The final numbers on third-quarter GDP showed growth was slower than originally estimated in the prior quarter, but with the fourth quarter almost over and signs that economic activity picked up during the past few months, investors looked past the data last week and focused more on another positive jobs report showing new claims for unemployment falling yet again.
We had a busy week, with lots of distributions on Vanguard’s funds, plus of course the big rally on Tuesday. The rally was borne on the backs of two distinctly different, yet encouraging reports.
The first was that Spain was able to once again sell bonds at a very attractive rate (for them), essentially completing their needed refinancings for the year. The beleaguered country was able to sell three-month bills at 1.74%, compared to 5.11% just a month ago, and six-month bills at 2.44% rather than the 5.227% offered in the last auction.
I don’t want to throw cold water on this, but let’s not forget that these bonds only extend out for three and six months. This isn’t a long-term fix, but it does give Spain breathing room.
Here at home, housing starts numbers jumped to a 19-month high in November. Issuance of permits also rose sharply. It’s been said that for every 100,000 new units of housing that are built, 250,000 jobs are created. That would be a welcome gain for workers here.
The overall housing market remains deeply troubled, and more so after revisions to data from many years past showed that the crunch was even worse than originally reported.
While inventories are down, which augurs higher prices as demand picks up, a big backlog of yet-to-be-foreclosed properties, and those which sellers have been reticent to list, is hanging over the market. Still, the bright side is that the housing market is in recovery mode, albeit a slow one.
With the Dow jumping 2.9%, or more than 337 points, last Tuesday, this once again put the index above its 200-day moving average. Many technicians look at the 200-day average as a signpost, and the Dow was solidly above this marker for a year until dipping in early August.
Since then it’s made brief appearances above water, with this week’s rally putting it there again. Last Tuesday’s gain wiped out all the ups, and mainly downs, since Dec. 9.
The pundits are out in force, as you might expect given that it’s the end of the year. I thought you might be amused by this little “find” of mine concerning inflation.
Investors have been asking, “Will we see global inflation in 2012 or massive deflation?” Barron’s, in back-to-back stories this week, has “experts” in one story claiming we’ll see “face-ripping” inflation in 2012 as government printing presses begin operating overtime, while another duo predict global deflation on the backs of loan defaults, asset write-downs and a huge contraction in spending by consumers, businesses and governments. Remember this: Both can’t be right — but both could be wrong.
Heading forward, the trades I’m recommending are the sale of Vanguard International Explorer (MUTF:VINEX) and Vanguard FTSE All World ex-US SmallCap ETF (NYSE:VSS). In both their places, I’m recommending you take half of the proceeds and purchase either Vanguard Emerging Markets Index (MUTF:VEIEX) or the Vanguard MSCI Emerging Markets ETF (NYSE:VWO).
While I’ll be buying the fund to stay consistent with the model’s focus on open-end funds, you don’t need to be that consistent, and I recommend the ETF shares, which come without front-end and back-end loads.
First, most of us will be taking a loss in International Explorer and World ex-US SmallCap ETF, which are currently down 20.6% and 20% for the year. Those losses are worth something, as they can be used to offset gains in other parts of our portfolios, or to offset gains paid by other funds we own.
We’re also buying into Emerging Markets Index after it has fallen 19%. I’m not promising that the emerging markets won’t continue to give investors more pain in the near term. But in the long term, I think they offer great growth opportunities and, at current prices, we’re buying in near the lows of the past year-and-a-half.
This article first appeared on MoneyShow.