5 Actions You Should Take to Secure Your Financial Future

Are you concerned about the future of your money? Today, retiring people have a growing worry that they may “outlive their money” thanks to the new Government policies bringing massive change so quickly. Most people agree such high levels of spending, borrowing and new taxes will have a major impact on future costs, rising inflation and the value of the U.S. dollar.

But what can YOU do? I have five important insights and actions that every investor needs to know about to secure your money and your future for the times ahead.

I’m offering a free tele-seminar on Saturday, July 18th at 12:00 pm (noon) Pacific time that you won’t want to miss. We have very limited space available—limited to just the first 250 people. I already know from talking with many people about this topic, the spots will go quickly. If you want to hear it, you’ll need to register soon to reserve your seat by clicking here.

Here are the 5 investor actions you’ll learn about:

1. How you should organize your affairs to minimize your tax impact — with the coming end of the Bush tax cuts.
2. What to look for to properly manage your retirement assets — you’ll need more personal responsibility because you won’t be able to rely on the Government.
3. Why and how to invest outside the U.S. and the U.S. dollar.
4. How to use opportunities in commodities to your advantage.
5. Will there be a U.S. currency crisis in the future? and what you can do about it — the future value of the dollar, Fed policies and how you can prepare.

We’re limited to just 250 lines for this call and we’ll have to end registration when it is full. We expect a sold-out call.

To register for Saturday’s free tele-seminar click here now.

You’ll be glad you did!

For 30 years, no shovelful of soil was turned to construct a nuclear plant in the United States until 2006 when groundbreaking occurred for the National Enrichment facility in New Mexico. With elected officials calling to reduce U.S. dependence on carbon-based fuel, interest in nuclear power could reignite. With President Obama declaring that nuclear energy will be a huge part of an effective energy policy, now may be the time for investors to consider an exchange-traded fund (ETFs) that focuses on alternative energy sources.

With environmentalists protesting that global warming threatens the planet, interest in nuclear energy and other non-carbon based fuel is on the rise. Although alternate energy sources such as solar and wind seem safer and trendier, neither of those technologies is capable of replacing coal or natural gas in the foreseeable future.

Despite the current recession, energy demand remains reasonably strong. Global electricity consumption is expected to double in the next 25 years. With a projected fossil fuel shortage to meet such long-term demand, experts believe that nearly 50 new nuclear plants will be constructed around the world by 2020. More than half of those are expected to be in the emerging markets of China, India and Russia.

Countries such as France already have 80% of their energy supplied by nuclear power. In addition, one of the biggest advantages of nuclear reactors is that once these plants are completed, they usually operate for decades and provide a steady revenue stream. So how do you profit from this surge in the sector? Well, there is a way to “go nuclear.”

The Market Vectors Nuclear Energy ETF (NLR) is a fund designed to give investors exposure to public companies in the nuclear energy sector. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business.

As solar and wind energy still are years away from developing a sustainable and cheap product, all signs point towards going nuclear. With the massive surge in the construction of nuclear plants around the world, this sector is a must for any investor watch list.

The literati out there will likely remember the famous refrain, “The best of all possible worlds,” from Voltaire’s master work, Candide. In the novel, Voltaire set out to expose what he considered a fallacious line of thinking proffered by the philosopher Gottfried Wilhelm Leibniz. According to Leibniz, because God is both good and omnipotent, and since He chose this world out of all possibilities, this world must in fact be the best of all possible worlds.

Now, fast-forward some 250 years since the publication of Candide, and let’s put a little twist on the theme of the best of all possible worlds. You see, when it comes to the very real economic fears of both inflation and deflation, what we could be looking at is the worst of all possible worlds.

On the inflation side of the coin, we are staring at the very real possibility of higher commodity prices as world demand for agriculture, metals, oil and other necessities of industrial civilization continue growing. Plus, with the Federal Reserve and the Obama Administration intent on printing and spending our way out of a the financial crisis, the value of the U.S. dollar vs. rival foreign currencies is bound to be headed south. Taken together, these two factors mean commodity price inflation.

On the flipside of the coin, we also are staring at the very real possibility of wage deflation in the U.S. Because of the huge supply of willing and capable labor around the globe, corporations are finding it advantageous to outsource much of their labor needs. And because of the lack of an intense regulatory and unionized environment such as we have here in the U.S., companies are increasingly opting to go with cheaper foreign labor.

I call this a “wage arbitrage,” which simply means that companies are going to outsource more and more of their labor and production costs to countries where that cost is much lower than it otherwise would be in the U.S. This could cause a lack of demand in the already beaten-up U.S. employment market, and that reduced demand will likely cause wage deflation here in the U.S. Think about it this way; why would a company want to employ a U.S. worker for the equivalent of $20 per hour when they can get the same job done outside the U.S. for the equivalent of $2 per hour.

Commodity price inflation due to burgeoning world demand, and wage deflation in the U.S. due to an increased supply of unemployed and underemployed workers—this is indeed the worst of all possible worlds.

Let’s just hope the political class recognizes this ugly possibility before its too late.

If it looks like a duck, swims like a duck and quacks like a duck—then it’s probably a duck.

We’ve all heard this little common-sense gem, yet when it comes to investing, many people have a hard time telling the ducks from the swans. Nowhere is this case of mistaken identity more pronounced than when it comes to recognizing what most so-called “active” investment advisors are doing with their clients’ money.

The way I see it, most investment advisors claiming to be “active” managers are just buy-and-hold sheep in Armani clothing.

What do I mean by this? Well, I explain it all in detail in my new special report, The 7 Dirty Little Secrets of Asset Management.

This report shows you why so many common investment strategies that purport to be active management are basically just different twists on the same old worn out—and thanks to the recent bear market—now thoroughly discredited investment philosophy.

If you want to find out if your portfolio is being put in jeopardy by buy-and-hold pretenders, click here.

Treasury bonds, traditionally viewed as a safe haven for investors, have become what I think may be the last, big bubble in the market. With the Obama administration offering nearly $2 trillion in Treasury bonds this year alone, combined with unprecedented market volatility, the ups and downs in the normally stable Treasury market have reflected understandable investor uncertainty. However, investors looking to play the Treasury market now have an important tool on their side: the PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ), which invests in short-term, low-yield Treasury bonds.

Shrewd investors fled to the safety of the Treasury market in 2008 as the equities incurred their biggest decline in 80 years. The need for the deficit-running U.S. government to issue Treasury bonds looms large for at least the next couple of years. The federal government’s expansive borrowing is destined to grow further as President Obama’s economic stimulus package is estimated to cost more than $2 trillion in 2009 alone.

The surging Treasury debt could fuel inflation as the U.S. government boosts the money supply by printing additional dollars. The current low bond yields do not offer investors any protection from inflation. Even if the economy begins to recover by late 2009, watch for interest rates to climb and the price of Treasury bonds to drop.

This has created an opportunity for Pacific Investment Management Company (PIMCO), a blue-chip bond giant with nearly $800 billion under management. During the last couple of decades, the firm has become a household name in fixed-income investing. The new PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ) is an exchange-traded fund (ETF) that bears watching.

This ETF will compete directly with iShares Barclays 1-3 Year Treasury Bond (SHY), a well-established bond ETF.

PIMCO is a well-known name in fixed-income investing but you may want to hold off on buying Treasuries until the market stabilizes and the trading volume of TUZ rises. There is nothing wrong with keeping a high-cash position as the ramifications of the U.S. government’s borrowing unfold in the months to come.

It’s not often that you get to interview a former governor, former presidential candidate and radio and TV talk show host all at the same time, but that’s just what I had the privilege of doing recently when I interviewed Mike Huckabee for my radio show.

Gov. Huckabee is a very gracious gentleman who is also an extremely well informed, quite well spoken and I must say a very entertaining guest.

In our interview, we discussed such topics as the mounting U.S. debt and what it means for the economy going forward. We also discussed the current national zeitgeist toward bigger and more invasive government, and what if anything can be done about it. Of particular interest to California residents will be Huckabee’s insights on the state’s budget mess, and more importantly, how we can get fix the current fiscal fiasco.

I highly recommend you spend a little of your free time and listen to my interview with Mike Huckabee. Afterward, I think you’ll agree it was time well spent.

To download the MP3 click here.

To listen in Windows Media click here.

I am constantly being bombarded with questions about exchange-traded funds (ETFs). Basic inquiries such as just what ETFs are, how they work and how they can be used in an investment portfolio are some of the most common I deal with each week.

Now because I want to be sure that you know all of the basics about these fabulous investment vehicles, I’ve decided to do a short video presentation explaining exactly how ETFs work, their history, and how they can be a huge benefit to your portfolio.

I believe that ETFs are the greatest wealth-building tools for your portfolio because of their diversity, low cost and transparency, and you owe it to yourself to make sure you know just how great ETFs can be.

To find out more about ETFs, and to watch my presentation, click here.

The sun brings forth incredible heat that warms, illuminates and energizes our planet. With the Obama administration becoming a powerful advocate for a strategy of increased use of alternative energy sources, it seems like solar power is destined to be a key component in that strategy. The question now for investors is how and when to profit from the political clout of a new president who has promised to make alternative energy one of his top priorities.

With both President Obama and his fellow Democrats who control Congress looking to fund clean energy initiatives, solar energy exchange-traded funds (ETFs) could start to shine.

Certain solar ETFs have been on a tear of late, and one reason why we’ve seen a surge in the sector is due to the recent announcment by the Chinese government that it intends to support the development of solar energy.

China’s plan would offer $2.94 per watt for solar photovoltaic installations of more than 50 kilowatts. That amount may not sound like much money, but it certainly adds up fast in a huge and still vastly underdeveloped country like China.

While solar stocks have been volatile this year, they could offer good opportunities for long-term investors if governments around the world fund development. But here’s a word of caution. Despite President Obama’s call for alternative energy initiatives and the Chinese government’s announcement of its support for solar energy, analysts are divided about whether investors have enough reason to bet on the trend. For example, critics of China’s announcement cited its lack of detail or a definitive timeline.

With the market as volatile as ever, it is uncertain which direction solar ETFs will go next. If the United States and China choose to fund alternative energy projects, then solar ETFs have a good chance of shining. But if the funding fails to heat up, the sector could be in for some cloudy days ahead.

Join me at the American Association of Individual Investors (AAII) seminar on Saturday June 20, 2009 at the Skirball Center in Los Angeles, CA.

My topic will be: ETF Strategies in a Difficult Market.

• How to generate income from Exchange-Traded funds
• How to build a portfolio of ETFs around an investment theme
• How to use inverse and leveraged ETFs ro your advantage and when to avoid them

Click here for event details and information on how to register.

I look forward to seeing you there!

The just-released 2009 Social Security Trustees Report shows that the recent economic woes have had a big negative impact on the Social Security budget. The report projects that by 2016 Social Security spending will exceed the revenue it receives each year from all of us.

But just how bad is the situation?

Social Security is a pay-as-you-go system, which simply means that the government takes your money and gives it to current recipients of Social Security benefits. The government, in effect, guarantees that it will confiscate (via taxation) money from one block of people (workers) and give it to another block of people (retirees).

Does this type of investment architecture sound familiar to you? If you are reminded of the Bernie Madoff Ponzi scheme, then you and I are on the same page. In essence, the Social Security system is basically just a very big version of a Ponzi scheme, and as long as the numbers work out everything should be okay.

But what if they don’t work out?

In the 1950s, the Social Security system’s worker-to-beneficiary ratio was approximately 16.5-to-1. However, now that the average lifespan has increased, the worker to beneficiary ratio has dropped to 3.1-to-1. Within the next two decades that ratio is expected to drop to 2.1-to-1.

I think you can see that in order to keep its Ponzi scheme going, there will either have to be more revenue raised—i.e., an increase in the Social Security tax—or a decrease in Social Security benefits, or a combination of both.

So I ask you this, why would you trust your retirement to a government-sanctioned, Madoff-style investment scheme?

The way I see it, the only person you can trust to look after your retirement is you, and that means it’s imperative that you take responsibility for stewarding every dollar you make.

Don’t let your retirement be determined by a Ponzi scheme. If you need help managing your retirement assets, why not consider active management of your income generating assets? At Fabian Wealth Strategies we have designed an income portfolio to help you preserve capital and generate the retirement income you need to live the life you deserve.

For more on how you can start maximizing your retirement efforts, click here.

As a followup to my presentations at the Las Vegas MoneyShow I have posted the latest edition of the Fabian ETF Report for everyone to view.

Please click to download this valuable resource.

Best of luck in your investing endeavors.

It’s time again for our quarterly lemon-squeezing ritual. That’s right, it’s time for us to expose the worst-performing mutual funds for what they really are — sour investment vehicles that will make your portfolio pucker.

For Q1 2009, the Mutual Fund Lemon List contains 2,335 mutual funds totaling $718 billion in assets! Now to be classified as a lemon, the fund must pass strict screening criteria: it must underperform its peer group average for the last 12 months, as well as for the last three and five year periods.

Incredibly, out of this quarter’s universe of 2,335 lemon funds, over 30% (a total of 730) actually had negative annualized returns over the past 10 years. Even historical stalwarts like Fidelity Magellan (FMAGX) and Fidelity Growth & Income (FGRIX) failed to outperform the S&P 500 (SPY) over the past 10 years.

It’s becoming increasingly clear to me that investors need to wake up to the reality that many mutual funds just can’t perform as well as those exchange-traded funds (ETFs) with the same investment objective. Sadly, the result is that many investors are losing money that they really cannot afford to lose.

The following table shows examples of how much you could have saved if you invested $100,000 over the past five years in ETF equivalents instead of these 10 Lemon List laggards. (click table to view larger)

As you can see, there really is no reason to continue investing in under-performing mutual funds. To find out if you own a lemon fund, simply go to www.MutualFundLemonList.com for my complete Q1 Lemon List.

The strength of steel is so renowned that it often is used metaphorically to describe unwavering soundness. At the same time, steel is a key input in the manufacturing of cars, buildings and household appliances.

As the economy starts to recover, the price of steel could climb along with demand from fast-developing countries like China and India. Indeed, a shift in market sentiment in favor of steel already may be occurring. A sharp rise in demand for the metal during the last month may be a signal that the time has arrived to consider investing in a steel exchange-traded fund (ETF). However, the decision is not an easy one. The investment case for steel is not nearly as sturdy as the metal itself.

Here’s a brief assessment of the current situation to help you make your choice. Commodities have been trending upward since last summer when the sector took a big hit. Of course, no sector escaped the sharp teeth of the ferocious bear market back then.

Downturns in the housing and automotive industries — both big users of steel — caused the demand for the metal to weaken almost overnight. Steel companies cut production drastically last year as prices slumped from their record highs of mid-2008. As a result, Market Vectors Steel ETF (SLX) dropped 67% last year.

However, the steel market may have finally bottomed out. A big reason is China’s increasing demand for steel. The country accounts for 35% of global steel demand and its government recently injected $585 billion in stimulus money into its domestic economy. As the world’s largest user of steel, China may help to lead the sector to a recovery. Indeed, China’s loan and infrastructure investments are rising 27% annually. Credit Suisse analysts took notice and recently boosted their investment rating on steel to “overweight.” China’s rising demand for the metal caused SLX to jump nearly 50% since the March 9 rally.

However, there still is reason why you may want nerves of steel to invest in this metal. Despite China’s strong demand for steel, many analysts fear that higher Chinese export subsidies may undercut global prices. In fact, outside of China, worldwide steel output is down 37% from last year.

If you ask me, there is much riding on the export and spending decisions of the Chinese government. When conventional market forces are circumvented by government policies, predicting which direction an investment will go becomes more difficult. Personally, I am holding back on investing in this sector right now.

If, however, you are convinced that Chinese demand for steel will drive both production and prices up, then a long position in SLX gives you a chance to profit. If you prefer to wait and see what China actually does, holding off on investing in SLX might give you a more restful night’s sleep.

Many of my Fabian Wealth Strategies clients have expressed a big fear about the threat posed to their financial well-being from inflation. This justifiable fear has been engendered by the huge expansion of the federal budget, and the huge increase in government spending.

This governmental intervention in the economy was ostensibly done to ratchet us out of recession (at least that’s what the White House, the Treasury Department and the Federal Reserve tell us). But what the government’s actions are more likely to do is to cause a huge amount of monetary inflation down the road, as the rising cost of food and energy prices will eventually hit consumers worldwide like an uppercut from Iron Mike Tyson.

Now I say eventually, because so far we haven’t seen the huge spike in the goods and services you’d expect as a result of monetary expansion and the Keynesian influx of government “stimulus” in the economy.

And while I do think that inflation is a pernicious beast lurking about the financial forest, what I think is the more immediate threat to investor wealth is deflation. Now when I say deflation, I need to be a little more specific.

First off, I am not talking solely about deflation in terms of falling asset values. Certainly, the sharp decline in real estate values along with the decline in stock values is one form of deflation, but the real long-term menace of deflation has more to do with the term’s wider, macro-economic connotations.

According to Investorwords.com, the definition of Deflation is, “a decline in general price levels, often caused by a reduction in the supply of money or credit.”

The key concept here is a reduction in the supply of credit.

If deflation is caused by a lack of willingness to lend money due to circumstances such as the current credit crunch, bad things could be in store for the economy. Given that money is the lifeblood of any economic system, a lack of supply, i.e., a lack of the willingness to lend, could mean a deepening of the recession.

The evidence for deflation occurring on a global basis is already present. According to one of my favorite financial bloggers, Mike “Mish” Shedlock of Mish’s Global Economic Trend Analysis, deflation went global long ago.

Mish points out that in March, wholesale prices in both Japan and Germany have fallen sharply. In Japan, wholesale prices fell at their fastest pace in nearly seven years. In Germany, wholesale prices witnessed the biggest year-on-year decline since January 1987.

In China, the Consumer Price Index (CPI) and the Producer Price Index (PPI) are now in negative territory for the year, a clear indication that asset prices in one of the world’s largest economies have been hit hard by deflation.

Here in the United States, we’ve seen a similar phenomenon. The Consumer Price Index actually increased 0.2% in March, but over the last year the CPI has decreased 0.4%. This is the first 12-month decline in the CPI since August 1955!

As I mentioned earlier, many of my managed clients are afraid that inflation will eat away at their wealth. But what I think they should be more worried about—at least for now—is deflation.

I know the concept of deflation is more difficult to understand than inflation, and it’s also more difficult to feel. I mean you know what inflation is. You feel it right at the gas pump, cash register or whenever you buy something. Everything just gets more expensive, and for sure, this is not good.

What I think is worse though is that during deflationary periods, you see the areas where you keep your real wealth, i.e., your investment portfolio, your home and other valuable assets, decrease in value. This decrease in value of your true wealth reservoirs is why I think deflation is the bigger boogey man to fear right now than inflation.

I am sympathetic toward any investors who may feel a little ill when looking at their beaten-down investment portfolios. Since the market’s stomach-churning plunge last October and its subsequent volatility, I know many people are nervous and looking for a way to calm their fears. Could health care offer a solution?

Well, there are several healthcare exchange-traded funds (ETFs) that may be able to help soothe queasy stomachs. The healthcare sector has been growing rapidly in the last decade, with the industry’s portion of the national economy doubling to nearly 16% of gross domestic product (GDP). Coupled with the Obama administration plans to inject $634 billion into the sector during the next 10 years, now may be a good time to examine the industry’s outlook.

Healthcare historically is somewhat recession-proof. People who get sick need treatments – period. It doesn’t matter if the economy is weak. For those who have an appetite for risk, the healthcare industry offers many opportunities for investment.

Now keep in mind that the performance of health-care funds can fluctuate widely. While healthcare ETFs such as iShares S&P Global Healthcare (IXJ), Vanguard Health Care ETF (VHT) and WisdomTree International Health Care Sector Fund (DBR) fell more than 20% in 2008, they all beat the Dow, which lost 33%. However, Healthcare Select Sector SPDR (XLV) had the worst performance of them all with a 56% reversal. With the market starting to head upward, healthcare is one of the sectors that could soar.

I am not yet convinced that the healthcare sector is an elixir for anybody’s ailing portfolio. Although the Obama administration is championing a plan to expand the government’s role in providing healthcare, it is unclear to me and probably many others what truly is affordable for a country that is running massive deficits. Plans that sound great in concept sometimes lose support when their actual long-term cost becomes clear.

Regulatory changes and policy shifts certainly could change the entire landscape of the pharmaceutical industry as we know it. For example, there has been a period of remarkable instability in the prices of drug manufacturers since President Obama took office.

With the changing political landscape and doubts about the potential profitability of new pharmaceuticals under development, the industry’s future remains uncertain. As a result, patience is required for anyone who wants to invest in this sector.

If you are cautious—and I certainly hope you are—waiting for the right time to get into the market might be a good way of mitigating risk. If the healthcare and pharmaceutical sectors look enticing to you, then a long position in one these ETFs just might be what the doctor ordered.

The Federal Reserve is keeping interest rates artificially low. How long will they be able to do so? Well, that’s the million dollar question. And while nobody knows for certain, one thing you should realize is that it won’t last forever. That’s why now is the best time for you to take advantage of these historically low mortgage rates.

Now a few months ago, I purchased a new home. To facilitate this purchase, I had to get a jumbo mortgage. I needed the loan in December, and that meant that I had to put in my loan application last November. As you probably remember, this was at the very height of the mortgage and banking crisis.

As you might imagine, getting a jumbo mortgage through during the worse financial crisis since the Great Depression was anything but easy. In fact, this was one of the most difficult business transactions I have ever been a party to.

Thankfully, I had a real professional on my team helping guide me through the entire process. His name is Josh Lewis, and he’s been a close personal friend as well as a sponsor of my radio show for many years.

I know many listeners, and many Alert readers, have used Josh’s expertise to get mortgage loans done for them. With Josh’s help, even complex jumbo loans like mine can get done in a fast and efficient manner.

If you’re in the market for a home refinance, a jumbo loan or virtually any other type of real estate loan, then I strongly recommend contacting Josh Lewis.

You can find Josh via his website, www.joshlewis.net, you can call him at (888) 944-5674 ext. 1.

Do yourself a favor and put a true professional on your real estate team.

We are now in history-making economic times. In the last 18 months, most investors large and small have suffered catastrophic losses. The recent rebound in the equity markets has given some relief and hope that the future may be improving but there is still great concern for our economy.

HOW your money is being managed going forward will be critically important to avoid repeating the same mistakes of the recent past.

No matter where you are invested, you owe it to yourself to make the best decision possible. Click on my photo below to watch a brief video on the 5 Keys to Your Investment Success. Now more than ever, you need to determine if your advisor is prepared and your assets are positioned for the difficult road ahead.

Have you lost faith in your financial advisor? Does his or her insistence on “staying the course” make you feel like they don’t have your best interest at heart? If so, then it’s time for you to get a second opinion.

If you find yourself holding a bull market portfolio in the midst of the worst bear market since the Great Depression, then Fabian Wealth Strategies can help.

At Fabian Wealth Strategies we have our clients defensively positioned for the difficult times ahead. If you have a portfolio valued at $250,000 or more and would like a second opinion on how to handle this bear market, call us at (800) 391-1118 or visit us at www.fabianwealth.com.

Today is tax day, a dreary day for most Americans—especially if you have the skills, ability and fortitude to earn a substantial amount of money each year. Yes, this is the day the government says, in essence, pay up, sucker!

Now you’ve probably heard about the many tax “tea parties” being held today throughout our nation. I’ve read that there were going to be well over 1,500 tax protests held around the country, with at least one taking place in all 50 states.

Where I live in Orange County, California, I’ve heard there will be over 50 separate local tax protests. Honestly, I can’t say that I blame anyone for feeling the need to protest the high tax burden imposed by not just the federal government, but also by state and local governments.

The fact is that the total tax burden American’s face each year is just way too overbearing, and with the new presidential administration’s philosophy clearly on the side of more federal spending that tax burden isn’t likely to go down for at least another four years.

Depending on where you are on the economic scale, the combination of state, local and federal taxes can add up to well over 50% or more of your annual income. This means that you effectively work only six months of the year for yourself, and the other six months you are basically relegated to the servitude of the collective.

I know that may sound extreme, but I really don’t think a rational person can look at it any other way.

Fortunately, there are steps you can take to help reduce your overall tax burden. First off, you have to make sure you are spending the time, energy and money that it takes to keep your overall tax liability to a minimum.

One way to do this is to meet with your CPA or tax professional on a regular basis. I make it a point to meet with my CPA four times a year. By doing this I can plan for my tax liability well in advance of April 15, and I can also make sure I have the investment vehicles and proper deductions in place that help ameliorate my overall tax liability.

Yes, this process involves some of your time and some of your money. But believe me, it is well worth it. You see, as long as our tax code remains ever bloated and ultra complicated, having a tax professional on your financial team is just an absolute must.

Now even if you feel no pangs when it comes to paying taxes, think of the situation this way. You owe it to yourself and your loved ones to protect yourselves from fiscal mismanagement. You wouldn’t just throw your money away in any other walk of life, so why do it when it comes to paying Uncle Sam.

The fact is that the more successful you are in life, the more pounds of flesh the government extracts from you.

I wish I had better news for you on this April 15, but the reality is that the more you make the more you pay. This reality dictates that you do everything you can to reduce your tax burden, and therein lays the value of a good tax professional.

Oh, and for those of you taking part in a local tax tea party, well, know that you have a sympathetic ear right here with me.

The sun brings forth incredible heat that warms, illuminates and energizes our planet. With the Obama administration becoming a powerful advocate for a strategy of increased use of alternative energy sources, it seems like solar power is destined to be a key component in that strategy. The question now for investors is how and when to profit from the political clout of a new president who has promised to make alternative energy one of his top priorities.

With both President Obama and his fellow Democrats who control Congress looking to fund clean energy initiatives, solar energy exchange-traded funds (ETFs) could start to shine. Right now, solar ETFs are trading at a fraction of their 52-week highs, yet in the last week of March, the performance of solar ETFs brightened.

Certain solar ETFs soared 20% to 50% over a very short period. The sector’s surge followed an announcement that the Chinese government intends to support the development of solar energy. China’s plan would offer $2.94 per watt for solar photovoltaic installations of more than 50 kilowatts. That amount may not sound like much money, but it certainly adds up fast in a huge and still vastly underdeveloped country like China.

The spurt in solar ETF prices is reflected in the chart below that compares the Market Vectors Solar Energy (KWT) and the Claymore/MAC Global Solar Energy (TAN) to the S&P 500. Both of these ETFs were beaten down in February, but they have soared nearly 50% since the market rally started on March 9. Part of the reason both of these ETFs shot up so quickly is that they are heavily weighted in China, with more than 20% of their holdings in Chinese companies.

While solar stocks have been volatile this year, they still could offer good opportunities for long-term investors if governments around the world fund development. But here’s a word of caution. Despite President Obama’s call for alternative energy initiatives and the Chinese government’s announcement of its support for solar energy, analysts are divided about whether investors have enough reason to bet on the trend. For example, critics of China’s announcement cited its lack of detail or a definitive timeline.

With the market as volatile as ever, it is uncertain which direction solar ETFs will go next. If the United States and China choose to fund alternative energy projects, then solar ETFs have a good chance of shining. But if the funding fails to heat up, the sector could be in for some cloudy days ahead.

Millions of people have seen their 401(k)s, IRAs and stock market portfolios hammered by the current bear market. As the S&P 500 and the Dow slid further and further last year, many investors flocked to so-called bear market funds. The general philosophy behind bear market funds is to take advantage of market slumps by investing in positions that go up when the market goes down.

Bear market funds use various strategies to profit, although the chosen method usually is through short positions. Certain exchange-traded funds (ETFs) now are beginning to use derivatives and options to replicate the inverse of market indexes instead of simply shorting them.

In 2008, several bear market funds — shorting all kinds of stock exchanges — performed well. They rose while the global markets slumped. However, history shows that bear market funds have been long-term laggards. While bear market funds are not permanent fixtures in most portfolios, since the stock market tends to rise over time — they are a great way to seek short-term gains in a sagging market.

Depending on the ETF you choose, for every 1% dip in the market, you can turn a profit of 1%, or even 2% if you use a leveraged position. Now, let me introduce you to a handful of bear market funds.

The ProShares Short S&P 500 (SH), which shorts the S&P 500, was up 39.21% last year. More aggressive investors bought the twice-leveraged UltraShort S&P 500 ProShares (SDS), which returned 61.36% in 2008.

For investors interested in international bear market funds, ProShares Short MSCI EAFE (EFZ) shorts European, Australasian and Far Eastern markets. This ETF had a one-year return of 38.90%. Risk-taking investors may be interested in the twice leveraged ProShares UltraShort MSCI EAFE (EFU), which had a 51.92% one-year return.

While bear market funds are a great way to profit during market slumps, beware of bear market rallies such as the one we’ve had recently. SH and EFZ both are down more than 20% since the rally started on March 9. As leveraged funds, SDS and EFU each dropped nearly 40% in the last month.

The market’s extreme volatility and uncertainty during the last month leaves an open question about how to play the rally. For those investors who think the rally will extend further into the year, a long position might be a good idea. Investors who think that the rally is going to fizzle may decide that a short position is best.

I know a lot of readers are committed to having a high cash position during this bear market. So it’s no surprise to me that lately I’ve received a lot of questions regarding cash alternatives. Many of you are understandably not content with the very low rate of return being paid by today’s money market funds.

And while I feel that the money market is the safest, most liquid place to park your serious money during this time of market flux, I do think there are several safe alternatives to your run of the mill money market fund.

One of my favorite money market alternatives is the iShares Barclays 1-3 Year Treasury Bond (SHY). This investment seeks results that correspond generally to the price and yield performance of the short-term sector of the U.S. Treasury market as defined by the Barclays Capital 1-3 Year U.S. Treasury index.

The current yield on SHY is 2.05% as of April 8, 2009, so if you are looking for a good place to get a little more yield than your money market account, check out SHY.

In addition to SHY, there are two other cash alternatives that are worthy of checking out. They are the WisdomTree U.S. Current Income Fund (USY), a fund yielding 0.35%, and the PowerShares VRDO Tax-Free Weekly (PVI), which has a current yield of 1.64%. Both of these decent cash alternatives, although they pale in comparison to SHY in terms of yield.

So, if you are looking to take a little of your money and put it into cash alternatives, here are three solid candidates.

Today’s stock market beast is not the same animal it was a decade ago. In fact, the pace of change has been relentless in recent years, and even the most conscientious individual investor has had a tough time keeping up with the all of the financial market upheaval.

If you’re managing your own money, are you getting the results you think you should?

Or, is your money being managed by a stockbroker or investment advisor who insists
you “buy and hold” stocks even while Wall Street—and your portfolio—get savaged by
a malicious bear?

Now more than ever, individual investors need expert guidance and continuous “eyes
on” monitoring of all of their positions, not just occasionally, but every trading day. The
simple fact is that in today’s market environment, you’ve got to have an experienced
ally on your team if you want to successfully navigate these treacherous market seas.

At Fabian Wealth Strategies, we believe that innovation is at the forefront of each
client’s success.

Click here to learn more about how Fabian Wealth Strategies can help you manage your assets according to your goals in a simpler, easier and more cost-efficient way than ever before.

Recent rallies in the stock market and reports of profits at Citigroup and Bank of America during the first two months of the year are positive signs for financial stocks. However, it still may be premature to resume investing in the financial sector.

One reason is continuing risk that further economic fallout is ahead. The Congressional Budget Office (CBO) reported March 20 that deteriorating economic conditions will cause the federal deficit to soar past $1.8 trillion this year and leave the nation in a deeper financial hole than the White House had previously estimated. The nonpartisan CBO predicted that the administration’s agenda would produce deficits averaging nearly $1 trillion a year for the next decade — $2.3 trillion more than the president predicted when he proposed his spending plan in February. Folks, that’s a really big hole.

Bank stocks may have been even more volatile than the topsy-turvy market lately. The Financial Select Sector SPDR (XLF), an ETF that tracks the financial stocks in the S&P 500, rose 6.3 % Tuesday to recover from Monday’s drop of more than 8%.

But let’s not get carried away by the modicum of good news.

The Federal Reserve’s March 18 announcement that it plans to buy more mortgage securities and $300 billion in longer-term Treasuries during the next six months might have been just a short-term catalyst for the market. The next piece of good news for banks could come this Thursday when bankers find out if the Financial Accounting Standards Board approves giving auditors more flexibility in valuing illiquid mortgage assets that may have a long-term value and strong cash flow.

A few years ago, financial stocks such as Merrill Lynch, Goldman Sachs and JP Morgan, among others, rose strongly. Bankers and Wall Street traders in 2005-06 received big bonuses and global markets soared. Unfortunately, the subprime foundation of this boom began showing cracks in 2007. By 2008, the shaky structure collapsed and dragged the financial sector down with it.

The Financial Select SPDR (XLF) was one of the most beaten down ETFs last year, when it lost 54.91%, compared to the 36.68% drop of the S&P SPDR (SPY). Investors who shorted financials through UltraShort Financials ProShares (SKF) would have gained 3.61% in 2008.

The real question is whether the rally is sustainable. Citigroup and Bank of America reporting profits for the first two months of 2009 started the rally in the financial sector, with XLF rising 39% since March 6. It is important to remember that the rapid resurgence in financial sector stocks also stems from their extremely oversold condition last year. Citigroup and Bank of America each absorbed more than a 90% drop in share price in the last 52 weeks. Yesterday, Citigroup jumped 9.5% and Bank of America zoomed 13.1%.

Although I am trying to stay positive this year, I still see challenges for the financial sector. There will still be billions of dollars worth of toxic assets that will have to be written off, making year-end results for financials hard to forecast.

Personally, I am not sure about the longevity of the latest rally. While Citigroup and Bank of America notched unexpected profits for the first two months this year, I am not convinced both companies will be profitable at the end of the year. If you believe that we are simply in the midst of a bear market rally and that the financial sector is going to be rocked further by the credit crunch, shorting the index might be profitable. On the other hand, if you believe that this is the beginning of the rebound for the beaten-down financial sector, going long may let you pick up shares at very cheap prices.

Doug was recently quoted in a Forbes article outlining the efficiency of exchange traded funds. In an effort to continue educating investors about both the advantages and missteps in the ETF community we have linked the story below.

Click here to read the full Forbes article.

As my dad would say, there are two kinds of money: your serious money and your play money. I know that many investors have been with me in sheltering their serious money from risk by having a high cash position and waiting for the opportunity to get back into stocks. Those that subscribe to my trend-following advice know that we are a very long ways from putting our serious money back to work in the next bull market.

For the past few weeks, there have been short-term opportunities on Wall Street to put some of your play money to work. I have five tips for those of you who are looking to put a portion of your investment capital into trading positions to produce profits in your portfolio while we wait out this Bear Market:

1. Use only a portion of your portfolio. I recommend that you trade using only 10-20% of your total investment capital.

2. Commit to trading with discipline. Losses must be kept small and the best way to do that is by using trailing stop losses on every position that you take.

3. Use Exchange Traded Funds. There is no easier way to trade than with exchange-traded funds (ETFs). They give you the best combination of liquidity, flexibility, low-cost, and diversification.

4. Monitor Your Gains and Losses. You must put in place a system to track your performance so that you know the scoreboard at all times.

5. Dedicate Time. You need time to research investment ideas, select your positions and allocations, monitor the market, and execute your plan. If you don’t have the time, don’t venture into the game.

If you are interested in learning more about how I manage ETF portfolios for my clients at Fabian Wealth Strategies, simply click here.

For the last 30 years, the economy that has achieved the fastest and most consistent growth in the world may well be China’s. Despite the current global recession, the Chinese economy still grew 9.8% in 2008. It marked the first year of single-digit percentage growth for the country since 2003, after notching double-digit percentage growth between 2003 and 2007.

Chinese government officials claim that their nation contributed more than 20% to the world’s economic growth last year. They also optimistically forecast economic growth of at least 8% for this year. However, a number of independent private sector estimates, including those from Economist magazine and the International Monetary Fund, estimate China’s economic growth will fall below 7% and possibly slip to 6%. With relatively high growth rates, compared to other countries, investors may wonder if China could offer a hedge against recessionary conditions elsewhere.

If 2008 is any indication, investors should tread cautiously before going either long or short in the Chinese market. Despite the country’s growing economy, history shows that the correlation between global stock markets increases during times of recession. As the Dow fell 33% last year, the Shanghai Composite Index plunged 65%. The iShares FTSE/Xinhua China 25 (FXI), an exchange-traded fund (ETF) that follows 25 companies on the Shanghai stock exchange, dropped 47.76% last year. If you were shorting the Shanghai stock exchange through UltraShort FTSE/Xinhua China 25 (FXP), you would have lost 53.61%. You might expect a short ETF to turn a profit if the stock index that it tracks plummets but China certainly did not follow that pattern last year.

Despite the positive spin that Chinese government officials are giving to the country’s economic outlook, it is hard for me to believe that its stock market is ready to rebound. But that hasn’t stopped its leaders from expressing renewed confidence in its economy. The Chinese government reported last week that its industrial output last year rose by 5.7%, while its retail industry grew by 17.4%, year-on-year. In addition, China has nearly $2 trillion in reserves and a low debt-to-GDP ratio of 18%, compared to 80% in the United States and 160% in Japan.

If you watch CNN, MSNBC and other news channels regularly, you might think that the American economy was on the brink of total collapse. As bad as the 3.8% contraction of the U.S. economy in the fourth quarter of 2008 may seem, the economic slide in Central and Eastern Europe was far worse.

Much like the rest of the Western world, this region was living way beyond its means earlier in the decade. After countries such as Poland, Hungary, Latvia and Lithuania gained acceptance into the European Union, most Western European banks opened their then-bountiful coffers to finance businesses and mortgages in those emerging markets. This capital fueled double-digit percentage economic growth in the region during the bull market years of 2005 and 2006. Unfortunately, that mini-boom was financed in large part by subprime lending. When the credit crunch hit, most of these economies began shrinking.

This unsettling situation has caused exchange-traded funds (ETFs) that focus on the region to take big hits. Here’s an example. The SPDR S&P Emerging Europe (GUR), an ETF which closely follows Eastern European stock indices, dropped nearly 65% in 2008 — almost double the fall of the Dow. Its exposure includes the following countries: Turkey, 13.8%; Poland, 12.2%; the Czech Republic, 7.4%; and Hungary, 5%.

Another such ETF that tracks the region is the Claymore/BNY Mellon Frontier Markets (FRN), which is down 60% since its inception in June 2008, and 18.5% so far in 2009.

The main hope for a regional economic recovery — a multibillion euro bailout plan — was flat-out rejected by the richer (and more powerful) members of the European Union just a couple of weeks ago. The prime minister of Hungary had asked for nearly $240 billion to bail out the region, although some observers estimated that the total should be closer to $380 billion. Government officials in Germany and the Netherlands, however, countered that billions of dollars in aid went to the region last year and a new stimulus package is not needed. The risk for investors is that Europe’s already fragile financial health could be threatened further.

One consequence of the current economic turmoil is that the value of currencies in Central and Eastern European countries have been falling. As a result, the challenge of repayment for the borrowers is worsened because so many of them accepted loans in euros. With their domestic currencies sliding in value compared to the euro, the debt obligations are becoming even more onerous for the borrowers.

Europe now is at the proverbial fork in the road. If the economically stronger countries can muster a bailout for their Central and Eastern European counterparts, a buying opportunity may arise when emerging markets start to recover. But if a new, economic iron curtain develops, the result could be the financial collapse of emerging market European countries. With the region’s economic condition so tenuous right now, you may want to protect your money and avoid the risk altogether.

Just because we don’t know what the market’s future will bring doesn’t mean we can’t make a few proclamations about the nature of markets, and the operation of market psychology.

First, whenever you get big sell offs like we’ve seen so far in 2009, and for that matter since Nov. 2008, a buying opportunity—even if only a short-term one—is very likely to present itself. Stocks do not go straight up even in the bullish of times, nor do they go straight down in the most egregious of bear markets. What this means is that most likely, at least a short-term buying opportunity is probably headed our way before long.

With respect to market psychology, I want to take a wider view on what’s happening now. Hopefully, this will give you a better sense of what is really driving these markets lower. More importantly, I hope it will help you see things from a different, more positive perspective.

It is my view that one of the things contributing to the sell-off in equities of late is the unrelenting negativism coming at us via TV news, radio, print media and our leaders in Washington. It’s impossible these days to go more than a few minutes without hearing about how dire things are in the markets and the economy.

Now I am no Pollyanna, but to listen to the news these days you’d think that Armageddon was penciled in on next week’s calendar.

Think about it, even in the best of times watching the news can make you think the world is a much worse place than it actually is. Right now, however, watching the news is an exercise in masochism. If you want to feel like crawling under your desk with a flashlight, some canned goods and a pacifier, then just keep your TV sets glued to CNN or MSNBC.

What I want you to understand—both in general terms and with specific applications to your investment decisions—is that the world is not on the verge of crumbling. Sure, there are real problems confronting us, but in my opinion these are problems that can be conquered with a little perseverance, a little mental and emotional toughness—and some smart fiscal decisions.

It has always been, and will always be, the goal of all this publication, as well as all of my advisory services, to help you cultivate all three of these components—perseverance, toughness and smart fiscal decision making. Why? Well, because when it’s all said and done, it is these three qualities that comprise the whole of a successful, happy and financially sound person.

There are few guarantees in life, but one thing I will guarantee is that if we cultivate the perseverance, mental and emotional toughness, and smart decision making necessary to a winning and happy life, we’ll be putting ourselves in a position to prevail no matter how severe or sublime the events around us may be.

So, the next time you feel like jumping on the train to Bluesville, resist the temptation and choose to conjure up your inner hero. By doing so, you’ll be a lot happier, you’ll be a lot stronger, and you’ll make much better decisions—both fiscally, and in every other aspect of your life.

Dividends are a great way to earn some extra income. You also can grow your principal through capital appreciation with good dividend-paying equities. One way to gain both of these benefits is through dividend-focused exchange-traded funds (ETFs). But the path to doing so has become increasingly treacherous for investors to follow as once-solid corporations struggle for survival. If you are an income-oriented investor, here are four simple tips on how to select these types of funds.

First, pick ETFs that hold stocks in stable companies with sustainable dividend yields. In this market, even traditional dividend-paying companies such as Bank of America, General Motors and Citigroup, have suspended their dividends because of poor performance. In 2008, 62 companies in the S&P 500 cut their dividends. To protect your capital and enjoy steady income, choose ETFs that invest in companies likely to continue paying dividends.

Second, find ETFs that are invested in cash-rich companies. As I have said many times before, in bear markets, cash is king. Cutting dividends harms the company’s reputation and typically hurts its stock price, as well as your principal. Find ETFs that hold stock in firms with fat cash positions and your dividends likely will keep coming.

Third, beware of ETFs that have too much exposure to any single sector. Take a close look at the financial or energy sectors, since any ETF that follows these sectors could be down more than 50% in the last year — costing you much of your initial investment. Remember, when earnings fall sharply, dividend cuts often follow.

Finally, and possibly most important, do your homework before you buy any ETF. Know its holdings, find out if the fund is leveraged or not, check its past performance and make sure that it is well-diversified.

ETFs are a great and easy way to moderate risk in any portfolio, especially in times of volatility. Several studies have found that dividend-paying stocks held for the long run provide better risk-adjusted returns than low-paying ones. Also consider your appetite for risk and your short- and long-term financial goals. Then, invest accordingly.

Mutual funds control the majority of Americans’ retirement assets through 401(k)s, IRAs and annuities. Sadly, a gullible public has bought into the idea that steady investments in mutual funds, regardless of market conditions, is the way to make their financial dreams come true.

This is one of the biggest fallacies of investing, and why mutual funds are hazardous to your wealth.

Click here to view my recently published MarketWatch article on the five fundamental flaws of mutual funds.

Consumer spending always is a key factor in economic growth. Economists tell us that consumers account for nearly 70% of the U.S. gross domestic product (GDP). In light of the current economic situation, with a 7.6% unemployment rate that is more than double the norm, consumer spending and GDP seem destined to fall further.

As of this week, the retail outlook seems dim. The Labor Department recently reported that retailers slashed about 45,000 jobs last month to cut costs. Even major retailers such as Wal-Mart, Target and Macy’s have announced job cuts in the last few weeks. Amid this maelstrom of dismal news, however, retail sales unexpectedly rose 1% in January — the first time in the last six months that retail sales haven’t fallen from the previous month.

Your first instinct from this brief analysis might be to short retail stocks — possibly by using exchange-traded funds (ETFs). If you believe that the retail sector is going to be plagued unrelentingly by this ongoing recession, betting against retailers might be a profitable idea. As the retail industry enters a new year, consumers generally are curbing their spending, according to reports from the International Council of Shopping Centers and Goldman Sachs. Chain-store sales were flat for the week ended Feb. 7, compared to the previous week, but declined by 1.8% on a year-over-year basis.

Between job cuts and lagging sales, the shares of major retailers such as Wal-Mart, Target and Sears fell more than 6% last week. The S&P Retail Index, which tracks most retail stocks, last week fell 18 points, or 6.9%. As a result, ETFs that short this sector, such as UltraShort Consumer Goods ProShares (SZK) and UltraShort Consumer Services ProShares (SCC), have risen by more than 15% since January 2009.

Two Ways To Play
Long
XLY Consumer Discretionary SPDR
XLP Consumer Staples Select Sector SPDR
PMR PowerShares Dynamic Retail
UCC ProShares Ultra Consumer Services
UGE ProShares Ultra Consumer Goods
Short
SCC ProShares UltraShort Consumer Services
SZK ProShares UltraShort Consumer Goods

On the other hand, if you believe that consumer spending will recover in a few months, you may prefer to invest in a retail rebound. Since the market usually rises before the economy, early bird investors willing to bet on retail stand to profit the most. Since retail stocks have been beaten down, the industry may bottom out in the coming months. Major retailers such as Macy’s and Sears have lost as much as 50% from their share prices in the last year. At some point, retail stocks inevitably will start to climb.

For those of you who believe that President Obama’s stimulus package will work and that tax cuts and bailouts might encourage people to resume their now-curtailed spending habits, you may want to invest in retail’s recovery. If that scenario plays out, expect to see the sector jump.

At this point, I am not recommending retail as an investment either way. We are at the proverbial fork in the road and it is not readily apparent which way to go. Although retail is starting off 2009 in rough shape, things could improve by year-end.

David Fabian, Vice President of Fabian Wealth Strategies, was recently quoted in Investors Business Daily on the bullish case for commodity ETFs during one of the worst bear markets in recent history. Click here to read the full story.

For 30 years, no shovelful of soil was turned to construct a nuclear plant in the United States until 2006 when groundbreaking occurred for the National Enrichment facility in New Mexico. With elected officials calling to reduce U.S. dependence on carbon-based fuel, interest in nuclear power could reignite. With President Obama declaring that nuclear energy will be a huge part of an effective energy policy, now may be the time for investors to consider an exchange-traded fund (ETF) that focuses on alternative energy sources.

With environmentalists protesting that global warming threatens the planet, interest in nuclear energy and other non-carbon based fuel is on the rise. Although alternate energy sources such as solar and wind seem safer and trendier, neither of those technologies is capable of replacing coal or natural gas in the foreseeable future.

Despite the current recession, energy demand remains reasonably strong. Global electricity consumption is expected to double in the next 25 years. With a projected fossil fuel shortage to meet such long-term demand, experts believe that nearly 50 new nuclear plants will be constructed around the world by 2020. More than half of those are expected to be in the emerging markets of India, Russia and China.

Countries such as France already have 80% of their energy supplied by nuclear power. In addition, one of the biggest advantages of nuclear reactors is that once these plants are completed, they usually operate for decades and provide a steady revenue stream. So how do you profit from this surge in the sector? Well, there is a way to “go nuclear.”

The Market Vectors Nuclear Energy ETF (NLR) is a fund designed to give investors exposure to public companies in the nuclear energy sector. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business. The fund has jumped by an impressive 15% since November.

The political risks and high costs of oil, combined with a global effort to decrease dependence on carbon-based fossil fuels, inevitably will spur the development of alternative energy. As solar and wind energy still are years away from developing a sustainable and cheap product, all signs point towards going nuclear. With the massive surge in the construction of nuclear plants around the world, this sector is a must for any investor watch list.

David Fabian, Vice President of Fabian Wealth Strategies, was recently quoted in Investors Business Daily concerning the bubble in treasury bond ETFs and offered several alternatives for investors seeking ways to play the bond market right now. Click here to read the full story.

It’s no secret that most 401(k)-type retirement plans are in shambles as a result of the recent market meltdown. And while there is no simple, quick-fix solution for an ailing 401(k), 403(b) or 457 plan, if you have the ability to self-direct your retirement assets there is a way to put yourself on the road to recovery.

Here are the dos and don’ts of turning around that big drop in your retirement nest egg.

First of all, you have to fight “city hall.” All 401(k) providers want you to buy your investment and hold them in perpetuity. I don’t care where your 401(k) is, the mutual fund companies want you to choose a mix of funds and then just leave that mix alone. They have placed rules and restriction on you, and in many cases they make it hard for you to do what you want with your own money. Your first assignment is to know the rules of your 401(k) plan’s fund exchange policies. Hey, it’s your money, so don’t let anyone talk you out of doing what you want with it.

Second, you need to know your retirement plan fund choices. Usually, these choices fall into three categories; stocks, fixed income or cash. Look closely at your safe choices in the cash category; this could be labeled “stable value” or “money market.” As I have been saying for the last year, you need to use this account as your safe harbor in these uncertain times. I’d say you need at least a 50% safe harbor allocation right now.

In the fixed income category, there are some choices that I like. One popular fund is the PIMCO Total Return Fund, a balanced bond fund that posted a total return of 4.2% in 2008. I think you should stay away from those fixed income funds that went down in 2008.

Third, you need to get out of stock mutual funds. I realize that some of you may want to hold on to some of your exposure to stocks, but for me and subscribers to my newsletter services, we have zero exposure to equity mutual funds right now. Ideally, if the S&P 500 can recapture 900, we could make a run to 950. If this happens, then it will represent the best opportunity for those still in equity mutual funds to sell into strength.

Fourth, are you able to get some money out of your 401(k) plan? Here’s what I mean by that. Traditionally, 401(k)’s are very restrictive. Their very design means you have limited choices and more trading restrictions than you would otherwise have in a self-directed IRA. If you are able to, you should transfer assets out of you 401(k). You can do this if you are over age 59 ½, as you may be able to do what’s called an in-service rollover. This is when you transfer all or part of your 401(k) to an IRA rollover account. And while this is perfectly legal, your plan must allow for it.

Also, if you have a 401(k) at a previous employer you should roll that account into an IRA. This will give you the ability to buy and sell exchange-traded funds (ETFs), which come at lower cost than mutual funds—along with virtually no trading restrictions and with the utmost transparency, so you know always know what you own.

Finally, I know what I am outlining here runs counter to establishment thinking, but ask yourself this: are you happy with the results you had in your 401(k) last year? I dare say that that the answer for most people is no, and that means it could be time for some radical change.

Remember that success in anything doesn’t come without a little effort, and real success almost never comes about by following the conventional wisdom. In order to rescue your 401(k), you simply have to get involved and start thinking for yourself.

The U.S. national debt is more than $5 trillion and those of us who pay taxes are on the hook for it. To give you an idea about the gargantuan U.S. debt load, the government owes its creditors more money than the annual gross domestic product of any other country in the world. To finance the debt, the U.S government borrowed nearly $550 billion last quarter and $530 billion in the previous quarter — funded by U.S. Treasury bonds. Although the Treasury market boomed in 2008, it soon could bust. Investors need to decide which side of the Treasury market to take and when.

Here’s my view. The growing Treasury debt could fuel inflation as the U.S. government boosts the money supply by printing additional dollars. The current low bond yields do not offer investors any protection from inflation. My recommendation is for you to maintain a high cash position in the short-term.

I also would avoid making any new investments in Treasury bonds. The need of the U.S. government to issue Treasury bonds looms large during the next couple of years. The federal government’s expansive borrowing is destined to grow further as President Obama’s economic stimulus package is estimated to cost more than $2 trillion in 2009 alone.

If the economy begins to recover by late 2009 or 2010, watch for interest rates to climb and the price of Treasury bonds to drop. Since I expect the economy to recover sooner or later, a decline in the Treasury market seems inevitable and already may be starting. As a result, you may want to look for an opportunity to “short” Treasuries. An investor can short Treasuries through an exchange-traded fund (ETF) that seeks to profit when such government bonds fall in value.

There are several ETFs that short Treasuries of varying maturities that include 7-10 year bonds, 20+ year bonds and others. One ETF, UltraShort Lehman 20+ Treasury ProShares (TBT), rose 28.7% in the month of January. The UltraShort nature of the fund indicates that it delivers twice the inverse of the long-term U.S. Treasury Index.

If you buy an UltraShort fund at the right time, you double your profits. If you buy at the wrong time, brace yourself for double the losses. Indeed, choosing how and when to invest in Treasuries are important decisions.

Ever since President Obama took his place in the big chair at the Oval Office, I’ve been inundated with questions about where best to invest for the Obama era.

And while I think that historically speaking, no president has all that much influence on events in the stock market, I do think current conditions in Washington and Wall Street do require you to make some adjustments with your portfolios.

I think the best Obama investment right now is cash.

A high cash position ensures that you will be protected from any further declines in the market. More importantly, a high cash position enables you to get back into stocks when the market turns.

Just today we’ve seen a sharp market turn, and though this may be fleeting, you must remember that the winds of change often blow in fast and furiously. But in order to take advantage of that change when it comes, you have to be ready and waiting on the sidelines with a high cash position.

I know that after some years of always wanting to be invested in the market, it can be hard to just wait things out on the sidelines. But if there’s one thing I can assure you of, it is this — when it comes to investing, sometimes patience is the greatest virtue.

My advice to all of you is to exercise control and discipline, and that you are not to rush into any investment foolishly. Remember that the beauty of a high cash position is that it puts time on your side — as long as you exercise the virtue of patience.

Although exchange-traded-funds (ETFs) are finding their way into the portfolios of many investors, they have yet to make much headway in 401(k) retirement plans. But that situation could start to change. If current drawbacks to using ETFs in 401(k) plans are resolved, the ETF industry would gain increased working capital, heightened revenues and earnings, and enlarged market share at the expense of mutual funds.

It also would open up the world of ETFs to a much bigger pool of investors. Mutual fund companies recognize the competitive threat and counter that they provide many low-cost, index-tracking funds that essentially perform the same service as ETFs.

It would not surprise me at all if many 401(k) providers were eyeing ETFs to supplement their array of mutual fund offerings. The sheer breadth of ETFs gives asset managers a spectrum of investment possibilities. The vast selection will allow retirement portfolios to be cobbled together that are best suited for the individual circumstances of people across a wide range of ages and income brackets.

Ideally, a retirement portfolio should have access to funds that mirror all types of market indexes, ranging from the S&P 500 to overseas stock exchanges. If there is anything that the bear market of 2008 has taught us, it has been to diversify. Just ask any wealthy investor or hedge fund manager who used Bernard Madoff to manage money. In the wake of industry scandals and poor performance by money managers, ETFs that track indexes and stock markets are becoming increasingly attractive.

ETFs still have hurdles to overcome before their use in 401(k) plans becomes common place. A correctable weakness for ETFs is that their use in 401(k) accounts involves the payment of fees by plan administrators that — when used inside a “collective trust”– can be higher than the fees for mutual funds. However, that current disadvantage is limited to the use of ETFs in 401(k) accounts and can be remedied.

A 401(k) record keeping company, Invest n’ Retire, of Portland, Ore, has developed a technology to trade ETFs cost-effectively in 401(k) plans. The firm’s software allows ETFs to be traded in real-time at institutional pricing. Coupled with lower management fees, ETFs are becoming attractive investments in 401(k) plans.

ETFs still retain decisive advantages, compared to mutual funds. For example, ETFs offer intra-day trading to allow their purchase and sale throughout a trading day as share prices change. If an investor decides to trade an ETF, the transaction can be processed within seconds to eliminate market risk. In contrast, mutual funds keep the same price throughout a trading day and only revise it the next day after the market closes. That limitation for mutual funds leaves their investors vulnerable to market volatility during the course of a day. Right now, a growing number of mutual fund investors are pulling out their money — driving down fund values for the remaining shareholders.

According to the SEC’s Office of Investor Education published statistics, over 50% of investors seek the advice of some type of advisor when making financial decisions.

If you have an advisor managing your money after a volatile year of losses in 2008… how do you know you have the right advisor? It may never be more important than right now to take a closer look to make sure your money is getting the best advice.
The problem is that most investors really don’t know the right questions to ask their advisors.

• How do you know that your interests are being served well by your advisor?
• How do you know if the kind of investments your advisor recommends actually align with your goals?

The only way to know for sure is to ask the right questions. Unfortunately, most investors just aren’t as financially literate as they need to be, and this could cost them even larger asset losses in 2009.

To help you get better information with any advisor to make your best decisions possible, we’ve compiled a list of the 20 Best Questions to Ask Your Advisor.

Current Portfolio Positions at the End of 2008
1) What was the total performance of my account in 2008?
2) What is my current allocation to equities, fixed income and cash?
3) What was the performance of each individual position in my account, e.g., mutual funds, stocks, ETFs?
4) What was the cost of holding these positions, i.e., expense ratios?
5) What was my total cost paid on my investments for the year (including fees and commissions)?

Evaluating the Advice
6) How would you assess my performance relative to the S&P 500 Index in 2008?
7) What were the best and worst performers in my portfolio last year?
8) How would you evaluate your advice to me in 2008?
9) What changes did you make in light of the profound changes in the economy and stock market?
10) What changes are you planning for my account in 2009?

Advisory Fee, Management Fees and Transaction Costs
11) What is our advisory or management fee arrangement?
12) What fees are you receiving from my investments, i.e., commissions and/or 12b-1 fees, etc.?
13) What are the ongoing costs of my investments in mutual funds or annuities?

Looking Forward in 2009
14) What is your or your firm’s overall market outlook for 2009?
15) Do you expect the recession to get better or worse this year?
16) Do you expect the stock market to get better or worse this year?
17) Do you have any defensive tactics in place if things do get worse?
18) What are your investment themes for 2009?
19) What will the government’s proposed economic stimulus package mean for my investments, interest rates and the value of the U.S. dollar?
20) Why should I continue investing with you in 2009?

The goal of these questions is to help you get enough important, relevant and reliable information to help you make educated financial decisions. We believe an educated investor will be the most successful investor.

If you are not satisfied with the responses you get from your advisor to any of these questions, use these questions to look for an advisor that can satisfy you with competent answers.

Now more than ever, individual investors need expert guidance and experience. In today’s quick-changing and complex market environment, we believe every investor needs to have 5 very important advantages working for them to manage their assets wisely:

1) Active Management – establish a clear “sell-discipline” on every holding and then monitor every day

2) Transparent Investment Vehicles – demand a clear understanding of all fees and use exchange-traded funds to keep fees low yet extensive diversification options

3) True Alignment with Client Interests – advisor should have NO hidden rewards, incentives or compensation tied to any ONE investment

4) Pay as You Go – not larger fees paid upfront… rather fees should simply be amortized monthly

5) No Penalty to Exit – be sure to never be required to pay “exit fees” such as redemption fees or surrender fees

At Fabian Wealth Strategies, we broke the mold of traditional asset management firms in two very distinct ways. Our investment philosophy is that risk must be managed carefully – large losses are unacceptable. As the investment world continues to change, investors must be able to adapt accordingly to stay ahead.

Our second mold-breaking feature is our near-exclusive use of cost-efficient investment vehicles. Exchange-traded funds (ETFs) make up the majority of our investment positions. Why? Because ETFs offer diverse options, terrific liquidity and fees are very clear and transparent.

Call Fabian Wealth Strategies at (800) 391-1118 or visit www.fabianwealth.com to discuss these questions and for more information.

It’s time to start looking at the roadmap. The roadmap I am speaking of here is the financial roadmap for 2009. Unlike planning a road trip, knowing where you are going to turn before you start doesn’t apply to investing. Nobody can predict all of the twists, turns, and forks in the road named Wall Street. We can, however, look ahead and see where the mile markers are, and where the key sites of interest reside.

Another way of saying this is that what you want to do now that 2009 has arrived is start developing the investment themes you think will come to pass this year. I’ve identified a few of my own, and here’s a rundown of each:

1) Cash is still king. If you haven’t figured it out already, cash is your best hedge against a deflationary environment. In my advisory services and for my managed clients, we will be using cash accounts as a safe haven in time of market duress. Please don’t make the mistake of thinking that getting a small return of 1% or less is a reason not to hold cash. Money markets are still the best safety net in times of turmoil, as they are liquid, they accept deposits, and they allow withdrawals whenever you need your money.

2) Muni bonds. I think muni bonds could be huge in 2009, and they are particularly suitable for high-net-worth investors. Municipal bonds were a disaster in 2008, with the Muni bond indexes down 12%, while some high-yield Muni bond mutual funds were down 30% or more. For more on munis, see today’s ETF Talk.

3) Bear market rallies. I think we are currently in the midst of a bear market rally. When it stops, nobody knows, but we’ll do our best to make the right call for you. During bear market rallies you are best served by shortening your investment time horizon to weeks, rather than months or years.

4) Bear market sell offs. Despite the recent bear market rally, we are, in fact, still in a bear market. That means there will likely be plenty of shorting opportunities ahead when those bear market rallies run out of steam.

5) Commodity bear market rallies. It’s no secret that oil, gold, basic materials and precious metals are all way oversold right now by historical standards. That means there will likely be plenty of bear market rallies in these individual commodity-related sectors. I think energy is one of the great opportunities destined to emerge from the market rubble of 2008.

6) Rising interest rates. The governments of the world have promised their citizens a whole lot of economic stimulus in 2009, and those promises are going to require a lot of funding. Expect interest rates to rise, i.e., bond yields to rise, in 2009.

7) Currency plays. We could see a lot of action in the dollar vs. rival foreign currencies this year. We also could see a further rally in the dollar going into 2009, or a complete collapse of the greenback. I think the fate of the U.S. currency all depends on confidence. We have a new administration, new Congress—and the prospect of bigger and bigger budget deficits. Will the world continue to invest in America, or will confidence in our financial system be lost in 2009? Watching the direction of the currency will help us answer these questions definitively in 2009.

The December 31, 2008 Fabian ETF Report is hot off the press. Click here to download this data rich listing of every exchange traded fund and their 2008 performance. The report is sorted by domestic, international, sector, bear market, currency, and leveraged funds.

The Hulbert Financial Digest just published its top ten performing newsletters of 2008 and in the top half of that list is Doug Fabian’s ETF Trader! Our positive net return of 13.2% ranks our newsletter 4th in the country as compared to similar investment recommendation services.  Over that same time period the S&P 500 Index has lost more than 40% in one of the worst years ever for stock investors.

Click here to read the MarketWatch article.

We’d also like to congratulate Arch Crawfords publication Crawford Perspectives which garnered the top spot with a return of more than 40%.

For most people looking to grow their serious money over the long term, I believe ETFs are quite simply the best investment vehicles available today.

I suspect many of you reading this right now are already familiar with the term exchange-traded fund (ETF), but do you really understand what ETFs are? Are you aware of the tremendous number of ETF offerings out there for you to choose from? In this report you’ll get a complete list of virtually every ETF available today. This is the same list we here at Fabian Wealth Strategies analyze each and every day to get a true picture of what’s happening all over the investment landscape.

Click here to download the Fabian ETF Report for December 12, 2008.

I thought that this week we should review some of the basic “rules” behind investing in exchange-traded funds (ETFs). I have been touting ETFs as excellent investment growth vehicles, but anything that is new to you can be a little tricky.

Rule One: Diversification

ETFs are flexible investments — you can buy options, go short, and hedge. ETFs also let you invest in a variety of sectors and trends without the risk of single-stock exposure. In fact, some international ETFs give you exposure to stocks or entire sectors that can’t be bought in U.S markets. Let’s face it, ETFs offer diversity — if your goal is to have a mix of assets, ETFs let you do this simply and cheaply.

Rule Two: Explore Your Options

Remember, just because ETFs have stock-like properties doesn’t mean that you are confined to investing in equities. ETFs let you bet on almost anything that can be tracked by an index.

Since the economic downturn, it has become wise to look into alternatives to stocks, namely bonds and currencies. Through ETFs, you can focus on corporate bond indices and/or inflation-protected Treasuries. You can buy ETFs that short the British pound sterling, are bullish on the Japanese yen, etc. There are even ETFs out there that let you buy a basket of currencies ranging from the Indian rupee to the Swedish kroner.

Another alternative to stocks could be to keep part of your portfolio in cash. Instead of using money market funds, you could invest it in short-term bond ETFs, which often pay double or triple what money market funds yield.

Rule Three: Keep an Eye on Trends, and Moving Averages

I like to isolate trends in the market by observing both the 50- and 200-day moving averages to know when to buy and sell. The moving averages remove the “noise” in stock prices. When a stock breaks above or below its 50-day average, the short-term trend has been broken. When the ETF falls below its 200-day average, it is time to sell.

Rule Four: Set Reasonable Stop Losses

This rule is more technical than strategic. To lock in your profits and limit losses, you must set reasonable stop prices or trailing stop losses, depending on the pick. If you have a trailing stop loss in place, you will be protected if the price of your ETF soars and then suddenly dives.

Rule Five: Watch for Minimum Trading Volume

Another important thing to remember while trading ETFs is to watch for trading volume. You want to invest only in ETFs that have a daily trading volume of at least 100,000 shares. Remember, the higher the volume, the more liquid the ETF. A fund with low trading volume could leave you vulnerable to wider swings in the share price during volatile times.

Well, there certainly is more to know about ETFs, but you now have some basic rules to follow. It never hurts to remember the fundamentals of ETF investing, whether you are an experienced investor or just trying to get started. In a volatile market, knowledge and caution gain heightened value.

The New Year is almost here, and soon we’ll all be making our list of New Year’s resolutions. I got a head start on mine for 2009, and here’s just a sneak peak at what I want smart investors to resolve to do next year:

1. I will prepare my family for a tough economic environment in 2009.
2. I will have a positive increase in my liquid net worth in 2009.
3. I will save in excess of 10% of my gross income in my retirement accounts.
4. I will save and safely secure at least three months of living expenses.
5. I will stop losing money on bad investments or bad investment advice.

Of all of these resolutions, perhaps the most important is the last one. You see, losing money on bad investments is perhaps the most frustrating thing that can ever happen to you.

To accomplish this goal, you need to adopt a new mindset. You need to adopt new investing techniques, and you need to get rid of and get out of bad investments as the market returns to rally mode.

Although there are many ways to make sure you don’t lose money, one great technique is to set trailing stop losses on all of your invested positions.

Although the mechanism for setting a trailing stop loss varies depending on which brokerage you use to place your trades, the principle of a stop loss is the same everywhere and it shouldn’t be thought of as complicated.

When you set a trailing stop loss on a new position, you are telling your brokerage firm to sell that position as soon as it falls whatever percentage you set from the buy cycle high. Let me explain.

If you purchase a stock or an ETF for a hypothetical $10 per share and you have placed a 10% trailing stop loss order on that purchase, the stock or ETF will be sold if it falls to $9 per share. If, however, the stock or ETF rises after your purchase to $20 a share, then comes back down to $18 per share, your position will be sold at $18 per share.

A trailing stop loss allows you to protect yourself from a quick dive in the share price of your security, and it allows you to protect your gains in the event that the security soars and then pulls back sharply.

If you are unsure of how to set a stop loss, then please consult the Web site of your online brokerage, or call your brokerage and ask its representative to provide you instructions on how to do so. Most online brokerage firms make it easy to set trailing stop losses, and you can do so whenever you purchase an ETF or common shares of stock.

Please take the time to learn how to set stop losses. In this fast-and-furious market, having a trailing stop loss in place is absolutely essential to making sound trading decisions.

The same advantages of broad-based market funds that I shared in last week’s ETF Talk also extend to international funds. Both kinds of ETFs provide diversification, low expense ratios, trading flexibility and tax efficiency through index investing. In addition, both also allow the use of limit orders and short selling.

With the U.S. economy in poor shape, it is now more important than ever to diversify strategically, and international ETFs could be especially useful in helping you to do so. When the stock markets recover, emerging markets likely will show the greatest gains. For that reason, I want to bring the iShares MSCI Emerging Markets (EEM) to your attention. It has about $12 billion in assets and offers the potential to soar when the markets recover.

Another fund to watch is the iShares MSCI EAFE Index Fund (EFA), with about $29.4 billion in assets. It contrasts with EEM by investing at least 90% of assets in the securities or investment instruments of the underlying index of developed international markets.

I also recommend becoming familiar with iShares FTSE/Xinhua China 25 Index (FXI). The fund generally invests at least 90% of its assets in the securities of the index or in American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or Euro Depository Receipts (EDRs) that represent securities in the index. FXI also invests in other assets such as futures contracts, options on futures contracts, options, and swaps related to the index, as well as cash and cash equivalents.

Many financial advisors recommend investing at least 20% of your portfolio in overseas funds. That is not a bad idea at all. The reasoning is that those funds are supposed to rise and fall independently of the U.S. market. Well, there has been more correlation than not lately, with virtually all of the world’s markets taking a big hit. However, not all of the markets will recover together. For that reason, exposure to foreign markets helps to offset domestic market swings.

I personally like broad-market international ETFs because of their sheer breadth and liquidity, low expense ratios and narrow bid-ask spreads. These characteristics make buying ETFs better values than foreign stock mutual funds.

In the past year, international ETFs have grown even faster than domestic ones. ETFs that offer international exposure are gaining popularity quickly among investors, according to the Investment Company Institute. In the 12-month period ended Oct. 31, total ETF assets rose 38% to $335.1 billion, while global ETFs nearly doubled to $82.8 billion.

Before you buy any international ETFs, here are a couple of other things to keep in mind. Some ETFs track only indices that have foreign stocks traded on U.S. exchanges. Others track indices based on foreign stock markets. What’s the difference between the two varieties? ETFs that track foreign stocks traded on U.S. exchanges tend not to be as diversified as ETFs based on foreign markets. However, an advantage of buying a basket of ADRs is that the U.S. market usually has tighter and higher accounting standards than most foreign markets.

So, if you want some additional portfolio diversification, get your passport out and go international.

I’m a big fan of using leverage with my investments. When investing for short-term profits, there’s nothing as good as having a 2-beta fund in your portfolio. What’s a 2-beta fund? It’s a fund — usually an ETF — that moves twice as fast as the underlying index. These 2-beta funds can move in the same direction as an index, or they can move the inverse of a particular index.

But what if you are the impatient, even impetuous type who craves even more leverage? What if there were funds that allowed you to go for a triple play?

Well, you’re in luck. Thanks to ETF issuer Direxion, there are eight new ETFs that are leveraged bull and bear funds designed to seek 300% — yes, that’s 3-beta — of the daily performance, or 300% of the inverse of the daily performance, of the four indexes they track.

Now before we go any further, I want to make sure you understand that 3-beta ETFs should not be viewed as core portfolio holdings. They are too volatile to be used for that purpose.

But if you like to live on the investment edge, and really like to swing for the fences, then the new Direxion funds could be right for at least a small percentage of your trading money.

After all, if you’ve got the temerity to put your chips in the 2-beta pot, then why not take the next step and go for the triple?

Here’s a quick rundown of Direxion’s new 3-beta funds:

Direxion Large Cap Bull 3X Shares (BGU)
Direxion Small Cap Bull 3x Shares (TNA)
Direxion Energy Bull 3x Shares (ERX)
Direxion Financial Bull 3x Shares (FAS)
Direxion Large Cap Bear 3x Shares (BGZ)
Direxion Small Cap Bear 3x Shares (TZA)
Direxion Energy Bear 3x Shares (ERY)
Direxion Financial Bear 3x Shares (FAZ)

Note: A special tip of the hat goes to my friend Tom Lydon of ETFTrends.com for the heads up on these triple-leveraged ETFs.

Consider taking cover if you hold any mutual funds in taxable accounts. Many mutual funds that absorbed big losses still will incur significant capital gains for the 2008 tax year. Those capital gains are caused by mutual funds buying and selling stocks during the year – even if a fund racked up huge losses.

Investors looking to limit their tax liabilities from capital gains may want to move money out of mutual funds during the very near future. The record date for when mutual funds assign capital gains to their account holders usually comes as soon as early December. This doesn’t leave you much time to take action. If you delay, expect to owe Uncle Sam more in taxes that you otherwise may have anticipated.

The lesson of incurring capital gains from a money-losing mutual fund may come as a bit of a shock if you are a young investor who largely has only known bull markets. This year’s market turmoil likely caused the stock mutual funds that you own to sell heavily as other investors bailed out and caused the fund companies to redeem their shares.

Keep in mind that you still will incur a one-time tax liability if you sell any mutual fund shares for a profit that were held in a taxable account. If you invest in mutual funds through a 401(k) or a similar retirement account, you escape the tax liability this year. The benefit of selling mutual funds before the record date is that you will avoid incurring capital gains not only this year but each year in the future that you otherwise would stay invested in the funds.

I checked with a couple of the leading mutual fund companies, Vanguard and T. Rowe Price, and learned that the capital gains of some of their mutual funds will be significant. The Vanguard Health Care Fund is estimated to incur capital gains of $8.03 a share, with a record date of Dec. 15. T. Rowe Price posted an announcement on its Web site to inform investors that “unprecedented market fluctuations” in the second half of 2008 are causing potentially “substantial” revisions to its previous capital gains estimates. The record date begins Dec. 10 for T. Rowe Price’s stock mutual funds and Dec. 4 for its bond and money market funds.

My favorite investment vehicle, exchange traded funds, typically minimize capital gains to shareholders because of their index structure. Consider rotating out of your under performing mutual funds into ETFs for a more tax-efficient and low-cost investment alternative.

Remember that phrase from the 1992 presidential election campaign? The term was coined by Democratic Party pit bull James Carville, and it refers to the idea that then Gov. William Clinton was a better choice than President George H.W. Bush because the latter had failed to properly navigate the economy through a recession.

The more that things change, the more they stay the same.

Now it’s up to President-elect Obama to deal with the nation’s issues at hand, and once again, it’s the economy, stupid.

The biggest issue in a macro sense is the credit and housing markets. So far, government moves to help free up credit markets and bail out banks and financial institutions slammed by the subprime mess have been met with virtual indifference on Wall Street. Then we have a world economy in recession, and an overall sense that things are going to get much worse before they start to get better.

To put what we are all facing into a little historical perspective, consider the following statistics:

• There have been 13 recessions since 1929, and on average they’ve lasted 10 months.
• The longest recession ever was The Great Depression, which lasted 44 months.
• The recessions of 1973-1975 and 1981-1982 lasted 16 months each.
• In the 13 recessions dating back to 1929, the median S&P 500 bottom occurred 58% of the way through the recession.

I present these bits of information to you not to scare you, but rather to alert you as to just where we are right now in our country’s economic history. I think it is safe to say that we are, in fact, in the midst of a recession that started somewhere between the end of 2007 and the beginning of 2008.

Although the economy may not have technically descended into recession during this time period, the material effect of recession certainly was felt in the economy and the psyche of investors around the globe.

Given the protracted nature of recessions, and considering what we’ve experienced in the market meltdown of 2008, I think we can say that this recession likely will be at least on the order of 1973-1975 and 1981-1982.

Unfortunately, there isn’t much a President Obama can do about this situation — save for some Keynesian scheme to spend more government money (i.e., your tax dollars) in a vain attempt to stimulate the economy. Sadly, I think this will have the perverse effect of doing more harm than good, both for the economy at large and for the equity markets.

So, what’s an investor to do?

One answer is to embrace what is so often the forgotten asset class, cash. Another answer is to pick and choose your spots carefully, investing in segments of the market likely to outperform the major indices based on strong sector fundamentals and strong technical momentum.

The bottom line here is that whatever you do, you have to realize that you are in a tough environment and that whatever action you take you are going to have to do so within the context of the profound epithet dolled out by James Carville — It’s the economy, stupid.