uncertainty about the Fed’s direction will eventually cause wear/tear on the bears and, eventually, prompt buyers to re-enter the mix.

So what investments should you be thinking about?

1. Chile and Copper demonstrate that the world’s far from falling apart.

2. Brazil, Australia and Gold Miners are international funds that will ultimately benefit as the pullback becomes a “pull-up.”

3. And there are Q4 ETFs that are tailor-made for the “stand-pat Fed” and a weaker U.S. dollar. Here are 3 that may be intriguing to you.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Mad Hedge F...:]

lfe First of all, let me warn you that reading this paragraph is a complete waste of your time. Still interested? There is chatter about that the Fed is considering a surprise interest rate rise at its upcoming meeting. After all, where can they go from zero, but up? They could be emboldened by the recession ending Q3 GDP of 3.5%. The bond market is certainly telling us that rates should go higher, with yields on ten year Treasuries jumping from 2.45% to 3.40% since March. Unfortunately, this is the usual kind of gibberish you get from pundits and prognosticators , who, at a loss for any explanation of the real reasons for Friday’s melt down, resort to making stuff up out of thin air. US industrial capacity utilization is terrible, while unemployment is rising to record levels. Banks still aren’t lending to small businesses, the largest job creators in the country, because they are about to get hit with an onslaught of bad commercial real estate loans. Sure, commodity prices have doubled or tripled this year. But this happened because investors were desperate for any alternative to the sickly dollar, not because there is huge underlying demand by end users. This is one of the reasons why I have been ringing the alarm bell about all long positions for the last three weeks. So I can say with complete confidence that the chances of an interest rate hike are less than zero for the foreseeable future. This discussion did have the one benefit that it did enable me to fill this space in my newsletter.

Nov 04 01:04 PM

[tipalia:]

AGREE OR DISAGREE I REALLY ENJOY GARY S INPUT AND TAKE NOTICE EVERY TIME . MAYBE BECAUSE IT HAPPENS THAT I OWN MOST OF THE ETFS THAT HE HAPPENS TO FOLLOW CLOSELY . WHAT S WRONG WITH VWO , IXC , IYT ,
EWA ETC... ? THANKS FOR TAKING THE TIME TO SHARE YOUR THOUGHTS WITH US , THE SMALL INVESTORS .

Nov 05 01:54 PM