Flash Alert to all Safe Money subscribers, July 24, 2009
Three More Actions ... Dear Safe Money Subscriber, We’re continuing to see the impacts of the government's massive and aggressive market interventions of recent months, and that mandates adjustments to your positions. Today, we recommend you take three actions: First, sell your position in the Short Financials ProShares (SEF). As Mike explained in his Money and Markets column this morning, we’re seeing much more bifurcation in the banking sector: Rather than selling the entire sector, investors are buying the winners and selling the losers. That means a broadbased ETF like SEF is no longer a good fit. Cut your losses by selling SEF at the market. Second, exit your position in the Short MSCI Emerging Markets ProShares (EUM). The trillions of dollars that Washington is shoveling into the U.S. economy aren’t having a major impact. But it’s a different story overseas. Countries like China are getting much more bang for their stimulus buck. That’s leading to at least a short-term improvement in growth prospects and the corporate earnings outlook overseas. Get out of the way by selling EUM at the market. Third, buy 100 shares of Western Union Co. (WU) at the market. Western Union is the biggest money transfer company in the world. People all over the globe use its offices and agents to wire funds to friends and relatives in other locales. With the company deriving over half its sales from overseas, buying Western Union is a backdoor way to take advantage of the strength in emerging and foreign markets. Adjusted earnings per share declined at a 6% rate in the second quarter. But they’re expected to rebound next year, rising by 12%. Sales growth is also poised to pop back into the black. Moreover, the company has gotten lean and mean during the economic downturn, closing call centers in the U.S. and slashing one-tenth of its workforce. As business improves, especially overseas, it’s likely to see hefty improvement in profit margins.
Another reason we smell opportunity: Western Union’s shares slumped right after the most recently quarterly results hit the tape. But they soon bounced back, a sign of real technical strength, and we believe it opens the door for a move to the mid $20s. So go ahead and add these shares to your speculative portfolio. Meanwhile, your other recently added positions in U.S. Global Investors (GROW) and the ProShares UltraShort 20+ Year Treasury (TBT) are already moving our way and should continue to do so in the weeks ahead. We’re also seeing some positive action in Federated Prudent Global Income Fund (FPGCX) and General Mills (GIS). Hold. None of this changes the positive outlook for gold or the negative outlook for the U.S. economy long term. So continue to hold the balance of your inverse ETFs — DOG and PSQ. In our next regular monthly issue (due out on Friday, August 7) we'll give you a full rundown of our big picture outlook. Best wishes,
Martin Weiss and Mike Larson