Light order books are a reflection of weak capital expenditure plans, as recently highlighted in Japan’s quarterly Tankan survey of business sentiment Government spending cannot fill the gap given Japan’s huge debt burden equal to 185% of GDP. Public sector orders dropped 11 percent month on month in May, although this followed a 22 percent increase in April.

Japanese equity markets and EWJ had fallen by midweek six consecutive days. Japanese loan growth is also decelerating, in part as companies and households grow more reluctant to borrow and spend. Corporate bankruptcies, meanwhile, continue to soar: more than 1,400 companies went bust last month, up 7 percent from a year ago.

Why do I continue to hold the majority of my ultra short ETFs? Because they are no longer acting like basket cases. In fact, most of them are forming beautiful looking bottoms and the charty geek in me cannot resist bottoms like this, especially when they are doing a good job of protecting my bullish positions in some of the smaller gold stocks.

Here is SRS, the ultra short real estate ETF acting nicely inverse to the IYR chart shown yesterday and trying to confirm a breakout.

There has been some excellent work written recently about the merits of a momentum based asset class rotation system. Two good starting points are Mebane Faber and an article on CXOAG. The system is simple: Rank a list of securities on the average of the trailing 3, 6, and 12 month total returns. Purchase the "top" of the list and rebalance monthly. I put "top" in paranthesis because there are different approaches one could take and evidence seems to show that the smaller your "top", the more volatility you can expect.

Putting this in practical application we can use one of the portfolios I detailed earlier this month. For simplicity, we can look at the basic portfolio:

The second quarter was a good one for commodity and China ETFs. Almost everything risk related advanced in the past three months, with PowerShares Financial Preferred (PGF) sporting a 57 percent return, the fifth best among funds in our newsletter. Other strong performers include the India ETFs and ETNs, which popped more than 20 percent in one day following the country’s election results in May. Aside from the reduced risk aversion, these funds advanced on isolated factors. Commodity and China ETFs, however, were pushed by common threads, most important among them the growth in Chinese loans.

As early as February, Chinese economists were “ballparking” that as much as one-third of the country’s loans could be headed into stocks and real estate. The percentage may still be in that neighborhood, with roughly 20 percent heading into stocks, according to a Bloomberg story, which cites Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

A gold ETF investment can be one of the most conservative ways to provide a safe haven, especially during times of inflation.

Analysts and financial advisors are predicting a substantial rise in gold prices over the next few years. With the prospect of inflation looming, gold investors are hoping that the commodity will give the necessary shelter. This isn’t a new trend – over the last 2,000 years, gold has been a popular way to shelter capital from inflation, reports Larry Light for The Wall Street Journal.

Historically, stocks and ETFs have outperformed Treasuries, but will history continue to repeat itself or will it be broken?

In this corner, we have bonds. In the other, equities. Advocates of both are squaring off:

Many investors get hung up on returns, but there’s more than one way to earn money through your investments. ETFs can deliver some income. Here are 5 ways ETFs can potentially pay you.

There are a variety of investments that provide returns through interest, dividends, potential for capital appreciation and tax advantages, remarks Mark P. Cussen for Investopedia. Cussen elaborates on the more common types of incomes paid out by investments, which includes:

When ETF issuer Direxion launched its Financial Bull 3X Shares (FAS) and Financial Bear 3X Shares (FAZ) in November of 2008, market volatility was skyrocketing, providing an attentive audience of nervous investors anxious to pick sides in an uncertain environment. Eight months later, bullish FAS has dropped more than 60% while bearish FAZ has plummeted 96% as the funds’ methodology has mercilessly taken its toll on both share prices. The Direxion pair has intensified an existing debate on the role of leveraged funds, which have experienced booming popularity as investors use ETFs to make previously inaccessible bets. The trend toward leverage has not gone unnoticed, however, and as leveraged funds are pushed into the spotlight, it is more important than ever for investors to understand what they’re getting.

Investors may be perplexed as to how both a bull strategy (FAS) and a bear strategy (FAZ) can be leveled simultaneously. The reason, while potentially controversial, is not a mystery to investors with the initiative to look: the disclaimer is front and center on Direxion’s home webpage. “Direxion Shares ETFs seek daily investment goals and should be used strictly as short term trading vehicles,” the website warns, highlighting the daily reset strategy of the fund. As the value of the fund vacillates, the daily impact is compounded, sinking both funds over time.

Google and Microsoft have long been at each others’ throats in the fight for dominance. As investors look for a way to play the face-off, here’s a reason why ETFs may be the way to go.

Although the official lifting of “beta” off of Google’s (GOOG) Gmail service means nothing to daily Gmail users, it gives the company the chance to get the paid version of Google Apps adopted inside big companies. Miguel Helft for The New York Times reports Google is trying to compete with rival offerings from other companies.

The increasingly large natural gas ETF finally became so large that it was forced to stop issuing shares in trading on Tuesday when it didn’t win approval for more shares in time. Some wonder if these and other commodity funds are getting too large and weighing on the markets.

United States Natural Gas (UNG) filed with the SEC in early June to increase the available shares nearly 10-fold. Such a request can take weeks to receive approval. The ETF has grown in popularity over recent months, and concerns over the distortion of trading markets was pinned to this ETF and others.

ETF Spotlight on Vanguard Short-Term Bond (BSV), part of a recurring series.

Assets: $1.7 billion

At least on the surface, the economics of government involvement translates into stimulus spending. There's not a whole lot of cuttin' going on.

In fact, I visited the back page of the most recent edition of The Economist to learn that there isn't a single country that can boast a budget surplus as a percentage of GDP. Whether the situation has come about from a decline in "revenue" or an increase in spending or both, the entire world is experiencing an imbalance.

By Murray Coleman

It has been four years since two big banks—Wells Fargo (WFC) and Bank of America (BAC)—first announced commission-free trading for ETF investors. Of course, a lot of strings were attached. Some of those have since changed, but Wells Fargo appears to still be the most flexible. (See related column here.)

Among the strongest trends to emerge in the first half of 2009 is the sharp increase in commodity prices, driving up prices of direct commodity ETFs, ETFs that focus on specific commodity-related sectors (such as KOL and GDX), and emerging markets ETFs that focus on resource-rich nations (such as Peru and and Indonesia). What’s remarkable is that commodity prices have risen across-the-board…almost. Natural gas ETFs are down sharply over the first half of the year, with GAZ down nearly 50% year-to-date and UNG down 47%. On top of the disappointing returns, regulators are now looking into expanding regulation of speculative trading in commodities, targeting USO and UNG in particular. Despite the sustained downward pressure and thorny regulatory issues, don’t count out natural gas just yet.

Long Way Down

Unlike crude oil, which can be and frequently is transported from resource rich parts of the world (the Middle East, South America, etc.) to oil-thirsty countries, natural gas is largely a local commodity. Because of its low density, natural gas is difficult to store and transport, requiring networks of pipelines to move from one location to another. Iran’s proven natural gas reserves are second in the world to only Russia, but geopolitical tensions in Middle East will never have a major impact on natural gas prices in the U.S. In fact, a significant amount of natural gas in Iran is simply burnt off, or flared, each year due to the lack of sufficient infrastructure. This notion is frequently lost on investors, including those who hold themselves out to be experts.

Although ETFs and mutual funds seem in many ways to be natural rivals, one of the most closely-watched trends in the “active vs. passive” debate has been the development of a hybrid type of investment option: actively-managed ETFs. While the space has mostly taken “baby steps” to this point, it appears to be poised for explosive growth in the coming months.

Pioneering PowerShares

Bear Stearns actually launched the first actively-managed ETF in March 2008, but the issuance was overshadowed by the brokerage house’s impending demise, and the fund (YYY)) shut down less than six months later. Invesco PowerShares is the true pioneer of the actively-managed ETF space, launching four ETFs (PQY, PQZ, PMA, and PLK) in April 2008. Based on proprietary quantitative methodologies, these ETFs were the first to deviate from a predetermined, static index. Originally, the four PowerShares ETFs imposed limitations on the timing and frequency of trading, although such restrictions have since been relaxed. PowerShares subsequently introduced an actively-managed real estate ETF (PSR).

By Patrick Watson

The $3.7 billion U.S. Natural Gas Fund (UNG) had to stop issuing new shares earlier this week due to a regulatory snafu. Unfortunately, the fund may be caught in a controversy that is not of its own making.

July 9, 2009



I’ll make this brief today as there are appointments to keep. Tomorrow marks the end of the week and there will be more to say then.

By Patrick Watson

Effective Thursday morning two of the DirexionShares ETFs began trading with a reverse split. Daily Financial Bull 3X Shares (FAS) split at 1-for-5 while Daily Financial Bear 3X Shares (FAZ) had a 1-for-10 split. For every five shares of FAS you owned as of Wednesday’s close, you now have just one share which is worth five times as much. Likewise for FAZ, except the ratio is 1:10.

By Brandon Clay

After the stunning rally in March, many market experts think the summer doldrums have set in and stocks may languish for the next couple of months. Second-quarter earnings may not be much help while charts for the Dow Jones Industrial Average and the S&P 500 are showing the infamous head-and-shoulders pattern. This is normally a sign that a pullback is in the offing.

By Paul Amery

Social exclusion is the least of your problems if you’re a speculator.