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 Vanguards 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 dont want to throw cold
water on this, but lets not forget that these bonds only extend out for three
and six months. This isnt 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. Its 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 its made brief appearances above water, with this weeks
rally putting it there again. Last Tuesdays gain wiped out all the ups, and
mainly downs, since Dec. 9. The pundits are out in force, as you might expect
given that its 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? Barrons , in back-to-back stories
this week, has experts in one story claiming well 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 cant be right but both could be wrong. Heading forward, the trades
Im 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, Im 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 Ill be buying the fund to stay consistent with
the models focus on open-end funds, you dont need to be that consistent, and I
recommend the ETF shares, which come without front-end and back-end loads. The
other half of the money will be added to Vanguard Dividend Growth (MUTF: VDIGX )
and Vanguard Dividend Appreciation ETF (NYSE: VIG ). 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. Were also buying into Emerging Markets Index
after it has fallen 19%. Im not promising that the emerging markets wont
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, were buying
in near the lows of the past year-and-a-half. This article first appeared on
MoneyShow.
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