May 2011 - Forecasts & Trends

Exchange-Traded Funds, or ETFs, continue to proliferate in the marketplace. There's no doubt that these securities are the latest "sexy" investments that all investors think they need to have. Couple that with the availability of Exchange-Traded Notes (ETNs) that offer access to asset classes and markets that were formerly available to only wealthy investors, and you have the potential for an investment disaster.

While ETFs and ETNs do offer some very valuable access and flexibility not available through other types of investments, these features don't come without a number of disadvantages. In this week's issue, I'll discuss some of the downsides of ETF and ETN investing so you'll be fully informed should you choose to include these offerings in your portfolio.

Since it's not always easy for individual investors to identify the good ETFs and ETNs from the bad, I'll also introduce you to Metropolitan Capital Strategies, a professional Investment Advisor with strategies designed to do this work for you. Metropolitan's methodology involves both mechanical systems and discretion, allowing it to not only overcome emotional trading, but also factor in "black swan" events such as the credit crisis or Japanese earthquake. Best of all, Metropolitan won't invest unless its proprietary formulas indicate a 90% or higher confidence level for a double-digit gain. If ETFs and ETNs are of interest to you, you'll definitely want to read this week's article.

I think that all of us can agree that the wealthy, those with a net worth of $10 million or more, have a certain edge in their investments. After all, only the wealthy can play in the high-stakes game of hedge funds and other "private" offerings with minimum investments in the millions of dollars. However, there are times that all of us can learn valuable lessons on investing by paying attention to the habits of wealthy investors.

A recent study by Cerulli Associates is a good example. It found that many wealthy investors are now seeking the advice of multiple financial advisors. This week, I'll highlight the reasons that wealthy investors are using multiple advisors as well as the advantages of doing so. More importantly, however, I'm going to show how you can get the same benefit of multiple advisors for your own portfolio, even if you aren't a multi-millionaire.

IN THIS ISSUE:

1. GDP Growth in the 1Q Was Disappointing

2. The Fed's Decision & the Press Conference

3. Editorial: A Tale of Two Recessions

4. Reliance on Uncle Sam Hits a Record

5. Unemployment Devastates Savings - and Benefits

Introduction

Our main topic this week is a new report from USA TODAY which found that Americans depended more on government assistance in 2010 than at any other time in the nation’s history, based on federal data. A record 18.3% of the nation's total personal income in 2010 was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs.

Yet before I get into our main topic, there has been some important news on the economy and the Fed since last week's letter. Last Thursday's initial report on 1Q GDP was considerably weaker than expected. The government reported that 1Q GDP rose at an anemic annualized rate of only 1.8%, as compared to 3.1% in the 4Q of 2010.

The Fed's monetary policy committee met last week and decided that the latest round of quantitative easing (QE2) will end in June as scheduled, and that no new QE3 is in the works. They also announced that short-term interest rates will remain near zero for an extended period. And Fed Chairman Bernanke continued to maintain that he believes rising inflation is temporary. I'll have more details below.