ETFs for 2009
With a new year rolling around its a great time to start lining up positions. My consensus is that the automotive bailouts will continue, Obama’s stimulus will make it through Congress and into law and the effects of the stimulus will create a short term boom in the economy made available by inflated cash reaching the hands of Americans.
The current crisis has left the average American broke while the banking institutions have been recapitalized. In this scenario the banks have plenty of money to lend but the average consumer is unwilling to go further in debt after how bad the recent months have been. Many Americans are without a job, without any real source of income and many others are just making it by. If the Obama stimulus works out the way its projected, to create millions of jobs even if only in the short term, there will be plenty of money to be made in 2009.
LIBOR rates are also going to be very important to swing this recession back around. Last time the bubble burst in 2003 LIBOR rates (the rate at which banks lend to others) fell to 1.2% before the market turned around, at the time FED overnight rates were 1%. Right now with the overnight rate at 0-.25% from the FED, LIBOR rates should continue to fall.
Currently LIBOR rates sit at 2.7%, continued capital inflows from the government could get this back to 1.2% or even lower. At that point, when the banks can borrow for as low as 1.2%, they can start making more loans and make more money. When rates drop, the quicker the US markets move out of recession. Rates have plunged since October from 4.25% to 2.25%. Mortgage rates have remained virtually the same, lenders are making 2 points more per loan than they were before.
To lead the 2009 rally will be the commodities as much of the 2009 rally I’m expecting will be purely inflationary. Gold and silver are imperative, but here are a few ETFs for getting on board with other commodities:
DXO
This double long oil ETN is an awesome buy at today’s price. When the ETN began in July, DXO traded for $25 per share. A long term rally in oil with multi-day rallies could affect this stock greatly as its geared toward the day to day changes in oil. Buying here is getting in near the absolute bottom, $38 a barrel on oil is the cheapest its been in awhile due to limited building, driving and spending as people went into saving mode. But with the amount of money expanding all around the world and the central banks cutting rates, DXO is a great long opportunity.
SLX
SLX is a great ETF for the steel industry, its well off its highs but should have a resurgence in price as the infrastructure boom begins with the new stimulus package. The government will have to buy up a lot of product, steel, in a very short amount of time, virtually taking all the surplus and demanding much more from steel companies. I’d be long here both as an inflation play and a way to get in on a booming 2009 industry.
PKB
This ETF tracks the building and construction stocks and reweights the portfolio each quarter. This is a well managed ETF and also a very good opportunity for January stimulus. Off 50% from $22 to $11 is a great buying opportunity. This one will recover nicely in 2009.
