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Go Long SPY Now – Market Turn At Hand

The market has accounted for its fear of the ECB and Greece year-to-date, and I believe stocks have mostly sold off in 2015 because of rumors around these events. But as rumor fades into news, stocks are poised to enjoy a relief rally, and SPY is already off its lows marked on January 15. While the Greek election results are likely to revive some fear next week, I am already taking long stakes in stocks and view SPY okay to buy in increments. It’s time to start going long the SPDR S&P 500 Trust ETF (NYSE: SPY ), aka the U.S. market, as I see a turn sometime between last week’s low and the end of the month. If I am correct that the European Central Bank (ECB) action and the Greek election and its potential repercussions have greatly swayed currencies, commodities and stocks year-to-date, then a turn may be in store in the very near-term. My reasoning is based on my belief that stocks have mostly priced in worst case scenario fueled fear, and that reality will be much less scary than expectations. Stocks seem to have already found stability, with a recent bottom marked on January 15 for SPY; and many names are rising into their earnings events now, some of which I have taken long stakes in over the past week. I’ll talk about those in dedicated articles. The market has priced in a ton of fear year-to-date, I believe around the Greek election and its potential election to drop out of (or be dropped out of) the euro-zone thereafter if the big demands of its expected new leadership are not met. But, I expect the end result of events in Greece will prove much less threatening than the market has priced in, offering opportunity for relief rally as events unfold this weekend and next month. Thus, we appear to have set up for a sell the rumor, buy the news turn of events, and it’s about time to start buying in increments here. Volatility has dropped off significantly over the last two trading days, and I’m pulling my hair out for not taking that short position in the iPath S&P 500 VIX Short Term Futures ETN (NYSE: VXX ) I had been contemplating through put options. We may get another spike in the VXX Monday after the Greek election results come in, so there could be another opportunity yet. But as for the market generally, I think it’s okay to start taking stakes in stocks again and the SPDR S&P 500 is a great way to do that. I surveyed some of my Greek contacts and have contemplated the situation; there seems to be the possibility that risk may have been overly priced into stocks around the Greek election due on Sunday. The new disruptive political party Wall Street and Brussels are concerned about, Syriza, is not the threat to European and global stability our press indicates it is. Yes, Syriza will push for renegotiation of the terms of the money Greece owes its European partners and other parties, but it will not default on that debt in my view. In other words, a Grexit is not going to happen as far as I see it. SPY’s page at Seeking Alpha shows it is only down 1.2% year-to-date after gaining back roughly 2.9% since the January 15 close. Many pundits I’ve seen talk about the market seem to conclude the valuation of the S&P 500 Index is not so cheap, with an index P/E multiple of roughly 18.8X, versus historical mean closer to 15.5X. However, the index multiple on forward estimates is 16.65X according to the WSJ page linked to above. Let’s not forget that our economy is growing at an accelerating pace and that the unemployment rate has been decreasing at a better than expected rate. Europe has its stimulus now, but the region’s decline and even China’s slowing growth are not a huge a threat to our economy anyway; that is especially true now that gasoline prices have come down so much (I’m looking for oil prices to stabilize and rise soon). My friends, I say face fear and start buying stocks now in increments and more so as we get passed this Greek election event. It will drive fear again into stocks next week, but I expect that would only open further opportunity for U.S. investors to buy SPY and stocks generally for benefit later this year. This thing has been overblown. My mouth is watering over some of the valuations I see considering this economy’s strength, so I’m gritting my teeth and buying stocks.

Europe’s QE Experiment: Adding Stock ETF Exposure And Hedging Against The Unforeseen

The scope and size of the European Central Bank’s latest stimulus effort has delighted the worldwide investing community. The countries/regions that are in the process of actively weakening their currencies are seeing the greatest pop in near-term equity prices. All of the safer haven currency proxies have gained ground in 2015, whereas the overwhelming majority of global growth-oriented currency ETFs are hittng 52-week lows. The scope (current euro-zone member nations) and size ($1.1 trillion euros) of the European Central Bank’s latest stimulus effort has delighted the worldwide investing community. In fact, many began betting on a monumental quantitative easing “project” the minute that Europe registered year-over-year deflation of -0.2% for the month of December. This can be seen in dollar-denominated ETF performance since the start of the 2015. The Anticipation Game: Investors Bet On Most Recent “QE” Beneficiaries Approx YTD% iShares Currency Hedged MSCI Germany ET F (NYSEARCA: HEWG ) 8.5% Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) 4.3% WisdomTree Korea Hedged Equity ETF (NASDAQ: DXKW ) 0.9% WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) 0.3% SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) 0.0% The outperformance by Germany as well as Europe over less recent “quantitative easers” is worthy of note. It tells us that the countries/regions that are in the process of actively weakening their currencies – the ones that are actively lowering the costs of servicing their sovereign debt by the most significant amounts via ultra-low yields – are seeing the greatest pop in near-term equity prices. Indeed, the vast majority of currency ETFs are hitting 52-week lows. The ones that are not? The safer haven currency proxies which include the CurrencyShares Swiss Franc Trust ETF (NYSEARCA: FXF ), the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ), the PowerShares DB USD Bull ETF (NYSEARCA: UUP ) and SPDR Gold Trust ETF (NYSEARCA: GLD ). All of these safer haven currency proxies have gained ground in 2015, whereas the overwhelming majority of global growth-oriented currency ETFs are hittng 52-week lows. Safer Haven Proxies Are Flourishing, Global Growth Proxies Are Languishing Approx YTD % FXF 13.5% GLD 9.1% UUP 4.8% FXY 1.7% CurrencyShares Australian Dollar Trust ETF (NYSEARCA: FXA ) -2.5% CurrencyShares British Pound Sterling Trust ETF (NYSEARCA: FXB ) -3.6% CurrencyShares Canadian Dollar Trust ETF (NYSEARCA: FXC ) -6.3% CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) -7.0% For those who do not understand why the yen strengthens in risk-off environments, you may need a refresher on the “carry trade.” Investors borrow the low yielding yen to invest in higher yielding assets or higher appreciating assets. However, there is a serious consequence for playing the game at the wrong time; specifically, the yen rise in value when institutions and hedge funds rapidly sell stocks, higher-yielding bonds and higher-yielding currencies to avoid paying back loans in a more expensive yen. The Japanese currency can rise rapidly and the reverse carry trade can take on a life of its own. During January’s volatility in U.S. stock assets, FXY has crossed above its 50-day moving average. If the risk off volatility has truly run its course due to the European Central Bank’s mammoth QE promise and the Bank of Japan’s existing promises, FXY should stabilize rather than climb. Conversely, additional gains for FXY would suggest additional unwinding of the yen carry trade as well as a high probability of heavy volume selling of stock assets. The potential for the carry trade to unwind and the yen’s historical record as a safer haven currency is the reason for its inclusion in the FTSE Custom Multi-Asset Stock Hedge Index. This index that my Pacific Park Financial colleague and I created with FTSE-Russell- the one that many are already calling “MASH” – holds the franc, yen, dollar and gold. It also owns long maturity treasuries, zero coupon bonds, inflation-protected securities, munis, German bunds and Japanese government bonds. Year-to-date, the FTSE Custom Multi-Asset Stock Hedge Index is up 4.5%. Shouldn’t investors just play market-based securities in a way that has worked so well during the Federal Reserve’s QE3? The shock-and-awe, 1.5 trillion dollar, open-ended, bond-buying bazooka that gave U.S. stocks double-digit percentage gains in 2012, 2013 and 2014? After all, the European Central Bank (ECB) is proffering $1.1 trillion euros into 2016. The problem in the comparison between these programs is that 80% of the sovereign bonds are being bought by the national central banks and not the the ECB itself. This means that each country (e.g., Austria, Belgium, France, Germany, Greece, Italy, Spain, etc.) is responsible for its own default risk. It follows that I might be willing to add a fund like HEWG to my barbell portfolio , alongside several existing components such as the iShares S&P 100 ETF (NYSEARCA: OEF ), the Health Care Select Sect SPDR ETF (NYSEARCA: XLV ) and the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ). I might be a bit more skeptical of the i Shares Currency Hedged MSCI EAFE ETF (NYSEARCA: HEFA ), simply because of the drag of extreme debtors on the periphery of Europe (e.g., Spain, Portugal, Greece, etc.). By the same token, I have slowly increased exposure over the last three months to a number of existing holdings on the other side of the barbell. They include GLD, the i Shares 10-20 Year Treasury Bond ETF (NYSEARCA: TLH ), the Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) and, more recently, FXY. Remember, multi-asset stock hedging does not mean that your dynamic hedging loses when riskier stock assets win. On the contrary. Both sides of the barbell tend to perform in late-stage bulls. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

GAMCO Global Gold, Natural Resources & Income Trust And GAMCO Natural Resources, Gold & Income Trust: Is It Time To Sell?

Summary The discounts at GGN and GNT have booth narrowed since I highlighted them. If you were looking for a quick gain, it might make sense to take or at least look at taking profits. With recent history as a guide, however, there could be a little more narrowing to go. I wrote articles about GAMCO Global Gold, Natural Resources & Income Trust (NYSEMKT: GGN ) and GAMCO Natural Resources, Gold & Income Trust (NYSE: GNT ) earlier this month, highlighting an opportunity to take advantage of discounts that appeared likely to narrow. That’s started to happen. If you were looking for a quick gain, now is the time start thinking about a sale. This pair of closed-end funds, or CEFs, from Gabelli invest in exactly what their names suggest, precious metals and other natural resources. The big difference is that Natural Resources, Gold & Income Trust has a broader mandate, so it includes specialty chemicals, agriculture, and machinery. That makes it a little more diversified, though not by much. In addition, Global Gold, Natural Resources & Income makes use of leverage, something that its sibling does not do. Both CEFs use options to generate income, their main goal. The quickie When I wrote about GGN and GNT on the seventh and eighth of January, respectively, their discounts were roughly 5% and 6%. At the close of trading on the 21st, those discounts had narrowed to around 1% for GGN and 4% for GNT. This is in keeping with recent history. Toward the end of the year, this pairs’ discounts have widened only to narrow as the new year progresses. At this point, the price of GGN has increased around 8% and the price of GNT has advanced about 5.5%. There was also a $0.07 per share dividend that I didn’t included in either return figure. On an absolute basis those aren’t numbers to write home about. However, if the goal was a short term trade, that quick bounce happened in about two weeks. Annualized, that’s a great return. If you were looking to benefit from the discount narrowing, you should be thinking about selling. That said, there could be a little more upside. Based on the price performance of GGN over the last 18 months, it looks like a 3% premium would be a good selling point. Selling GNT when the discount narrows to zero looks about the right point for that CEF. Clearly, I can’t guarantee that either fund will get to those points, but that’s what a rough average of the three narrowest discounts (or widest premiums, as the case may be) over the past year and half suggest as sell targets. That said, if you want the quick gain, you might want to just lock in now. Longer term? There’s another angle here, however, that could merit you sticking around longer. Both GGN and GNT provide exposure to hard assets. This can provide a safe haven during turbulent times. If you think the market is at or nearing a turning point, either of these funds could be a ballast for your portfolio. And if you include distributions into returns (essentially looking at total return), the funds have solid track records. Both have outperformed Vanguard Precious Metals and Mining Fund (MUTF: VGPMX ) over the trailing three year period through year-end 2014, according to Morningstar. And GGN, which has been around longer, also outperformed Vanguard’s offering over the trailing five year period. So, comparatively speaking, they are a decent way to get exposure to this sector. Note that all of the funds lost ground over the trailing three- and five-year periods, so I am discussing relative performance not absolute performance. So, at the end of the day, there’s a reason to sit tight if you bought GGN or GNT for exposure to gold and natural resources. However, if the potential narrowing of the discount was your reason for buying either of these, you could lock in quick gains now. If you are hoping for a little more gain, you should, at the very least, start thinking about when you want to get out. For GGN I think a 3% premium could be a good selling point. For GNT I would be looking to sell when the discount narrows to 0%.