I have previously written numerous articles about sovereign credit ratings, asking whether the UK would lose its AAA rating, and pointing out that the credit rating agencies were playing games to avoid stripping the U.S., UK, Ireland and Spain of their AAA ratings.

Reuters notes today that the UK is indeed in danger of losing its AAA rating:

I featured a custom portfolio at the beginning of July, titled 'Scott's Alternative'. Below is the update for November if you were to base buy/sell decisions on the 200 day moving average at the end of October. All of the ETFs are above their 200 day SMA except for LSC.

The portfolio is updated once per month.

We don't know if the furor over climate, economic and sovereignty issues coming to a head over the impending December Copenhagen climate treaty is correct, incorrect, exaggerated or spot-on.

Obama on Cost Impact of Climate Policies (March 18, 2009):

I hear the rationale for folks in cash or treasuries and I absolutely understand where they are coming from. A lot of the fundamentals are very negative and the fiscal and political situation looks like it's going to get worse before it gets better.

Who could blame you for putting all your assets into treasury bonds or cash and running for the border and bribing the border guards. But that hasn't been working well has it? You see the market going up and you want to get back in but you don't understand what went wrong in your mushroom cloud trade. Hey, you are not alone.

Last week we published a visual view of price range probability cones for several securities (SPY, FXI, TLT and UUP). This article builds on the concepts in that article and provides a tabular view of the same kind of data for twenty-seven asset categories.

The two tables below show the maximum and minimum price change that statistics would suggest are probable over the 21 trading days after October 9 (last Friday), based on 21 days (1 month) and on 63 days (3 months) of historical price volatility.

On 10/8/09, something was lost in the excitement of a deteriorating U.S. dollar and a profitable Alcoa (AA). Specifically, auction participants balked at the issuance of new 30-year U.S. Treasury Bonds at 4.0%.

(In truth, I am surprised that investors would want 30-years at 5.0%. After all, it’s nearly impossible to believe that long maturity date treasuries can be kept at rock bottom lows for much longer.)

I previously noted some of David Rosenberg's investment projections. Rosenberg is Chief Economist & Strategist for Gluskin, Sheff. To summarize, Rosenberg's themes were:

1. Commodities
2. Gold
3. Canadian dollar
4. Resource sectors of the stock market
5. U.S. sectors that have high foreign exposure (materials, tech, staples, health care)
6. Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers)
7. Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed-income returns)

A reader asked me if there was a list of ETFs to capitalize on these 'Rosenberg' themes. To my knowledge, not until today! Please note, these are not comprehensive portfolio suggestions and are by no means meant to infer specific investment recommendations by this author or David Rosenberg. These are simply a list of ETFs for further research if you believe his projections are correct.

Back in August 2008, I designed a diversified, all-ETF portfolio before the collapse of Lehman Brothers triggered the huge sell-off of the stock market. The goal I had in mind when I built the portfolio was to have a portfolio that covers a wide range of asset classes, so it gives me the diversification I need, with both domestic stocks and foreign equities. The funds I chose for the portfolio (and their respective allocations) are:

• Domestic stocks: SPDRs (SPY): 40%
• Foreign stocks: iShares MSCI EAFE Index (EFA): 30%
• Domestic REIT: Vanguard REIT Index ETF (VNQ): 5%
• Foreign REIT: iShares S&P World ex-U.S. Property Index Fund (WPS): 5%
• Precious metal: SPDR Gold Shares (GLD): 10%
• Domestic bonds: Vanguard Intermediate-Term Bond ETF (BIV): 5%
• Foreign bonds: SPDR Lehman International Treasury Bond (BWX): 5%

As you can see, the ETFs I picked for the portfolio are all index funds (of course, back then only passive, index ETFs were available. Now there are also actively managed ETFs). The reason for choosing index funds is obvious: To have as many securities in the portfolio as possible.

It’s easier to tell where markets have been than to tell where they’re going. Similarly, it’s simpler to identify where institutional and individual investor money has been flowing than to identify where it will flow to in the future.

Nevertheless, EPFR Global is a world leader in tracking fund flow and asset allocation data. And last week, some fund types experienced their largest inflows of 2009.

Money in the markets and ETFs is continuously ebbing and flowing. As the market recovers, it’s always interested to take a look and see where the cash is going.

Last week, a solid majority of fund types reported their best weekly inflows of the year while money market funds experienced large outflows, writes Joe Morris for Ignites.

Stock volatility versus price change gets a lot of financial media attention, but bonds don’t get so much.

Bonds are an important part of portfolios that deserve investigative attention too.

The following table shows correlations of UUP, the US Dollar Bullish ETF, to five different fixed income ETFs over the past 18 months. The ETFs selected are BWX (International Treasury Bond), WIP (International Government Inflation Protected Bond), IEF (7-10 Year US Treasury), TIP (US Inflation Protected Bond) and PCY (Emerging Market Bond).

A brief definition of correlation from assetcorrelation.com:

In his 2001 Fortune magazine article, Warren Buffett used the ratio of the market value of all US publically traded securities to Gross National Product (GNP) as a yardstick to measure the stock market valuation. He stated that

"The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment".

1. Naoto Kan, deputy prime minister and state minister in charge of national strategy, economic and fiscal policy. With his experience fighting bureaucrats as an opposition politician, Mr. Kan is considered a good choice for the planned National Strategy Bureau, which will oversee policies and the budget.
2. Hirohisa Fujii, minister of finance. Mr. Fujii is a recognized expert on the national budget and tax issues, and was the finance minister for the Hosokawa and Hata administrations from 1993 to 1994. His knowledge of the national budget and his connections in the Ministry of Finance will be important in achieving a smooth transistion for the budget formation process from finance ministry bureaucrats to the DPJ.
3. Akira "Mr. Nenkin" Nagatsuma, minister of health, labor and welfare (MHLW). Mr. Nagatsume is energetically committed to administrative reform, and has been a sourge of the bloated Social Insurance Agency. The MHLW in particular is ripe for administrative reform, but Mr. Nagatsuma will have to successfully deal with the powerful doctor's lobby.
4. Seiji Maehara, minister of land, infrastructure, transport and tourism (MLITT). Mr. Maehara has also been a vocal critic of the "amakudari" practice of ex-senior bureaucrats landing cushy jobs in government-sponsored corporations, as well as the historical waste in public works expenditures. His challenge will be to clean up 50 years of collusion and pork-barrel politics in public works construction.
5. Yoshito Sengoku, state minister in charge of administrative reform. Mr. Sengoku's predecessors in the LDP, such as Yoshimi Watanabe, resigned in disgust and frustration after running into brick wall after brick wall in LDP-led regimes. Prior state ministers in charge of administrativve reform even in the Koizumi Cabinet also encountered fierce resistance to administrative reforms.

Mr. Kan will be in charge of forming the National Strateg Bureau (NSB), which is tasked with crafting key national policies including budget guidelines and a basis for a new foreign policy. It will replace the LDP's Council on Economic and Fiscal Policy, which was headed by the prime minister, and should be similar in function to the US Office of Management and Budget (OMB), although very likely a lot smaller in terms of staffing. The NSB will be a bellwether indicating how successful the DJP will be in reducing the role of Japan's powerful bureaucracy to "experts on tap but not on top".

There was a recently a Good article from Tom Lydon at ETF Trends detailing some of the International Bond ETFs on the market. I normally like international bond exposure as a source of diversification, so to show the diversification effects I went to Assetcorrelation.com, which is a free website. I compared the 4 international bond ETFs/closed end funds Lydon mentions in his article (BWX, BWZ, JGT, and WIP) to SPY (the S&P 500 ETF), EFA (the EAFE, or international equity ETF) and IEF (7-10 US Treasury ETF).

IEF, the US Treasury ETF, still showed signficantly lower correlation to SPY and EFA then the international bond ETFs. During the 'panic' of 2008, investors fled to treasuries while everything else dropped like a rock. Thus, investors diversified in US Treasuries helped cushion any blow to the rest of their portfolio. In addition, a moving average system like the one's tracked at Scott's Investments would have helped cushion additional drawdowns to one's equity portfolio.

With summer fading away, we now suddenly find ourselves in September, one of the worst months for the stock market. It is thus a good time to check up your portfolio and make necessary adjustments if it is necessary.

In the previous article, we introduced ValidFi's Guru Asset Allocation Watch and strategies. The Guru Asset Allocation Clone strategy applies ValidFi's proprietary algorithm to detect a mutual fund's asset exposure and utilizes the derived information to make necessary asset allocation decision for each month. The risk adjusted performance of the strategy is fairly impressive for the past ten years. Readers could examine one of its model portfolios for more information.

When State Street introduced the first foreign bond ETF nearly 2 years ago, I was ecstatic. The SPDR Barclay International Treasury Bond Fund (BWX) offered an annual income stream above 4.25%, a natural hedge against the U.S. dollar, potential for some capital appreciation and a history of non-correlation to stock assets.

Today, BWX produces an income stream of 2.25% while trading at a 0.6% premium to net asset value. Clearly, the desire to hedge against U.S. dollar devaluation – even at a premium, even with a dwindling income component — is still very vibrant.