I just look at things this way: The yield on 10-year Treasuries dipped below 2% again on Tuesday and if you're looking for something better from across the Atlantic, don't get your hopes up. Yields on 10-year U.K. gilts are barely above 2% while 10-year German bunds yield even less than equivalent Treasuries.

That's the bad news. And it is bad news because a lot investors, particularly those that are planning for retirement, want fixed income exposure. Fortunately, there are options from a booming part of the ETF universe and I'm going to show you how to take advantage of this emerging trend.

I'm talking about international bond ETFs. Moreover, I'm talking about ETFs with exposure to emerging markets. Just this week, and I'm writing this on Tuesday, PIMCO has introduced an Australian Bond ETF (NYSE: AUD) and announced plans for Canadian and German equivalents while Vanguard announced its foray into the international bond ETF game as well.

In other words, faster than a Kardashian marriage are investors getting more and more choices when it comes to international bond ETFs. For a while folks would ask me about getting exposure to emerging markets bonds, I used to point them in the direction of the PowerShares Emerging Markets Sovereign Debt ETF (NYSE: PCY) and the iShares JPMorgan USD Emerging Markets Bond ETF (NYSE: EMB). These were kind of the pillars of the international bond ETF community.

However, both include issues denominated in U.S. dollars, so if you want an emerging markets bond ETF that doesn't expose you to dollar weakness, you'll have to take your business elsewhere. One of the funds I really like for investors that want some Asia-Pacific exposure is the actively managed WisdomTree Asia Local Debt ETF (NYSE: ALD). ALD is actively managed, but its expense ratio of 0.55% is decent for an actively managed ETF and it features no greenback exposure. ALD's holdings are denominated in the local currencies of South Korea, Malaysia, Indonesia, Philippines, Thailand, India, China, Hong Kong, Singapore, Taiwan, Australia and New Zealand.

For those that want to broaden their EM bond horizons, I also like the WisdomTree Emerging Markets Local Debt ETF (NYSE: ELD). Also actively managed with a 0.55% expense ratio, ELD features bonds denominated in the local currencies of Brazil, Chile, Colombia, Mexico, Peru, Poland, Turkey, South Africa, Russia, Malaysia, Indonesia, Philippines, Thailand, China, and South Korea.

For a Latin American flair, try the Market Vectors LatAm Aggregate Bond ETF (NYSE: BONO), but I will tell you the bonds featured in BONO are denominated in dollars or euros.

The investment case for this trio is simple. ALD's yield is barely higher than that of 10-year Treasuries, but the ETF has a far better chance for capital appreciation within your portfolios. Regarding ELD and BONO, they feature 30-day SEC yields of 4.82% and 6.03%, respectively. Sounds a lot better than Treasuries to me.

China Economy Slowing, But How Much?

Property Bubble And Debt

Chanos has been on CNBC and was quoted in Bloomberg and other media outlets on his contention that China has significant off balance sheet debt related to the area of property and land speculation. Chanos, in a Bloomberg tv interview, said the Chinese central government doesn't directly have a lot of debt, but that it's the Chinese local governments who have invested in state owned enterprises, or SOEs, along with other borrowing entities, and that Chinese regulators "are trying to get their hands around this." Also, Chanos said that the Chinese central government is "trying to rein it in." He points out that China's central government implicitly must backstop this debt.

The Underlying Problem

Michael Pettis described in a New York Times article what the continued property and construction speculation by local governments investing through SOEs could mean. "At this point-at which China may have reached a decade ago-debt begins to rise unsustainably."

Pettis goes on to point out that the underlying debt, not the indebtedness of the municipalities, is the key issue, that such an unsustainable debt burden will, when repayment difficulties become excessive, simply be shifted. This goes to Chanos' point about the central government ultimately being on the hook for the debt. Pettis warns also of the possibility of a sudden "explosion in contingency liabilities," where even liquidated collateral will not come close to matching the debts. There are further complexities to Pettis' arguments, but clearly the key is that he contends there is unsustainable debt, and that debt, no matter what its origin, must face a day of reckoning at some point.

So, Will There Be A Collapse?

Chanos, for his part, has emphatically said there will be a collapse, and that "It will be 1,000 times worse than Dubai." Now, renowned investor and long time China bull Jim Rogers, quoted in Digital Journal, famously said of Jim Chanos more than a year ago, "I find it interesting that people who couldn't spell China ten years ago are now experts on China." Perhaps that's the case of one quotable exaggeration deserving another, but Rogers' contention in a Forbes piece was that Chanos misunderstands the way the Chinese yuan and real estate work. While Chanos was short Chinese stocks, notably its banks, Rogers has been a noted bull on Asia and China. Chanos elsewhere said although he is bearish on China, he later retreated somewhat from his prediction of a total collapse, though maintaining that "the property slowdown has begun." He adds that what he sees as massive debt-he put the figure at 100% to 200% of GDP-"European type figures," will drag down China GDP and demolish growth.

The Problem With The Doomsday Scenario

Much of the scenario with the unsustainable debt premise relies on invoking the "shadow economy" and the admitted lack of visibility which would peg the debt figures at specific levels. Chanos' estimates of "100% to 200%" of GDP is more than a wide ranging figure; how much is the actual debt? Specifics here would be more helpful, maybe even critical for accurate analysis. Also, the contention that the Chinese banks, which are admittedly policy arms of Beijing, are going through a shoring up process similar to the massive infusions and write downs of the past when non-performing loans, or NPLs, were de rigueur in China, also doesn't show the evidence. The few millions recently invested by China Investment Corp, CIC, were by any measure the proverbial drop in the shoring up bucket. So the numbers, the facts, certainly don't confirm the scale or scope of what Chanos sees ahead.

Food Inflation In China Is Real

Another View On China

Stephen S. Roach, non-executive Chairman of Morgan Stanley Asia and a faculty member at Yale University, was recently on CNBC and said that the China doomsayers are wrong. Roach pointed out that China is managing its situation through globally treacherous economic waters well, and that not only is no collapse in store, a soft landing is on the horizon. Roach has written elsewhere, at project-syndicate.org, that while growth is slowing, the non-performing fixed investment problem will be manageable. The growing influx of rural population into urban areas will absorb some of the housing build up while the Chinese banks have the liquidity to absorb potential property losses. Inflationary problems, especially food inflation, still exist as a risk, and with the European markets slowing, China's export trade will be dampened. Some help will be gained by increased consumer spending, and economic rebalancing long term will take place, Roach maintains. He points out that successful "strategic transition" has been the hallmark of a developing China, and should continue to be. For us as investors, although we know Chinese ADRs have been hit hard, we still need to be careful but attentive to the opportunities that may present themselves.

Yes a collapse in the European currency and banking system was, and still remains, a very real possibility.

The announcement last week that the EU countries had agreed to write down 50% of the value of Greek Treasury bonds confirmed that at least some positive action to deal with this crisis in Europe is occurring. This, at least for the time being, has injected a shot of adrenaline to the stock indexes around the world including here in the U.S.

As you will see below, these events may result in many of your portfolios requiring adjustment.

Of course, the problems in Greece are not even close to being solved. One clear of the clearest indications of that all is not "baklava and ouzo" in the land of the Acropolis, is that the budget deficit in Greece continues to increase at an alarming rate (it is up roughly 15% year to date over 2010.) The other problem is that Italy, Spain, Portugal, and Ireland all also have problems paying for their federal programs and Treasury bonds.

My view on the situation has been that when the financial markets have a serious risk of a major default, that serious caution is in order. Most of us agree that it is better to exercise restraint and caution than to risk massive personal investment losses. But doing so when the markets have rallied the last 3 weeks is pretty tough.

So the million dollar question is... What's Next?

The market action last week indicates that investors around the world want to rush back into stocks. This is a reversal to the market trends of the entire 3rd quarter of 2011. This means that a number of the investments you may have held in your portfolios over the past 3 months, particularly some of the most defensive holdings, will need to be exited.

The most typical thing to expect next is the market will be entering a several week phase that professional traders call "consolidation." Consolidation is a fancy way of saying "stocks almost never just go straight up."

As a practical matter it means that there is no reason to "panic sell" when exiting any defensive positions such as inverse funds in your portfolios. The type of movement we have seen in the past 3 weeks will generally be followed by several pull backs to test recent support levels. Translated into English... this means that it is more likely than not that the gains of the past three weeks will fade a bit as the market pulls back to confirm that a bottoming in the market from the rough patch we experienced in the third quarter has occurred.

So as a practical matter, at this point two adjustments will be considered in most portfolios.

First, if you have defensive investment positions, such as inverse funds you may want to unwind (SELL) those holdings as consolidation occurs. If you are holding any inverse or defensive positions that are not currently profitable, the consolidation process will generally provide an opportunity to sell those holdings at a profit as long as you do not panic sell.

Second, you will want to consider beginning to accumulate those types of stocks that will most benefit from the classic rotation process that occurs during bottoming cycles. If we are now, as it appears likely, beginning the completion of this bottoming process, the time to identify the new holdings and begin adding them to your portfolios is NOW.

As always, I will be working to make sure we do everything possible to identify risk and take advantage of market gains. This is precisely why our premium newsletters - Dividend Genius, China Stock Digest, and ETF Profit Report, are so helpful. These resources give the specifics on what our research says you should be buying or selling TODAY.

The market is likely to remain volatile for the rest of the year. By remaining vigilant we will make the best of these challenging times.

In the meantime I remain...

A Stellar Dividend Stock

Abbott Labs is famously known by investors as a star dividend stock, one which consistently raises its dividends. It's included in the S & P list of “Dividend Aristocrats,” a widely followed list by dividend investors, and according to the company, paid dividends every year since 1924 and raised them the last 34 years. Abbott pays an annual dividend of $1.92, which gives it a current yield of 3.7%. The company has an $84 billion market cap, earned $3.23 per share in the last year, traded recently at a trailing PE of 16.5, and its shares traded recently near a 52-week high of $54.05.

Abbott Labs' Record Of Dividends

A Dividend Division

One of the decisions that Abbott made for when the company splits in two next year is to divide the dividend equally between the two companies. Both the pharmaceutical company and the medical device company will pay out half of what the current dividend pays. Abbott has long been a favorite of dividend investors because of its consistent history of solid dividend increases, and investors have come to expect this. So with the revenue and earnings of Abbott which look sound, along with its excellent history of paying dividends, what's the reason for breaking up the company?

Seeking Growth

Abbott's share price has essentially been flat and range bound in the last ten years. In the last two years, the stock had barely edged up. While revenue has increased, earnings have been up and down a bit in the past three years. The projected spinoff of the drug and medical device businesses each as separate companies is an attempt to kick start growth and unlock value. Abbott's flagship drug, Humira, which still has five years to run on its patent, accounts for $6.5 billion in sales. While Abbott carries other products, none have the impact that Humira has, which has led to further speculation that Abbott's prescription drug business will be very attractive for a takeover.

Takeover Candidates

A number of other drug makers who lack the blockbuster product such as Humira have been mentioned as possible suitors for the Abbott's prospective pharmaceutical spin off. European drug makers Roche Holdings AG (RO.SW) and Bayer (BAYN.DE) were mentioned by analysts in a Bloomberg article as likely candidates. Also, Merck (NYSE: MRK) and Astra Zeneca (NYSE: AZN) are other possible acquirers. The spin off of Abbott's pharma business was valued in the neighborhood of $45 billion to $55 billion by analysts quoted in the piece.

Abbott Labs Stock Ten Year Price Chart

Two Companies, Two Dividends

Many pharmaceutical companies pay rich dividends. Merck currently yields 4.6%, Pfizer (NYSE: PFE) 4.2%, while Eli Lilly (NYSE: LLY) pays out at a 5.1% rate, Astra Zeneca (NYSE: AZN) pays 3.6%, and Johnson & Johnson (NYSE: JNJ), the combination drug and consumer products company, pays 3.5%. Abbott Labs has been compared to Johnson & Johnson—a smaller, less diversified version—and some observers had expected Abbott instead to pursue more acquisitions, to keep growing through expansion rather than engineer its own break up.

Yet as pointed out in a Wall St. Journal piece, the trend toward pharmaceutical companies breaking apart their conglomerations is in place. Bristol-Myers Squibb (NYSE: BMY) spun off Mead Johnson (NYSE: MJN), which now carries a much higher valuation than Bristol-Myers. For Abbott and most of the other pharmaceutical companies, its drug business is much more narrow, its main revenue often tied to one or two main products, while the healthcare segment usually features an array of often disparate though diversified products.

For Dividend Investors

Many long-time Abbott investors who hold the stock for the dividend will perhaps be disappointed that the entire current dividend isn't going to be paid by the proposed pharmaceutical business. Then dividend investors could have simply continued holding onto that version of Abbott Labs stock, which might have even had a chance to bump up its yield, while investors might sell shares of the spin off healthcare company if they weren't interested in keeping that stock. But dividend investors should wait to see how this spin off materializes and keep their options open. That's the best way to ensure your profits.

As I mentioned in that piece, there is a reverse of contango known as backwardation. Backwardation is when current prices of a commodity trade higher than longer-dated contracts. I bring this up because West Texas Intermediate futures have moved into backwardation for the first time in roughly three years. Personally, I'm not celebrating nor degrading the fact that WTI has moved into backwardation if for no other reason than the spread between WTI and Brent Crude is still wide and the latter is really the global standard. Personal feelings aside...

If you happened to recently purchase the controversial U.S. Oil Fund (NYSE: USO), congrats. That was a shrewd move because USO has been rocked by contango in recent years, leading to steep losses even while WTI prices have surged. As long as backwardation is around, USO will be in the spotlight, and for positive reasons for once, because the ETF sells the front month contracts to purchase longer-dated contracts. Now that that's a profitable endeavor, USO investors should finally be pleased after several years of suffering.

Long story short, USO is one option for profiting from backwardation. I still like oil equities and the ETFs that track them. That statement may seem bold, almost brazen assuming that what the commodities market is telling us today proves accurate and that is crude prices will be lower in several months than the roughly $90 per barrel for which oil goes for today.

My logic is pretty simple economics and we've actually seen it at play this year. When oil prices are in the $110-$120 per barrel area, that's when consumers say “Enough is enough.” In other words, it may seem like a good idea to own shares of Exxon Mobil (NYSE: XOM) or the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) when oil is $120 a barrel, but it's not all it's cracked up to be.

Alright, so I've outlined the theoretical line in the sand where oil consumers halt consumption, but there is price area where producers and consumers are comfortable, sort of. That is the $85-$95 per barrel neighborhood. Faced with the specter of $120 oil, oil consumers are inclined to view $90 a barrel as a decent deal and faced with consumption decreases at $120, producers don't mind selling for $85, $89, whatever because those prices are still quite high by historical standards.

That's today's economics lessons. Today's profit opportunity for backwardation is equity-based ETFs. There's no shortage of oil sector ETFs out there, but I prefer XOP and I certainly prefer XOP to USO.

Not only does XOP have a reasonable expense ratio, it's home to a few potential takeover targets AND the oil names conservative investors usually like. Not to mention, XOP is a great unleveraged ETF for active traders. Oh yeah, XOP has been on a roll lately and that was before the backwardation situation came about. See, you can profit with or without backwardation.

China GDP Growth

While the slower growth was the goal of China's government, according to Lian Ping, chief economist with the Bank of Communications, cited in a China Daily article, now the concern in some quarters is if growth is slowing too much. The government has been trying to hold down inflation mostly by interest rate hikes to slow the rise in surging property prices. China has raised its benchmark rates on one-year borrowing costs to 6.56 percent in an attempt to drive inflation down to 4 percent. The inflation rate has fallen, but prices still climbed 6.1 percent in September, exceeding the target rate of 4 percent.

Euro Demand Down

Although China is still battling inflation, it may at least be temporarily done with rate hikes. The falling demand in Europe due to the debt crisis is weakening that major market for Chinese exports. China's internal spending has supported its domestic growth even as the global economy continues to show signs of slowing. Consumer spending has been more robust, with a 17.7 percent gain in September following a similar gain in August. Inflation has had a different effect on China's populace than it would in the west, particularly in the US. With a greater savings rate, inflation has meant more money for both investing and spending, so thus the healthy growth in consumer spending.

Although China is still an export driven and trade dependent economy, with 27 percent of its GDP accounted for by exports in 2010, many observers see China's growing consumer economy as eventually changing the mix. China's fixed asset investments, those for property, plants and equipment, was up 24.9 percent in the first three-quarters of the year. Investment in real property is still running high, with a 32 percent year over year increase, while investment in residential property was up 35 percent. Industrial value added output, a key mark of industrial production, rose 14.2 percent in the first three quarters of the year.

Growth Still There

Despite the slowing of Europe's economy and the global economy as well, China's growth, while slower, is still substantial. Anything near the 9 percent annual figure still dwarfs the growth rates of the mature economies in the west. Still, the world's financial markets have been used to continued rising growth in China, so the markets reacted. The Shanghai composite index dropped 2.3 percent on the news of China's slower growth while other Asian markets followed suit. Near and medium term there are still many factors to consider as to how China's economic growth situation will play out. There is debate about how much growth China will continue to enjoy as well as debate about how China's government will react to those results as well as to changing economic conditions.

Construction In Wuhan, Hubei Province

While we've seen estimates for GDP growth going forward in China ranging from 8.5 percent to around 9 percent, the question is how will the country respond? Yao Wei, economist at Societe General SA (OTC: SCGLY), said in a Bloomberg piece that the next move might be easing, though not in the near term. On the other hand, Shanghai Securities' strategist Tu Jun said that China's central bank was likely to keep to a tight monetary policy, with interest rate hikes resuming by the middle of next year. China central bank advisor Xia Bin said the economy doesn't need any major stimulus, and that the central bank should stick with a policy he calls, "prudent."

What's Likely To Happen

China most likely will keep a close rein on things, though it has to watch carefully, as there are both inflationary aspects and areas of its economy that may need a boost. There is still concern with the property situation with its potential for further inflation, though the government has been encouraging behind the scenes increases in loan reserves by the banks. The consumer spending will also help buoy growth in what looks to be the absence of dramatic trade growth for now. Small and medium enterprises are going to need easier credit and the government is trying to move in that direction. Of course if the European situation deteriorates to the point of more severely clouding global growth, China's landing could be harder. But the PRC has plenty of reserves to fight off a downturn, so it's likely to get the stable growth it's after.