January 27, 2007: Weekend musings and ETFs

As many are aware, there are almost 375 new ETFs being considered for launch. To capture a following, I suspect that many of the new funds will be based on strategies the average investor will find appealing (sexy?). Funds that utilize shorting tactics, "fourth world" markets, etc. may make for great social banter, but could be a pox on your portfolio. As mentioned in this blog before, never invest if, 1. you do not understand the investment and, 2. you do not have an exit strategy for the investment before you purchase it.

MSCI is intent upon producing 20,000 new indices over and above the 80,000+ they presently have. This will provide even more micro-focus content for world investment opportunities, thus creating many new ETFs. Creating sub-sectors from sectors is a good thing, in my opinion. This will allow the investor even more freedom of choice to pursue valid security bundles in heretofore unavailable spectrums. Importantly, the investor should examine the contents of the ETF before investing. Several ETF's with similar themes may have entirely different portfolios. For example, I found this to be true with oil service ETFs. Or, you may find that very few holdings make up a large part of the portfolio.

Investors may want to monitor the following ETFs. They could be attractive additions to your portfolio at the appropriate time.

Powershares Value Line Sector Rotation ETF (PYH) www.powershares.com
My reservation is that the fund may not be nimble enough to change course.Value Line is the grandfather of stock and sector rankings for quality and timeliness..

Powershares International Dividend Achievers ETF (PID)
This could be a good defensive investment with decent growth prospects. The portfolio is heavy in financials, as expected. I like the portfolio. Good currency hedge.

WisdomTree International Utilities Sector ETF (DBU) www.wisdomtree.com
Good worldwide portfolio. Not a home run, but decent currency hedge and a nice place to make a defensive stand without going to cash in a recession, if necessary.

Powershares Dynamic MagniQuant Portfolio ETF (PIQ)
Investing mechanism too detailed to summarize in one sentence. Very interesting portfolio mix that could provide solid growth and international exposure.

iShares Switzerland ETF (EWL)www.ishares.com
I own it. Really like the gold-plate portfolio.

Powershares Dynamic Buyback Achievers (PKW)
I own it. Ordinarily, I like to have a fund become seasoned before considering purchase. I like the concept, I like the portfolio and I bought it out of the shoot. US exposure and a sound criteria for the fund.

For those interested in a "green" ETF, the Claymore/LGA Green ETF (GRN) is available.www.claymore.com
Examine the portfolio carefully. The top holding is Exxon/Mobil with Wal-Mart and "big money" banks included amongst the top ten holdings. If you drive a bicycle to work and still have old Al Gore campaign literature about the house, this fund may not include companies you hold dear. Then again, it may outperform the hemp and solar power stocks of others.


New readers may want to review the post of January 25 for more specific portfolio commentary and ideas.

January 26, 2007: Bonds and the ETF mimic

United States WW2 War Bond poster by Dr. Seuss, Bonds galore!, Bonds, and a Russian WW1 War Bond poster produced by a victim of a subsequent Bolshevik purge, no doubt.

When the stock market begins to stagger, or when astute investors strive to achieve a diversified portfolio of securities and other investments, Bonds begin to receive attention.

Aggressive investors have held a fascination with low quality Bonds. The past few years, they have been well rewarded for their prowess. Now that the spreads between most junk and investment grade quality Bonds have narrowed, what are these investors going to do? For some, it may mean disbursing more assets into high yield funds, convertible securities, preferred shares or emerging market debt. For others, it may mean to forget high yield, such as it is, and go into purely investment grade securities or their equivalent.For those seeking ETF funds that will allow investors to hybrid into more creative bundles of yield quality, disappointment awaits.

I have been unimpressed with the ETF Bond fund roll outs recently. When there was no winner or even minimal competition between creative investments, the term "like kissing your sister" used to be expressed. Go through the motions with no rewards or excitement. No winner. No looser. The present state of Bond ETFs personified.

ETF fund companies such as WisdomTree have dividend dynamics, but no real income punch. Lots of sectors and indexes, but no unique hybrids. IShares launched several Bond ETFs last week. Yawn. Things are so boring that Vanguard, launching four ETF Bond funds, looks mighty sexy with ultra-low cost and a larger Bond portfolios to keep things, well, tasting of vanilla.

Certainly, Bonds are not meant to be sexy, but how about mixing the quality and yield? Give us some ETFs that will accentuate the punch of high yield securities with a mix of the eclectic? Is this asking too much? Or, is this just asking for trouble?

For the investor frustrated by the sameness of Bond funds in their respective classes, perhaps the best route is to seek some blend with, say, the Fidelity Strategic Income Fund, GE Interest Plus account,short-term GMAC Smart Notes, a Canadian Oil Trust like Canetic Resources (CNE), the Nicholas-Appelgate Convertible and Income Fund II (NCZ), Aon Corp. 8% Corts Pfd (KVW) and the Advent Claymore Convertible and Income Fund (AVK).The Claymore Dividend Hog ETF Fund (CVY) or wisely selected WisdomTree ETFs may provide growth.

Blending disparate income-producing investments with a wide band of risk is not all that difficult for the individual investor with time and tools. Are those in ETF-land missing an opportunity by not producing more products that would mimic these efforts?

January 22, 2007: Bombs away: Aero Defense

This is a brand new generation of Cruise Missile. Called the AGM-129 and readied at Eglin AFB near Destin, FL.,it is designed to evade all known air and ground-based defenses to strike even the most hardened of targets.Armament and depth of target penetration are classified. Iran and North Korea? Checkmate.

Reports indicate that DOD will up Iraq Surge budget from 100B to 105.6B.

LMT has been ordered to stop work on the LCS program.

MRAP contracts to be approved in April call for approx, 4060 vehicles between July and December of this year.

GE has agreed to acquire Smiths Aerospace. Importantly, GE has entered into a very large homeland security joint venture with Smiths. This is a big deal.

Wow! Airbus has announced it expects to deliver negative EBIT for 2006. Who would have thought.

UPS may cancel 10 A380F Airbus orders. This may kill the Airbus hope to use the A380 as a freighter.

ERJ delivered 37 aircraft in 4th Quarter, 2006. Short by five aircraft. I still like this stock.

Fed up with poor service, long lines and poor flights, Biz jet charter air activity was up 20% year to year.

I do not recommend any fund in the Aero Defense sector at this time. Individual stock selection is important.

BEAV BE Aerospace
PCP Precision Castparts
TDG TransDigm Group
BA Boeing
ESL Esterline Tech
DYN DynCorp
GD General Dynamics
GR Goodrich
LLL L-3 Communications
NOC Northrup Grumman

I am looking into several microcap stocks in this realm. I will make a comment on these if and when I see a good value.

January 19, 2007: Boost your yield

The Titan (largest), Delta IV (brand new) and the anti-missile (yes...it works)
all circa 2006





With certainty, there will be higher yield ETFs being "launched" soon. Until then, what does the investor do to "boost" portfolio yield but not have a security "explode" causing financial "fallout"?

Here are a few ideas:

GE Interest Plus yielding up to 5.43% with stable principal. www.geinterestplus.com

Six month T-bills bought at the US Treasury web site www.publicdebt/treas.gov/

Advent Claymore Convertible and Income Fund at 28/share (AVK) 9.0%
Ramco-Gershenson Property Trust at 36/share (RPT C) 6.3%
Flaherty and Crumrine/Claymore Fund at 21 (FFC) 7.2%
AON Corp. 8% Corts Preferred at 26 (KVW) 7.8%
General Motors 7.375% Pfd. Sr. Notes at 18/share (BGM) 9.8%
SLM Corp. Adjustable Rate Pfd. at 102/sh (SLM B)6.1%

iShares Intermediate Credit Bond Fund at 100/sh (CIU) 5.43%
Powershares Financial Preferred Portfolio at 25.07/sh (PGF) varies
WisdomTree Div. Index Europe/Asia/Australasia at 61.50/sh (DWM) varies

Vanguard High Yield Fund (VWEHX) 8.50%
Aegis High Yield Fund ((AHYFX) 9%
Fidelity High Yield (SPHIX) 9%
note: mutual fund yields are approximate due to security churning

You may also take a string look at GMAC SmartNotes maturing in 35 months or less. Some are oddly priced on a day to day basis and you could get lucky. Plan on holding these notes to maturity.

High yield fixed income securities can be found. I am beating a dead horse by recommending the Sirius issue again (see yesterday's post).

It is my view that interest core inflation will rise this year, but not by a great amount. We all know that if interest rates rise, fixed income securities will fall in price in reaction. Thus, be selective and assume that "the best laid investment plans" can fail.

Let's see who can "propel" themselves to "rocket" into the Super Bowl this weekend.

January 17, 2007: Satellite radio... "Stern" advice

Research reports indicate a change of course for the future of satellite radio. It is getting brighter, especially if Sirius (SIRI) and XM (XMSR) merge with an estimated cost savings of $10.5 billion based upon what seems to be a conservative model.

Satellite radio is here to stay. The teenage through college market, the next generation, expect satellite radio to be installed in their vehicles. The transportation industry, ditto. More and more, the service industry will turn to satellite radio for appropriate musical settings. The quality of satellite radio is excellent and getting better. The price point of entry is low. And, it serves an entertainment void similar to what am talk radio filled in the 1990s and then some.
In short, underlying demand and customer satisfaction is strong. The key barrier is trial, which should improve with increased consumer awareness and OEM installation rates.

From today's stock price, one analyst, no shill for the group, sees a 12% upside for Sirius and a 50% upside for XM this year. With a merger, I think that the upside rises to 20% and 68% respectively. It is possible that a combination of the two networks could be announced this year, which is an advantage coming before the 2008 elections. Of course, there is still a regulatory risk. Chance of a problem? Flip a coin. I would bet that each company is placing political bets in no small measure. And there are pro-consumer arguments to be made (more programming, ability to access both services by not being locked in at point of purchase in the auto showroom).

Satellite radio is an industry with strong ,not outstanding secular growth. Another analyst estimates that there will be 17.7 million subscribers in 2007 (13 million in 2006) and conservatively 29 million in 2010 and 45 million in 2015. Satellite radio can grow revenue through advertising growth and modest price increases. Satellite radio, merge or not, will likely be profitable to a degree by late 2008.

All said, there is money to be made in the satellite radio business, and money to be made in their investment vehicles. Short of buying stock in either company, I would strongly recommend you look at their financial paper, especially the SIRIUS Senior Note 9.62% 08/01/13 #82966UAK9 trading at $98.38. It is rated junk, but is worth the risk, in my opinion. It also possesses an enviable call feature. I have recommended this security on more than one occasion and own it in my speculative portfolio.

January 16, 2007:Natural gas education 101, storage.

The team at CSFB has published an extensive and interesting report on an under-reported and important aspect of the natural gas industry: natural gas storage.

The major use for a storage facility is to improve reliability during the peak seasonal winter demand period. Storage "is gradually injected through the shoulder (low demand during spring and fall periods) and summer months, and subsequently withdrawn through the winter months of November through March".

Natural gas can be stored underground in depleted reservoirs, aquifers and salt caverns. Depleted reservoirs make up the bulk of underground storage capacity in North America because they are the most economical. Aquifer storage requires considerable investment. Salt caverns are the least common and require the hollowing out of a storage area within a salt dome through the injection of water and removal of salt with the water." Natural gas storage is divided between working gas and base gas. Working gas is the volume of natural gas that may be removed from the facility. Base gas represents the volume of natural gas that must remain within the storage facility to provide minimum pressure necessary to remove the working gas".

Much has been made about the Canadian Oil Sands in Alberta, Canada. However, natural gas is an even bigger story from that region. Due to substantially higher market value for gas storage services, Alberta Province continues to be a very attractive place to develope gas storage. To date, storage capacity amongst the seven facilities is 336 Billion cubic feet of gas. In 2005, it was 250 Billion cubic feet. The fundamentals for natural gas appear very attractive now. With increasing price volatility, storage is a compelling alternative to burn off or "drill high/sell low". Storage in upstream Alberta is useful when there is excess pipeline capacity. And, owning energy assets such as storage provides an informational advantage about the natural gas market. A huge gas field from the MacKenzie Valley and from proved gas fields in Alaska will enhance Alberta's importance further as a natural gas storer as well as producer.

The company best positioned to profit from gas storage in Alberta is TransCanada. In 2007, TransCanada will be able to store for themselves and for third party "renters" 130Billion cubic feet of gas. This presents an excellent revenue stream for TransCanada, and may be upwards of 12% of their earnings this year and an increasing percentage beyond. The rates and services associated with underground storage facilities in Alberta are market based. TransCanada does not take any commodity price risk on third party rent transactions.

FINALE:

It gets a bit more complex, but the essence is that natural gas storage is important and under-reported. TransCanada is the best play in the storage capacity universe, and growing. Alberta will be an even greater pipeline and storage hub for natural gas in the future. And, there is a lot of money to be made holding gas seasonally.

TransCanada (TRP) is an excellent stock to consider this spring, when natural gas equities are out of favor due to sector rotation. For your fixed income portfolio, TransCanada's 8.25% preferred 2047 (TCA.PR) trading at 25.87/share yields 7.97%.

January 15, 2007: On the right track..engines

TRAIN ENGINES:
One of the "signals" of economic health is the amount of traffic on our nation's railways. I thought it would be appropriate to briefly report on this topic to you.

At the present time, I do not own any singleton railroad stocks. A few are tucked away in some ETF, but nothing of any significance. If I were to recommend railroads at this time, I would Canadian National Railway (CNR), Norfolk Southern (NSC) and Union Pacific (UNP) on a valuation basis. Lower energy costs plus stable rail traffic volume indicated a good year ahead for these railroads. Actually, all publicly traded railroads will benefit from the aforementioned to a degree. Maybe there is an idea for an ETF here.

Class 1 traffic volumes were reported by some wishing for bad economic news to be down the first week of January. True, volumes declined year-over-year, but there was one less day to measure as New Year's Day fell on Monday vs. Sunday last year. Motor vehicles, forest products and metallic ores and minerals fell in traffic volume,but that is a seasonal expectation in my view. Export and import traffic was stable. Other traffic was stable to slightly up.There is no sign of a recession based upon the data I reviewed, which you might apply to your portfolio considerations.

Of special interest, Union Pacific announced late last week that it is going to invest over $60m over the next two years on maintenance and improvements on eighty miles of track in the L.A. Basin. The L.A. Basin accounts for roughly 25% of UNP's originated and terminated traffic.I recall the major problems railroads were having in delivering timely services a few years ago. By in large, infrastructure of the rail lines has significantly improved. The UNP effort in the L.A. Basin bodes well for that company (and stock) over the long haul.

SEARCH ENGINES:
Total US internet search engine queries in December grew 0.9% month-to-month
and 30% tear-to-year. Google gained another 40bps of market share month-to-month while Yahoo also took 30bps of share. Losers were MSN -50bps, AOL -20bps and Ask -10bps. Google will likely see stronger international gains as well. Yahoo worldwide will likely be flat, according to projections I have seen.

Search engines will remain the strongest performing segment of the online ad market in 2007.

Google is the on its way to completely dominating the search engine market.It has 47% of the domestic search market and 65% of the international search market. I believe that a stock price of $600.00 is not out of the realm of possibility for Google. Or so say the seasoned analysts.

And talk about brand name recognition...Google is right up there with Kleenex. I suspect many ad agencies would kill to have their products in that class.

January 13, 2007: New ETF Bond: stirred, not yet shaken

Barclays iShares (www.iShares.com) have introduced eight new iShares featuring bonds.

Here are the Lehman index-replicated iShares ETFs:

Short U.S. Treasury Bond Fund (SHV)
3-7 Year U.S. Treasury Bond (IEI)
10-20 Year U.S. Treasury Bond Fund (TLH)
1-3 Year Credit Bond Fund (CSJ)
Intermediate Credit Bond Fund (CIU)
Credit Bond Fund (CFT)
Intermediate U.S. Government/Credit Bond Fund (GVI)
U.S. Government/Credit Bond Fund (GBF)

Trading began at $100.00/share on Thursday. Expense ratios are low (0.15-0.2%)

iShares has expressed a desire to launch several more Bond ETFs of a more speculative nature, including emerging market debt and junk.

Having ETFs now aggressively entering the fixed income market should put a strain on mutual fund bond assets. All things equal (and they are), ETFs win so long as expenses are lower. I especially look forward towards more sector choice in the bond ETF areas. In today's rarefied stock atmosphere, bonds are not often considered by the individual investor. This is a mistake. I love to speculate as much as you, but I do have a core holding in IBonds and Treasury bills kicked up a notch by Sirius junk and GMAC Smart Notes bought at a wide discount. With iShares, I can now use their funds to paint a broad or narrow brush on fixed income holdings and plan on using iShares bond funds, or other ETF bond aggregates, in my permanent and speculative portfolios.

My goal of a close to 100% ETF investment portfolio world is one step closer to reality. That said, I still would not renounce the individual stock that lurks in sectors that demand individual stock selection. Nor should you.

529 PLANS
Off subject: If you have children, grandchildren or future educational plans for that favorite nephew, niece, etc., now is the time to start or throw more money into a 529 Plan.
This is a permanently tax free entity that can hold up to $320,000. in contributions.
Utah, Alaska and Nevada are good. Most states are making their 529's more attractive. Your contribution MAY be deductible to a degree. Not to fully explore the 529 Plan benefit is financial malfeasance.

January 12, 2007: Don't sell 'em short

Media and political agendas have the latest War on Terror strategy being guffawed as wrong, wrong, wrong.

Here is what is being missed. Military contracts have been indicating that less boots on the ground is coming sooner rather than later, despite the heralded (or discredited) surge of troops.Special forces and the USAF and Navy will be operating under less stringent rules of engagement in more places. Basically, they will be using the same set of rules (none) as the enemy to track down and kill those seeking to do us harm. With the smart tech and stealth technology now ramped up in a variety of new weapons systems, the surge buys time as our technological weaponry is placed in appropriate sites. A salient warning was issued by the President when he specifically stated that the US will track down and destroy terrorists AND THEIR SUPPLIERS. Unless Congress pulls the plug (unlikely, except to grandstand to their far left base)a more violent but less troop intensive conflict is forthcoming.Bottom line, Bush may pull this one off, and troops who have been there strongly agree.Don't sell 'em short.

This change of contracts will hurt those companies that are doing a brisk business in body armor and ground based traditional infantry weapons and vehicles, except heavy trucks, which are long overdue for replacement (good for Oshkosh -OSK).

I would be an aggressive buyer of stocks that are Navy and Air Force oriented. For brevity, look at my previous posts on this subject (Aero Defense). More will be forthcoming on this topic.

Regarding companies that will benefit from the infrastructure improvements once Iraqi security improves, Halliburton (HAL) is my choice. This company some love to hate is simply the best at what it does. And it does many,many things.

I do not think that any ETF is a wise choice for this new phase of the war. Rather, a very stringent criteria based upon guaranteed contracts is imperative for stock selection. And supporting companies that support our national defense has a patriotic flavor, so feel good about stocks that make our military more effective.

A reader inquired about General Dynamics (GD) recently and I commented that it may be fully priced. Based upon very large recent contract awards and future earnings from advanced weapon systems now approved for mass production, I would now by a buyer of GD stock.

To our friends still holding oil stocks....have a nice day, and don't sell 'em short.

January 11, 2007: Tranquility in ETF land

Those of us sporting gray hair, or no hair, remember the days of the 1960s "go-go" stock era and the "nifty fifty stocks" (buy, hold and forget'em until retirement), the mid 70s gold bugs leading to the survivalists (dried beans and powdered milk in a cave as a lifestyle choice), etc. Every few years we have a can't-be-wrong investment strategy that gets press. With the plethora of media and investment alternatives, this type of investment mania has been tempered. Still, how many of us have funds invested in some Chinese sweatshop, Viet Nam rice paddy-come-free-trade zone, or in the latest tech hottie? Perhaps in all three, which is called diversification by some.

It may pay to park some funds in two ETFs that take great pride being safe havens for investors of all shapes, sizes and political persuasions, Switzerland and Singapore. The two ETFs I prefer are iShares MSCI Switzerland Index Fund (EWL) and iShares MSCI Singapore Index Fund (EWS). I like (and own) them not only because of their deserved reputation as wonderful islands of financial freedom and safety, but also because of each ETF's portfolio with weightings that are conservative with steady growth evident.

Briefly, EWL has assets over $239m and a low expense ratio of .59%. It trades at around $24.50/share. Top holdings include Nestle (12.53%), Roche Holdings (12.14%),
Novartis (11.48%), UBS (10.54%), Credit Suisse (5.05%), Zurich Financial (4.93%),Swiss Reinsurance (4.39%), ABB (3.99), Compagnie Financiere Richemont (3.96%) and Syngenta (3.16%) some other holdings (which only total 39 companies, light for a national index) include Swatch Group, PSP Swiss Property, Logitech, Pieter Holding and Phonak Holding.

Breaking down portfolio categories I see Pharma (23.61%), Capital Markets (15.59%), Food Products (12.53%), Insurance (9.32%), Chemicals (6.52%), Textiles Apparel and Luxury Goods (6.29%), Health Care Equipment and Supplies (5.31%), Electrical Equipment (3.99%), Construction Materials (2.96%) and Diversified Telecommunication (2.74%).

Not an aggressive growth mix, for sure, but an elegant portfolio.In my opinion, worthy of inclusion in a "permanent" diversified portfolio.

The Gnomes of Switzerland must gave sent an elf friend of theirs to Singapore, which has become "Switzerland Asia" and more with no end in sight to enhanced status as a haven for safety and investment expertise. The hard working, clean city state of Singapore sits on the world's busiest shipping lane and is the world's largest transit port. One may contest the harsh laws and level of punishment for what we in the West see as merely social transgressions. However, this country runs like a finely tuned Swiss watch with a superbly educated and internationally acclaimed workforce in both white and blue collar areas of employment.

EWS has $1.105b in assets and trades at $11.00/share.The expense ration is .59%.
The top percentage portfolio stocks are DBS Group Holdings (13.23%), Singapore Telecommunications (12.58%), United Overseas Bank (12.40%), Singapore Airlines (5.08%), Keppel Corp. (4.64%), Capitaland (3.97%), Singapore Press Holdings (3.48%) and the Singapore Exchange (2.36%).

Top sectors of this ETF are Commercial Banks (35.54%), Diversified Telecommunications (12.58%), Real Estate (11.95%), Industrial Conglomerates (8.70%), Airlines (5.08%), REITs (2.84%), Diversified Financial Services (2.36%) Aerospace and Defense (2.15%) and Machinery (1.94%).

Singapore is another of those very few places I would bet on for the long haul, and may be an Asian investment with the most stable environment and future both politically and economically. Steady as she goes.....

WWW.Ishares.com will tell you all you need to know about these funds.

January 10, 2007:The State of Real Estate

I was impressed with Credit Suisse First Boston's freshly minted report on the nation's real estate markets. I will attempt to summarize their data, which has been meticulously gathered. CSFB is a gold plate research firm.

According to CSFB, their December survey score was modestly improved, but remained with a grade of D (A-F scale). Builders appear to have become more realistic regarding price cuts necessary to move product, and have cut spec home construction to the bone.

Casual and speculative buyers are reportedly no longer in the market to any large degree. Serious buyers know they have lots of leverage to bargain on price. Warm weather may have helped with the modest improvement.

57% of the home markets tracked (fifty-one major metro markets) remain unchanged, 30% were a bit better and 14% worse. This is with many incentives offered by the builders to buy now. The question is: Will homebuyers continue to shop for a new home when incentives go away in the spring, or will builders be forced to utilize incentives even more at that time? This could turn out to be an auto industry rebate type debacle for homebuilders.

Regarding homebuilding markets, no market scored an A grade (very healthy and positive bias for builders).

Some B grade markets (healthy and positive bias) included Salt Lake City, San Antonio, Charlotte and Austin.

Some C grade markets (moderate and stable bias) included Philadelphia, Raleigh-Durham. Albuquerque and Chicago,

Some D grade markets ( competitive and negative bias) included many areas of the survey.Cities such as Orlando, Los Angeles, Washington DC, Las Vegas, Atlanta, Metro New Jersey and San Francisco fell into this grouping.

Some F grade markets (very competitive and negative bias) included about 30% of the survey: Tucson, Cleveland, Columbus, San Diego, Fort Meyers, Indianapolis, Denver, Tampa and Miami fell here.

Significantly, the D and F grade cities were not only experiencing extreme pricing pressure, but also a deteriorating buyer quality and excess resale inventory.This is a profoundly negative piece of data.

Questions posed to the industry:

How do new orders compare to last year?
Up 20%
Flat 24%
Down 56%

How does net pricing in December compare to November?
Up 2%
Down 30%
Flat 68%

How do gross margins in December compare to November?
Up 6%
Down 39%
Flat 55%

Not all news was bad, but the flavor I believe is accurately presented above.This continues to be a lousy market (unless you are a first time home buyer with nothing to sell,then it is wonderful).

We may have reached a bottom in the homebuilding market, but one really cannot be confident that such is the case until the traditionally strong buyer months beginning in late March are tabulated.

Buying homebuilders now is speculation. And I do not see an ETF as being appropriate for this sector at present.

If you must,look at the PowerShares Dynamic Building and Construction portfolio ETF (PKB) and the iShares US Home Construction Index (ITB).Or, look for the foreclosures, homes for sale over six months or nasty divorces to purchase homes on the cheap to become a landlord.

If you would like to lurk in the international real estate realm, examine streetTRACKS International Real Estate ETF (RWX). It is my rather uninformed view that international real estate in this ETF is fully priced and more. I have not examined RWX fully, and my view is based upon others' commentary.

January 9, 2007: early Army contract information and an ETF

This may be of some interest.

Army contracts were inadvertently leaked today by the trade publication Inside The Army. While not a security problem, it does give the investor a heads up on who got what, and what for.

AH (Armor Holdings) received 1.2b for FMTVs and 1.0b for humvees (shared with AM General, a private firm). General Dynamics (GD) Stryker program will receive 858m and the M1 Abrams tank 778m. Army ammunition accounts are to receive 839m, which should benefit GD and ATK. ITT is the primary beneficiary of 1.5b for SINCGAR radio accounts. Oshkosh Truck (OSK) is to receive 1.2b for heavy trucks.

In my opinion, the biggest mover in this group will be OSK.


An ETF so "out" it may be "in":

As most ETF followers know, WisdomTree ETFs take a somewhat unique approach to finding value and performance, which is best explained by spokesperson Professor Jeremy Siegel at the web site, www.wisdomtree.com

One ETF I have begun to follow is the lightly traded WisdomTree International Industrial Sector ETF (DDI). I am not about to purchase this fund, but when the right moment arrives and international industrial companies are cheap, this ETF portfolio may do very well. With dividend quality being a noteworthy part of the WisdomTree stock selection process, the downside risk is mitigated.

The top holdings in this fund as of 01/07 include:

Siemens (4.74%)
Deutsche Post (3.32%)
Vinci (2.74%)
Compagnie De Saint-Gobain (2.55%)
Schneider Electric (2.53%)
Volvo (2.49%)
Phillips Electronics NV (2.42%)
Lafarge-Coppee (2.40%)
Wesfarmers (2.39%)
BAE Systems (2.08%)

There are a lot of stocks in this ETF, with only 5.7m in assets. It does not trade on Option. The expense ration is low at .58%.

I like their stock selection and weighting. At some point, it will be worthy of consideration. When? Well, probably when we least expect it, which is why I am reviewing it every few weeks.

January 7, 2007: Aero Defense news

Regular readers of this blog know I am bullish on the aero defense sector, and specific stocks in that realm.

ALL BOEING:
Recently,Boeing (BA) received an order for ten 787s from Jet Airways. Boeing also announced that the first of the next generation 737-700ER was completed. How many of us fondly remember the earlier 700 series many years ago. What a time-tested gem this has turned out to be for Boeing. Meanwhile, AIRBUS is trying to hand machine parts for their busted superjet. Boeing announced a record 1044 orders and 398 deliveries in 2006.

BE Aerospace (BEAV) announced that it expects to raise its 2007 outlook.

Airbus sold eight aircraft to Pegasus Aviation Finance. Airbus seems to be giving away aircraft at this point to stay in the game.

GD and AM General formed a joint venture to compete for the USMC-Army Joint Light Tactical Vehicle program.
GD received a 1.3b contract for VA submarine procurement as well as a modest 145m contract for Stryker logistics support.
GD and FRPT agreed to form a joint venture to compete for the Category 1 and 2 aspects of the joint MRAP vehicle program.

InsideDefense.com reported that President Bush may seek a budget boost for permanent increase in the size of the Army and USMC.

NOC may have the advantage in the 8.8b/7 year management contract for the Lawrence Livermore Lab.

Aircraft component supplier Goodrich (GR) is best positioned to profit from only limited exposure to older, fuel guzzling aircraft that are being retired early by most airlines.Other suppliers may be hit in their bottom line by having too many parts for aircraft sitting in the desert awaiting dismemberment.

Companies I like include:

BE Aerospace (BEAV)
Boeing (BA)
Dyncorp (DYN)
Embraer (ERJ)
Goodrich (GR)
L-3 Communications (LLL)

A few readers asked about General Dynamics. I think that GD is fully valued for now, with the assumption that GD will be the winner of many defense contracts built in to the price.

I reviewed the PowerShares Aero and Defense ETF (PPA). I believe that this sector is not ETF-friendly at this time. Well selected individual stocks such as Goodrich and BE Aerospace (to name but two of several) will outperform a sector index in 2007, as far as can be extrapolated.Visit www.powershares.com to see for yourself.

January 5,2007: Support services ideas for 2007

I have been looking at a sector which does not appear to have a wide following amongst individual investors. This sector is Global Services. Basically, companies in this sector provide personnel services,financial services,educational services or marketing services on a quasi-temporary basis. Many companies are in this field. I provide the list below for your review. All appear to be well-positioned to perform reasonably well in 2007 and may be worthy of consideration in your portfolio.

With today's premium on obtaining emergency financing, educational seminars, specific marketing tactics or temporary workers with specific skills, I recommend you take a look. I do NOT own any of these companies. One or more may be a small position in one or more of the funds I own-but I did not buy the funds for Global Service weighting.

Global services are now of interest to me as 2007 progresses and portfolio dynamics change.

Administaff ASF
Monster Worldwide MNST
Laureate Education LAUR
Strayer Education STRA
PeopleSupport PSPT
Fidelity National Information Services FIS
and
Wright Express WXS

I did not locate an ETF which defines this universe of stocks. If I am incorrect with this statement, please so state to me here on the blog.

Note: yesterday's post was late because we had a cable problem to deal with.

January 4, 2007: A tale of two ETFs

An increasingly pronounced view about ETFs is to look under the hood and examine the contents of a fund to make sure it meets your portfolio expectations.

Here are the top holdings of an ETF recently launched by Claymore:(as of 01/04)

Exxon 5.65%
Citigroup 4.18%
Bank of America 3.69%
AT&T 3.40%
Microsoft 3.31%
Johnson and Johnson 3.10%
J.P. Morgan 2.57%
WalMart 2.22%
AIG 1.97%

Other holdings include Carnival corporation, Fannie Mae, Freddie Mac and ElPaso Corp.

The name of this ETF? CLAYMORE LGA GREEN (symbol:GRN)

lightgreen.com provides the index (Light Green Eco. Index) and indicates that companies in their index are environmentally sound and socially committed- at the top of their field- and that the investor with environmentally driven motives should consider this as a socially responsible index.

HUH?

I look at the roster of companies and I am surprised, to say the least, with the fund's portfolio. It also appears that more than a few of the companies in this portfolio would hardly pass muster with our environmentalist friends. Or, with investors.
A thumbs down to this ETF for now.


Here are the top holdings of another recently launched Claymore fund:(01/04)

Exxon 6.50%
GE 5.43%
Microsoft 4.16%
Toyota 3.09%
Royal Dutch Shell 3.06%
AT&T 2.99%
Proctor and Gamble 2.81%
Pfizer 2.66%
Glaxo.. 2.13%

Other holdings include: Ford, General Motors, Eastman Kodak and Baker Hughes.

The name of this ETF? Claymore/Ocean Tomo Patent (symbol:OTP)

This fund tracks the Ocean Tomo index that tells investors which companies have the
highest patent value to book value, amongst other criteria.

I look at the roster of companies and observe that it looks like a badly managed mutual fund. A lot of contrarians might like this ETF. I'll pass.

The number of ETFs is rising almost daily. There will be some excellent angles to play - and some stinkers to avoid.

www.Claymore.com will unlock all the information you need to know about these two ETFs.

January 3, 2007: Search engine trivia

I ran across some interesting facts regarding search engine use..and how Google is taking the world by storm at this time.

Google's query share rose to 46.9% in the US at the expense of MSN,AOL and Ask.Internationally, Google has a 63.6% query share. I find this remarkable.

You Tube growth year to year was 8,929% (not a missprint). Google is really on top of its game.

With Google's advantages in search quality,advertising monetization and new product development, it is viewed by many analysts as cheap given the growth rate. Some brokerage houses are predicting Google to rise to $600.00/share in 2007.

Honestly, I cannot understand the business model of search engines long term, so I have no stock position in Google. I may be the lone wolf, but I am wary of tech in general, perhaps as a reaction to the 2000 debacle.

Here is the latest data on searches by the major players:

WORLDWIDE SEARCHES:
Google.......12,809,234,000 64%
Yahoo!....... 3,976,624,000 20%
MSN.......... 1,709,654,000 8%
AOL.......... 547,168,000 3%
Ask.......... 673,986,000 3%
others....... 421,135,000 2%

UNITED STATES SEARCHES:
Google....... 3,150,030,000 47%
Yahoo!....... 1,892,019,000 28%
MSN.......... 736,207,000 11%
AOL.......... 342,275,000 5%
Ask.......... 367,313,000 5%
other........ 229,320,000 3%

The fact that "Google it" is fast becoming an identifier like "Kleenex" bodes well for the company.

If you own Google, my hat is off to you. I just can't pull the trigger myself.