Daily Investment Interpretations

May 20, 2009

2009-5-20: Once again, the indices rose smartly, only to fall back later in the day when the minutes of the last Fed meeting revealed that the Fed governors don't see a full recovery, with five years or more before unemployment falls below 5%. Federal Open Market Committee members aren't worried about inflation or deflation. They're still forecasting a weak rebound in the latter half of 2009. 
    The
NASDAQ Composite climbed 6.17 points (-0.39%) to 1,727.84, the Dow slid 52.81 points (-0.62%) to 8,422.04, and the S&P 500 doffed 4.66 points (-0.51%) to close at 903.47. Oil hit a six-month high of $62.10 a barrel, while gold climbed $11 an ounce to $937. Of course, rising oil prices bring the threat of stagflation, while boosting the prospects for alternative energy. OPEC has been pushing for $70-a-barrel oil 
   .The VIX
rose slightly to 29.03.
    I've become uneasy lately regarding emerging markets, and particularly, the Chinese marketplace. Their indices have risen a long way since last October. They're still only about halfway back to their 2007 highs, but the Chinese market was in bubble territory in the summer of 2007. Chinese investors were arguing that the Chinese government wouldn't permit the Chinese stock markets to tumble before the Beijing Olympic games in July, 2008, but they tumbled, anyway. The Chinese markets have not-quite doubled since last October's lows. (FXI fell from a dividend-adjusted high of $68 a share on October 31, 2007, to a low of $19 a share on October 27, 2008.) There have been articles this past week about the heavy cash inflows to the Chinese and emerging markets. Usually, when you begin to read about heavy cash inflows to a marketplace, it's a signal that a top is at hand. And it's not as though we didn't have other compelling choices. The recession, coupled with the fall in the price of oil, has adversely impacted alternative energy stocks, giving us an opportunity to stock up on such stocks. What's intriguing about alternative energy is that it has room to romp. Alternative energy sources account for only a fraction of a percent of all energy sources. Meanwhile, alternative energy sources are only getting cheaper and better. Sometime soon, these stocks will take off again. (Over the last two years, Suntech--STP-- has hit a high of $90 a share and a low of $5.09 a share. It's currently trading at around $16 a share.)  I'm more comfortable buying alternative energy index funds than I am individual stocks because I could imagine it being hard to know which companies will survive shakeouts and which areas of green energy will show the biggest profits. For example, in addition to a number of competing technologies such as solar thermal, smart power grids, energy conservation, and saltwater algae-based biodiesel, there are uncertainties over which companies will actually survive various shakeouts. For example, once a sizable market develops for alternate energy, companies like GE and BP might muscle into the marketplace and stomp pioneers like Q-Cell and Vestas, or at least, runners-up like Suntech and Gamesys. Consequently, I'm inclined toward such ETF's as the PowerShares Wilderhill Green Energy Technology Fund, PBW,
Chart for PBW
 the Claymore/MAC Global Solar Energy Index ETF, TAN,
Chart for TAN
and the First Trust ISE Global Wind Energy Fund, FAN.
Chart for FAN
    All three of these funds have plenty of headroom.
    More about this tomorrow.