Fed Chairman Ben S. Bernanke said after a Nov. 16 speech in New York that it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64% jump in the Standard & Poor’s 500 Index from its March low.

My favorite charts to exemplify this are the 1-year charts on GE (GE) and Bank of America (BAC). Here they are, one on top of the other. Considering their debt issues (and trillions in derivatives), is it not obvious that they are very over-valued? Didn't Bernanke hear Meredith Whitney's interview with Maria B. on CNBC this week? Are these not super-inflated bubbles?


You would see the same thing if you saw the chart for Citigroup (C).

Volatility in stocks making you antsy once again? Wondering if you should pull an itchy trigger finger and sell?

In truth, cash is going to make its way back into stocks, bonds commodities, currencies… anything… as long as borrowing costs are so low. So you can expect dip-buying on pullbacks, corrections and dips for 6-9 more months.

The November third announcement that Berkshire Hathaway Incorporated (BRK.A) would purchase the Burlington Northern Santa Fe Corporation (BNI) caused the stock price of BNI to gap up 28% on the day. BNI is the largest holding in the IShares ETF and it rebounded 10.5% in 11 days recovering the September and October highs. The components of the IYT, after moving in sympathy with the BNI announcement, have begun to come off and this pullback has created a distinct triple top on the chart.

While there are historically low interest rates in the United States (as well as rates of 0.1% in Japan), many other developed countries, including Australia and Norway, have begun to raise rates as a sustainable economic recovery has taken hold. With virtually all of the major central banks meeting in the next three weeks, currency news will certainly be in focus as 2009 winds to a close, with investors playing the “carry trade” paying particularly close attention.

The carry trade involves a relatively simple strategy: investors borrow in low cost currencies (such as the the yen and the U.S. dollar) and then invest the proceeds in high yielding currencies (such as the Australian dollar). If exchange rates remain stable, investors profit off of the interest rate differential, while an appreciation of the high-yielding currency will further enhance returns. There is, of course, risk of loss if the higher-yielding currency drops in value, a very real possibility in almost any environment.

By Chris McKhann

The XME mining exchange-traded fund has been in a powerful uptrend for a year, but the puts were active yesterday.

IndexIQ is coming out of the gate as a bit of an enigma. The new Merger Arbitrage ETF (MNA) at first glance seems odd to me. There have been several articles already that have ripped it up for not really being an arbitrage product and I will say I don't get why shorting the broad market against long positions in takeout targets is the best way to go, but clearly they did not get a crappy result from the backtest and decided, "well even though the backtest is lousy we'll run with it anyway."

But that is not what I wanted to talk about. IndexUniverse has reported that IndexIQ has filed for a bunch of single country small cap ETFs. The countries included are Australia, Canada, Hong Kong, Indonesia, Malaysia, Singapore, South Korea and Taiwan. They also filed for global small cap industry funds; agriculture, natural gas, crude oil and gold (Market Vectors may have beaten them to the punch on that last one).

Like all commentators, I am somewhat constrained in what I write about: it has to be a subject in which people have interest. Sure, I could write about Greek mythology or backpacking in Bolivia, but if no one reads it, it becomes a fruitless exercise – and raises that cliché question “if a tree falls in a forest...?”

Regular readers will have noticed that I have been writing about precious metals mining companies more often in the last few months – and this is no accident. In my interaction with readers/investors there has been a sharp rise in awareness of and interest in these companies.

VanEck Market Vectors Junior Gold Mining ETF (GDXJ) has only been on the market for 7 trading days, but in this limited timeframe it has outperformed its large cap peer, the standard Market Vectors Gold Mining ETF (GDX) by over 2%.

Amid the flurry of new ETFs coming to market this week, it appears I missed the launch of First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) on Tuesday (11/17/09). This ETF focuses on stocks in the electric energy infrastructure and distribution grid subsector. The fund will typically invest in companies engaged in electric grid, metering equipment and devices, networks, energy storage and management, and enabling software used within the smart grid infrastructure.

The underlying index uses a modified capitalization weighting with “pure play” companies receiving an 80% allocation and “diversified” companies receiving just a 20% allocation. The expense ratio will be capped at 0.70% for two years.

ETF Market Direction Summary: 11-19-2009

It looks like we are back to the fundamentals as concerns of economic recovery were exacerbated by a negative housing foreclosure update that confirmed the real estate crisis is spreading to the prime market. An economy bleeding jobs at a minimum monthly rate of 500k is the underlying cause.

Gold Daily Chart- Chart Courtesy of AVA FX (11 Nov 19)

• A continuing decline in the US dollar
• Rising optimism about the recovery igniting inflation concerns

The Central Bank of India bought 200 tons of bullion from the International Monetary Fund. The IMF thought they were getting a great deal, selling their bullion at the "height" of the market in order to raise cash to help struggling nations.

The recovery showed signs of falling into chaos on Thursday, with Treasury Secretary Geithner facing a firestorm in Washington as lawmakers called for his resignation and Dell reported a decline in profits of more than 50%. Elsewhere in the world, EU leaders (as expected) selected Belgian Premier Herman van Rompuy as the bloc’s first full-time president.

The ETFdb 60 Index, a benchmark measuring the performance of the universe of investable assets available through ETFs, dropped 9.58 points, or 0.9%, to close at 1,015.39. The day’s largest decliners featured a trio of small cap ETFs, as the iShares Russell 2000 Value Index Fund (IWN) shed 2.6%, the Russell 2000 Index Fund (IWM) lost 2.5%, and the Russell 2000 Growth Fund (IWO) shed 2.4%. Mid cap indexes lost about 2%, while S&P ETFs lost about 1.3%.

By Lara Crigger

Can USCF's new fund tackle the natural gas contango?

United States Commodity Funds' new ETF, the U.S. 12-Month Natural Gas Fund (NYSEArca: UNL), began trading yesterday, offering investors another easy access point to the natural gas market. But let's hope it sees smoother sailing than its controversial cousin, the U.S. Natural Gas Fund (NYSEArca: UNG).

The exchange traded fund (ETF) world and the mutual fund industry are competing for investors left and right, and the commodity sector is no exception. The choice for exposure is now readily available in both forms. But which is superior?

One of the questions it comes down to is whether you prefer active or passive management. The differences between mutual funds and ETFs still exist when considering funds that cover the commodities space. (Why mutual funds want in on ETFs).

Technology ETFs have hit a wall in recent days, slumping on news of an analyst downgrade to Research in Motion, slashes in projected semiconductor demand, and weak earnings reports from several internet companies. With an uncertain holiday shopping season ahead, the fate of the technology sector is very much up in the air, and technology ETFs could be on the move in coming weeks.

BMO Capital Markets cut their rating on Blackberry maker Research in Motion (RIMM) on Wednesday, pointing to increased competition from Verizon (VZ) as consumers opt for less expensive smartphones. Also weighing on the tech sector were weak results from Salesforce.com (CRM) and Autodesk (ADSK), which lost about 3% and 10%, respectively, during yesterday’s session.

U.S. Commodity Funds, the issuer behind ultra-popular commodity ETPs such as UNG and USO, has launched the United States 12 Month Natural Gas Fund under the ticker UNL. The investment objective on UNL is to reflect the changes in percentage terms of the spot price of natural gas delivered at Henry Hub, Louisiana, as measured by the changes in average of the prices of 12 NYMEX natural gas futures contracts, consisting of the near month contract to expire and the contracts for the following 11 months. UNL will “roll” near month futures contracts when they are within two weeks of expiration.

UNL is very similar in some ways to the United States Natural Gas Fund (UNG), but very different in others. UNG has become one of the most popular exchange-traded commodity products this year as investors have sought out ways to gain exposure to natural gas prices. Due to the physical properties of natural gas, storage by an ETF issuer is nearly impossible (and would be prohibitively expensive). So in order to gain exposure to natural gas, UNG invests in near month futures contracts, rolling its holdings to the second month futures contracts as expiration nears.

The financial fiasco is still too clear in our memories and some of the inimical legacies are spilling over into the regional banking industry. But, regional banks, along with related exchange traded funds (ETFs), may get a helping hand from the government.

Let’s start with the bad news.

Be careful what you wish for. For all the leveraged fund critics that either do not like or do not understand daily (or monthly) reset of leverage and want a vehicle without path-dependent performance, your wish has come true. However, unless you bought them yesterday, you will not be getting the exact 2x or 3x index exposure you desire. You can’t have everything.

Five new ETNs (exchange-traded notes), dubbed ETN+, from Barclays began trading yesterday (11/18/2009). When Barclays sold their iShares business, it appears that all their marketing and product naming people were also part of the deal. Here are the official names, but they won’t give you any clue as to the leverage employed: