3 Growth Trends Defying the Markets

07/06/2011 7:00 am EST

Focus: ETFS

Jerry Slusiewicz

President, Pacific Financial Planners, LLC

Emerging markets got hit hard earlier this year, but their seemingly unstoppable growth means they could lead the next big charge. MoneyShow's guru of gurus, Kate Stalter, talks with Jerry Slusiewicz of Pacific Financial Partners about this and two other sectors that should continue to outperform in the long term.

Kate Stalter: We're talking today with Jerry Slusiewicz. Jerry, tell us the name of your firm and where it's located.

Jerry Slusiewicz: Pacific Financial Planners. We're in Laguna Hills, California.

Kate Stalter: And thanks for joining us today. What's your view on the current market conditions, and what should the individual investor be aware of right now?

Jerry Slusiewicz: Well, Kate, thanks for having me on the program. It's an honor, and it's very interesting that you're asking me that question this week.

The Dow was up 5.5% and the S&P and the Nasdaq up similar numbers, and it was on pretty good volume and momentum. So, I think some of the concerns that the market had are dissipating.

Greece was a major, major concern. That bailout went through, and that'll back-burner that issue for some period of time. I think we're going to see it again, but it might be a year or more down the road.

There are still concerns out there. Probably the biggest one is this US debt-ceiling issue, but I also believe that that will resolve itself as well, as it has many times in the past, and they'll put that to the back burner.

So, I have changed from being very concerned to being less concerned, and I actually would say I'm bullish on the market going forward.

Kate Stalter: What are some of the sectors, Jerry, that you see showing strength now? Or maybe global regions? What's in favor at the moment?

Jerry Slusiewicz: What I think is in favor as far as regions in the globe is the emerging markets, because there still are a lot of debt issues with the old Western countries-like America, for example, or even Europe.

We have here in this country the ending of the quantitative easing. It officially ended June 30, but there's still actually a couple more of these open-market purchases happening in the next couple of weeks-but they're small-to really finish up the Fed's quantitative easing program, the $600-billion buying program.

That is going to have an unknown effect on the market.

In Europe, obviously, they have problems with some of the Italian banks coming along. Ireland might come back for more money, just as Greece did. So I think the emerging markets are where the opportunities really are, because they don't have bad bank debt, and they don't have the government debt of printing money as many of the Western countries have had over the past few years.

Kate Stalter: So in terms of emerging markets, you mean Asia, Latin America, those regions?

Jerry Slusiewicz: Yeah, absolutely. Latin America, Asia, they still look very, very attractive to me over the longer term, and over the shorter term as well. They have more opportunity for growth, unhinged by the debt issues that the more developed countries have.

Kate Stalter: And maybe you just answered this next question already, but I did want to ask you about any sectors or regions that you believe should be sold or avoided right now.


Jerry Slusiewicz: Well, I'd certainly avoid bonds. I mean, I don't know if you got that from the previous answer, but I think there's just so much risk.

Bonds outperformed stocks in the second quarter, and I was actually long on several different bond investments. But now I've lightened those up, because it's been amazing what's happened.

If you'll just look at the proxy for the long bond, the exchange traded fund iShares Trust Barclays 20+ Year Treasury Bond Fund (TLT), I think that was down, like, 3.5% for the week. It broke through its major moving averages, all in a week, and the issue is, the largest bond buyer in the world over the last nine months is exiting the market.

And we already know that Japan has their issues with the tsunami, earthquake, and the rebuilding efforts going there, that they're not going to want to be buying a whole lot of US Treasuries.

China and Russia have also announced that they want to buy fewer US Treasuries, so who's going to really step up and buy bonds and furnish our debt at these low interest rates?

So, the likelihood is, we're going to have to pay a higher rate to attract new buyers. So as interest rates go up, bond prices go down. You own the price. I would avoid bonds.

Kate Stalter: What are some of the investment vehicles, then, that you're using to meet your clients' objectives these days?

Jerry Slusiewicz: Well, Kate, that's a good question. I still think that the exchange traded funds-you know, they've obviously grown in popularity, and most people are aware of them. They're the new mutual fund, if you will, because of the transparency and the tax benefits of owning them, and especially if you are looking at emerging markets as an investment.

You can go out and buy some ADRs or do research or figure out a way to buy stocks on foreign exchanges, but that's a pretty difficult call for most people. So if you're looking at emerging markets, perhaps buy some of the ETFs that are there; there are several in that space.

The most popular and highly traded is another iShares, the MSCI Emerging Markets ETF (EEM). And that, again in the last week, broke above its 200-, and 50-day moving averages. It's broken above its downtrend, looking at it technically.

And then, fundamentally, as I stated earlier, they don't have the debt issues. And if we do show growth, even if it's lumpy growth-which is growth nonetheless-globally, I think the emerging markets could be leading the charge to the upside.

So, there's another one through Vanguard; a lot of people like their ETFs as well, it's the Vanguard MSCI Emerging Market Index (VWO). Over the short-term, I think EEM is slightly better in the last two years; over the last four years, I think it's the other way around.

So, they're both pretty good quality funds, and that's what I'm looking at today, to position our clients for sectors of growth.

Kate Stalter: Any other stocks or ETFs, Jerry, that you believe are worth a look right now?

Jerry Slusiewicz: Well, a couple of stock names out there: I'm here in California, and in light of the recent California budget, where they're going to try to tax purchases made through Amazon.com (AMZN) to help balance our budget out here, with our huge fiscal problems, Amazon looks pretty good to me.

I still think that in the long-term, getting rid of the bricks and mortar-not that it's ever going to fully happen-but the growth of purchases online is a growing industry that will just continue to grow.

Technically, Amazon looks like it broke out; it has a perfect cup with handle base. Again, I'm looking at some of these things technically, as well.

It went down to its 50-day moving average. To me, over this base that it just broke out, I think that this thing could go up from $209 to somewhere in the $240 range. So that's a pretty good target for Amazon. I know there's other competition in the space. It's very interesting.

Another stock that might be a little bit overvalued right in here, but MasterCard (MA) broke out earlier in the week. It might be slightly extended; I don't know if you want to buy that exactly right today, but Visa (V) was another one.

The reason for those is, while the economy is bumping along, people's confidence is getting a little bit better, at least maybe in their spending habits. And people are spending on debt and spending on credit, and these companies-you know, they make money based on the transactions.

So, there's three different companies. Amazon looks viable today; maybe a little bit of a pullback on Visa or MasterCard, for the reasons I just outlined.

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