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4 Reasons to Consider Utility ETFs

There are a gazillion ways to play the energy sector with exchange traded funds, but you’re not just limited to oil, natural gas or solar power. Utilities might be an off-the-beaten path way to invest in the nation’s changing energy picture.

ETFDesk users see this as a potential opportunity to: buy Rydex S&P Equal Weight Utilities ETF (RYU)

buy Vanguard Utilities ETF (VPU)

buy iShares S&P Global Utilities Sector Index Fund (JXI)

buy iShares DJ US Utilities (IDU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today. While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

ETFDesk users see this as a potential opportunity to: sell iShares DJ US Real Estate (IYR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Long-Term Rates Finally on Verge of Breaking Out

ALTHOUGH THE FED HAS reaffirmed its low short-term interest rate policy, it cannot control long-term interest rates. In fact, the yield on the benchmark 10-year Treasury note has risen from a low of 3.23% at Thanksgiving of last year to its current level 3.87%.

ETFDesk users see this as a potential opportunity to: sell iShares Lehman 20+ Year Treasury Bond Fund (TLT)

sell iShares Lehman 7-10 Year Treasury Bond Fund (IEF)

sell iShares Lehman 10-20 Year Treasury Bond Fund (TLH)

buy UltraShort Lehman 7-10 Year Treasury ProShares (PST)

buy UltraShort Lehman 20+ Year Treasury ProShares (TBT)

sell PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

M&A surges in Asia while US and Europe suffer

Mergers and acquisitions boomed in Asia in the first quarter in sharp contrast to a slump in deal volume in Europe and the US, underlining a global shift in activity in the wake of the credit crisis.

ETFDesk users see this as a potential opportunity to: buy Gabelli Global Deal Fund (GDL)

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil in Big Macs: Chart of the Day

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil. Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices. As of now it appears agricultural goods is undervalued relative to Oil.

ETFDesk users see this as a potential opportunity to: sell United States Oil Fund LP (USO)

buy ELEMENTS – Rogers International Commodity Index Agriculture Total Return (RJA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Source: Gregor.us

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil.  Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices.  As of now it appears agricultural goods is undervalued relative to Oil. 

Interesting to see how the plays out in a pairs trade?

Short Oil (USO  United States Oil Fund LP)

Long Agriculture (RJA  ELEMENTS – Rogers International Commodity Index Agriculture Total Return)

An interesting study by a couple of Seton Hall University economists shows a “hidden” gap in historical hedge fund returns.  The authors found a suveriorship bias in hedge fund returns, amplified by failing funds that stop reporting their performance.  An interesting study indeed…

According to Deutsche Bank, the rent-buy gap has narrowed by 5.2% in Q4 2009 to 88.5% the second highest level since Q1 2003.

national rent-buy gap (rent as % of after-tax mortgage payments, ATMP)

source: Deutsche Bank “Rent or Buy?”

While home affordability has improved, rents remain more affodable compared to income.  The cost to rent in Q3 2009 was 9.4% of household income, while the cost to own is 11.3% of household income. Notice the graph below, ATMP as % of household income has fallen signficantly from its peak in Q2 2006 of 17.2% but not below historical trend levels.

source: Deutsche Bank “Rent or Buy?”

However, other affordability metrics have shown housing affordability at alltime hights. For example, the most commonly cited metric – the National Association fo Realtors (NAR) index has set highs since December 2009.  However, the Deutsche Bank analysts question this as an appropriate measure. NAR looks at housing costs in isolation.  This grossly underrepresents the dwelling options of any individual.  As we all know, renting is a viable option, so any index that does not take into account the cost of renting a home vs. owning a home is fundamentally flawed.

source: Deutsche Bank “Rent or Buy?”

Using a Price-to-rent ratio, akin to a price-earning ratio, Deutsche Bank analysts argue that home prices could decline another 11%.  During the early 1990s, the average price-to-rent ration was 16.2.  During the mid 2000′s the ratio reached a peak of 24.7 in Q2 2007 and has since fallend to 18.2 in Q4 2009.  However this 18.2 reading is still elevated compated to that of the 1990s. 

During  the  1990’s  a  booming economy did little to push price-rent ratios out of equilibrium as both home prices and rents
moved in the same general direction. In our view, rents are likely to decline, thus prices may
need to fall even further than the 11% that the price-to-rent ratio implies.

source: Deutsche Bank “Rent or Buy?”

source: Deutsche Bank “Rent or Buy?”

With mortgage rates starting to creap up as the FED is signaling the end of mortgage buying, it doesn’t seem like a stretch to think that as rates go up, home prices will fall in order to keep some sort of equilibrium in affordability. 

With the tax credits expiring towards the middle half of this year, continued increase in forclosures, headwinds still persist for the housing market.  Now might be a good time to start building shorts in IYR in the face of exhubirant optimism with the recent Case-Shiller index.

source: www.etfdesk.com

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The equity market rally is nearing its end

That’s the view of Morgan Stanley’s Teun Draaisma, who reckons the much feared tightening is about to begin in earnest.

ETFDesk users see this as a potential opportunity to: sell DJIA DIAMONDS (DIA)

sell S&P 500 SPDR (SPY)

sell iShares Russell 2000 (IWM);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Must Be A Bull Market: The Dumbest Job Ever, Day Trading, Is Cool Again

Apparently, day trading is back. The New York Times says so. So it must be.

Check out how others are using ETFs to capitalize on this news or add your own opinion

Actively Managed Mutual Funds Are Obsolete

With index funds and ETFs offering diversification at lower cost, actively managed funds have lost their original purpose.

Check out how others are using ETFs to capitalize on this news or add your own opinion

Why Fund Managers’ Hot Performance Isn’t So Hot

Where have all the geniuses been hiding, and why have they suddenly been popping up everywhere?
Check out how others are using ETFs to capitalize on this news or add your own opinion

Euro Trashed

THE European Monetary Union, the basis of the euro, began with a grand illusion. On one side were countries — Austria, Finland, Germany and the Netherlands — whose currencies had persistently appreciated, both within Europe and worldwide; the countries on the other side — Belgium, France, Greece, Italy, Portugal and Spain — had persistently depreciating currencies. Yet the union was devised as a one-size-fits-all structure. As a result, some countries had to use creative accountin

ETFDesk users see this as a potential opportunity to: buy iShares MSCI-Germany (EWG);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Strong Earnings May Already Be Baked In

For investors, the thrill of earnings season may be over before it’s even begun. The first quarter ends on Wednesday, and earnings season gets into full swing with aluminum giant Alcoa’s results due out on April 12.

ETFDesk users see this as a potential opportunity to: sell DJIA DIAMONDS (DIA)

sell S&P 500 SPDR (SPY)

sell Nasdaq-100 Index Tracking Stock (QQQQ)

sell iShares Russell 2000 (IWM);

Check out how others are using ETFs to capitalize on this news or add your own opinion

China becomes world’s new diabetes capital

China now has more people with diabetes than any other country, a new report shows, making it clear that the nation’s soaring economic growth is taking a toll on public health.

ETFDesk users see this as a potential opportunity to: buy Biotech HOLDRS (BBH);

buy iShares Dow Jones U.S. Medical Devices Index Fund (IHI);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Pesek lists 4 reasons why such a move may backfire:

1) Inflation: According to Pesek, a stronger Yuan could devestate the “Walmart Economy.”  Evidenced by a large trade surplus with China, the US consumer buys a lot of cheap products from China.  A sudden increase in prices would be a “shock to the bargain.”  U.S. inflation data, which has been muted in recent months could see a sudden surge.

2) Market Turmoil: Tensions between the US and China have been increasing.  There are growing calls with in the US to label China as a “currency manipulator.”  As tensions mount, markets around the world will be volitile which each press statement and every remark by government officials as the world’s largest economic powers square off.

3) A Chinese Slowdown:  The Chinese economy has been an engine of growth for the economic recovery.  Pesek notes that the economic consequences of say a 10% revaluation of the Yuan vs. the dollar is unknown.  The Chinese Government’s legitamicy is largely premised on rapid growth.  Underestimating China’s fragilities could be a major problem; less GDP growth means less toleratnce for government policies, which could lead to greater unrest.  Can a worldwide economic recovery continue with a slower growing China?

4) Increasing China’s sphere of influence: Pesek mentions China has been pumping billions of dollars into emerging markets in Asia, Latin America, and Africa, often at the expense of US strategic interests.  Each increase in the Yuan grows its worldwide influence.

Charts (from Dave Rosenberg) show that this is the weakest post-recession recovery on record. Anyone starting to question this 70% run up since March ’09?