A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
3 New Bull Markets to Watch
05/30/2013 7:45 am EST
Opportunities are arising in these three markets for savvy investors who know where to look, says Doug Fabian of Successful Investing.
Nancy Zambell: My guest today is Doug Fabian, the president of Fabian Wealth Strategy, and also the author of some very successful newsletters, including the Successful Investing newsletter. Welcome Doug, and thanks for joining me.
Doug Fabian: Thank you very much, Nancy.
Nancy Zambell: I read with interest your latest Successful Investing newsletter and your decision to move more into cash for your subscribers. I can remember a few years back-when the market was just incredibly bullish-and most investors thought there was no end in sight, and there was Doug Fabian saying maybe we should think about this a little bit, and move into cash. And that was a great call.
Doug Fabian: Well, thank you, Nancy. I appreciate you looking back at our history on that.
This stock market move here in 2013 has been extremely impressive. Our cash position is based on my feeling that this market is very artificially enhanced just from the actions of the Federal Reserve.
I believe that just from the length of time that we've been in this bull market that investors should be more cautious with their serious money. That's a term that my dad always liked to use. The serious money is the money that your kids don't know that you have.
I just came back from the Las Vegas MoneyShow, and I am sharing with my readers some new investment opportunities that I think have excellent prospects in the intermediate and longer term.
But the US stock market, I think, is risky at these levels, and is due for a correction. And that correction is going to present opportunities. I don't think it's a good spot right here to be overexposing yourself to equities.
Nancy Zambell: You don't really think that we're going to have a crash, but just a correction?
Doug Fabian: That is correct. I believe that a correction is due. There are two areas of the world that we have to pay attention to as investors moving forward.
One is Japan. Japan has started to emerge in a new bull market, but the Japanese do have a deficit spending problem that is larger than our own. The Japanese bond market is very important to global stability, so we just want to keep our eye on what's going on with Japan.
They are participating in a bigger experiment than we are, in terms of how they are stimulating their economy by borrowing significant amounts of money at very low interest rates.
The other area of the world that we watch is Europe. Between Japan and Europe, those two regions of the world represent 40% of the world's economy, and we all know the story of Europe. They are mired in their own recession, and they're doing their best to try to stimulate growth out of the recession.
But to tell you the truth, I still feel that the world is awash in debt, and that we're going to have a day of reckoning on that debt. So we have to really watch interest rates, because that's what finally ended the debt debacle in Greece. I think that we just have to be aware of these outlier events that could cause more stress in the system than we would like to see.
Nancy Zambell: What do you see as the catalyst for this correction, Doug?
Doug Fabian: I believe that it could be something as simple as people wanting to take chips off the table or feeling that the economy is getting strong enough where the Fed is going to start tapering some of its bond purchases.
Again, we're in a very unusual period of time, Nancy. We have advanced here in the S&P 500 on a year-to-date basis without a 5% correction. The only time that has happened was 18 years ago. We're kind of in a market environment where it just looks like nothing can interrupt the market advance.
In some ways, this is somewhat reminiscent of March 2000 and October 2007, when the market was just marching higher. Then, of course, we had things unwind. We look back in hindsight and say to ourselves, "Well, we should've seen that coming."
We still have very high levels of debt, and now the debt is all sovereign debt. It's no longer debt of individual households; it's debt of governments. And how long can we go on with this deficit spending?
Again, I don't see a problem here in the US. I think that those problems will emanate from overseas, and that could be the catalyst for a more significant correction.
Nancy Zambell: In the meantime, I know you're keeping a lot in cash, but you did just make a buy in the natural gas arena.|pagebreak|
Doug Fabian: That I did, and there are three new bull markets that I believe investors should pay attention to. Let's begin with natural gas.
One of the things that I look at when I'm looking at new bull markets is for markets that have actually underperformed or gone down significantly. Natural gas fell from $12 to $2 in the span of about four years, from 2008 to 2012. Then we had a turn in April 2012, and natural gas prices started to rise again.
Now, we all know the reason for the decline. It was the new technology of finding natural gas, and the unprecedented discoveries of natural gas reserves here in the United States. So right now the US is going through a renaissance in terms of being able to distribute that natural gas all over the country, and also to be able to power our vehicles with natural gas. And then we may be exporting natural gas.
We've started to see the turn in the commodity, but I think that the bigger opportunities, actually, are going to be in natural gas equities. These are companies that are specifically focused on helping bring to market natural gas—whether it be the fracking technology that gets it out of the ground, the pipelines that bring it to market, or the technologies to be able to ship it overseas. Natural gas equities are going to be very powerful.
There are several exchange traded funds that give investors access to natural gas. The one we recommended for purchase by our subscribers was United States Natural Gas (UNG), the commodity play on natural gas.
But I wanted to mention to your listeners that there is another fund, First Trust ISE-Revere Natural Gas Idx (FCG), which is a pure natural gas equities play. There are 45 companies in this particular exchange traded fund, and it's a great way to be able to play natural gas.
Nancy Zambell: Your next bull market is clean energy?
Doug Fabian: That is correct. Clean energy is a market that fell significantly. I think most of your listeners would be aware that we saw a tremendous decline in solar stocks, and also in wind and energy over the last several years. There was a 70% decline in those stocks.
We've now started to see it turn. This turn just happened in December 2012, and now we're starting to see solar companies, as well as wind, battery-powered-everything that you can think of that revolves around clean energy-starting to move higher.
The exchange traded fund that gives you access to clean energy in a broad sense is PowerShares WilderHill Clean Energy ETF (PBW). One of the largest holdings of this ETF is automobile company Tesla Motors (TSLA). It's 5% of this exchange traded fund, and it's really helped this ETF advance so far this year. This ETF is up about 15% on a year-to-date basis.
Nancy Zambell: Yes, Tesla's had some good numbers, and their stock just went crazy last week.
Doug Fabian: Yes, they did.
Nancy Zambell: And then your third bull market is Japan.
Doug Fabian: Yes. Again, I want to caution investors in regards to Japan. We are seeing an experiment in monetary policy that has never been done in the history of the world, in terms of the amount of money that they are borrowing to stimulate their economy and keep their interest rates down.
People think that the United States has a wide budget deficit, but Japan has a much broader debt issue than the United States. But interest rates in Japan remain at very, very low levels, so...so far, there is no problem as far as the marketplace is concerned.
But one of the things that's happened is the Japanese yen, their currency, has fallen significantly-30%in the past six months. Japan is an export-led economy.
We all know about Toyotas (TM), Hondas (HMC), Sony (SNE) TVs, and all of the products that they ship around the world. Well, their products just became significantly less expensive, and so their stock market has roared higher on a year-to-date basis. The Nikkei is up 40%.
There are a number of exchange traded funds that give you the ability to participate in Japan. Again, on a short-term basis, I'd like to see a correction in the Japanese market, but it is definitely a new bull market in Japan. And since it's only about six months old, we could see much more profitability as we move forward.
I actually like Japanese small caps. The small-cap ETF is iShares MSCI Japan Small Cap Index (SCJ), and I believe that that's a great way to play.
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