The Fed, the Dollar, and Commodities Profits

The FOMC is expected to announce no change to the overnight lending rate later today. Economists also expect the Fed to say that it will continue to purchase Treasury bonds to provide liquidity and keep interest rates at least somewhat in check. 
In other words, there’s no way this Fed can say anything about supporting a strong U.S. dollar with anything approaching credibility. 
Oil, steel, gold and other commodities all rallied as the dollar weakened against the euro and the yen. When the dollar falls in value, you need more of them to purchase things.  
*****Extra dollars also come in handy when they are your protection for loans that you’ve made that might not get paid back. That’s the case for Bank of America (NYSE:BAC), which is about to exchange 200 or so million shares of new stock for preferred shares. This move will effectively take a few billion dollars from shareholders and put it in the banks’ coffers. 
*****Monday, the World Bank lowered its 2009 growth forecasts for the global economy to 2.9%. This morning, the Organization for Economic Cooperation and Development (OECD) said it was leaving its 2009 forecast of a 4.1% contraction in place. 
But the OECD did raise its forecast for 2010 growth to 0.7%. The OECD had been expecting a further 0.1% contraction next year. 
These numbers make the OECD appear more bearish than the World Bank. However, it should be noted that the OECD represents just 30 countries. And it doesn’t include the two economies that will likely post the best growth – India and China. 
This is why we have been aggressively picking up Chinese stocks at SmallCapInvestor PRO. We’re now holding 4 small Chinese stocks that we expect to do very well in the coming months for investors.
*****One of the stocks we recently recommended is a Chinese organic fertilizer company. China has 22% of the world’s population, but only 7% of the world’s arable land. And over-reliance on nitrogen-based fertilizers has leached the soil of nutrients and led to awful water pollution.  
Organic fertilizers represent a fundamentally different approach to feeding plants. Nitrogen-based fertilizer is dumped on fields and the plants’ roots absorb the nutrients. The nitrogen also runs off during rains and ends up in waterways and bodies of water causing algae blooms and dead zones. Organic fertilizers, on the other hand, make the soil itself healthier and able to provide the nutrients the plants need without the harmful run-off.
So not only can you re-invigorate your soil and your plants, you virtually eliminate run-off pollution and waste.  
The market potential for this organic fertilizer company is awesome. That’s why it has projected 35% growth rate for the next 5 years. But with a forward P/E of 8.5, it’s unlikely to remain a $7 stock for long. If you’re interested, you can find out about this dynamic company HERE.
*****We’ll be discussing our bullish outlook for commodity stocks in tonight’s Internet Video Conference. It’s titled Inflation Busters: Discover the Stocks to Grow and Protect Your Wealth and will air tonight, Wednesday, June 24 at 6:00 P.M. It’s free to attend, there’s still room and you can sign up HERE.

*****Today is Newsletter Advisors Wednesday; please enjoy the following interview with John Nyaradi from Wall Street Sector Selector and Wall Street Sector Selector Ultra.

Newsletter Advisors Wednesday:
You run a couple of ETF trading services, Wall Street Sector Selector and Wall Street Sector Selector Ultra. Can you tell our readers what ETFs are and why you’re focused on them instead of stocks or mutual funds?
A: Exchange Traded Funds are a happy cross between mutual funds and individual stocks. An ETF typically focuses on a sector, like financials or gold or real estate, or on a major index like the S&P 500 or the Dow. They trade like a stock in that they can be "shorted," optioned or traded intraday and they are like a mutual fund in that they’re usually a collection of individual securities or track a particular index. I focus on ETFs rather than individual stocks or mutual funds because I believe they offer the best of both worlds; the diversification of a mutual fund (but with lower costs) along with the trading flexibility of an individual stock. Also, "ultra" ETFs offer leveraged positions for more aggressive investors.
Q: The name of your service "Sector Selector" implies that you target particular sectors for your portfolio. Which sectors are you looking at right now to show leadership in the market? Any particular ETFs you’d suggest investors add to their portfolios?
A: Recently the strongest sectors have been in the Emerging Markets, Energy and Technology. Some leading performers have been iShares China 25 Index (FXI), United States Oil Fund (USO) and iShares Technology Fund (IYW). If the global recovery continues, developing nations, commodities and energy could be expected to be leading sectors. But I’m being careful right now on the long side because I think it’s quite likely that the run up from March is largely behind us.
Q: The stock market has seen a nice run since the March 9th bottom. What does your data suggest we’ll see this summer and the rest of the year?
A: I’m looking for a correction or at least a sideways consolidation. The run up since March has been of historic proportions, the biggest since the 1930s, and appears to be running out of steam at the present time. I believe we have a choppy road ahead as the consumer and businesses adjust to tighter credit, the popping of the real estate, equity and credit bubbles, and the global deleveraging that is still taking place.
Q: Can you describe what you look for in ETFs you’re considering for your portfolio? And conversely, what you look for in avoiding certain ETFs?
A: I look for ETFs that have stronger relative strength than the general market and so have the potential to outperform the indexes. I think it’s important to diversify among sectors and avoid thinly traded ETFs and the more exotic funds that have the potential to magnify the already elevated volatility we’ve been lately experiencing. Also, because of the volatility, I’ve been maintaining a large position in cash.
Q: Can you describe to readers what inverse ETFs are and how they work?
A: Inverse ETFs move opposite to their underlying index. For instance, if you believe the S&P 500 is going to decline, you could buy ProShares Short S&P 500 (SH).  SH will go up in price as the S&P declines and so gives you the opportunity to profit if the market goes down. Inverse ETFs give the retail investor the opportunity to "short" the market, both in cash accounts and in qualified accounts like IRAs and 401(k)s which usually don’t allow you to short a stock outright.  These are very sophisticated instruments that offer tremendous flexibility not previously available to retail investors and could be a valuable addition to an investor’s arsenal.  
John, thanks so much for spending some time with us today and sharing with Daily Profit readers your profitable strategy in trading ETFs.
If you’d like to learn more about how to profit from ETFs and about John’s services, Wall Street Sector Selector and Wall Street Sector Selector Ultra, I invite you to click HERE.

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