Fidelity Select Fundranker

Fundranker Blog—Page 5

Global Recession

The bad news just keeps on coming. The World Bank released a forecast this week saying that the world is on the brink of a rare global recession. It predicts that the global economy will eke out growth of 0.9% in 2009, down from 2.5% this year and 4% in 2006, but that world trade will fall next year for the first time since 1982. Deutsche Bank is even more pessimistic, forecasting global growth of only 0.2%, even less than the 0.3% recorded in 1982. Justin Lin, chief economist at the World Bank, summarized as follows, “We know that the financial crisis now is likely to be the worst since the 1930s.” The World Bank report gives hope that a recovery will begin to show results with 3% growth for the global economy in 2010.

Marc Ambinder, in his politics blog at the Atlantic magazine, recently wrote that it seems that Barack Obama’s economics transition team is very worried that the economy will get a lot worse before it gets better, as in double digit unemployment, huge declines in aggregate demand, and significant, persistent deficits. However, he also says that the general level of concern among Obama advisers and transition staffers is reassuring; that they actually get the magnitude of the problems and are paying attention.

The news these days has been inundating us with bits and pieces of the current bad economic climate. The World Bank and Deutsche Bank forecasts along with articles like Marc Ambinder’s help paint the big picture for us, and a bleak picture it is.

Posted 12/11/08 12:13pm ET in Economy | Permalink | Comments (0)

Rally Update

The spring rally powered the market to new highs again this week, although the S&P 500 and the Nasdaq Composite Indexes were off slighty today, June 5, 2009. As of today’s close, Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) have gained 31.68%, 39.83%, and 45.99%, respectively, since their March 9 lows. As of June 5, the Nasdaq Composite is over 12% higher, the S&P 500 is nearly 2% higher, and Fundranker is nearly 1% higher than their January 6 highs.

Posted 6/5/09 11:26pm ET in Fundranker, Market | Permalink | Comments (0)

NBER Recession Declaration

The National Bureau of Economic Research announced on December 1 that our economy entered a recession in December, 2007. This is par for the course for NBER, which in its own words, always waits long enough so that the existence of a recession is not at all in doubt and until it can assign an accurate date. Apparently, NBER is not in the business of calling recessions in a timely fashion; it is only in the business of saying when they begin and end, and it waits until it is absolutely certain to make its announcements. Despite this completely unsurprising announcement coming an entire year after the recession started, there is not much doubt that it contributed to the DJIA’s 678 plunge on December 1. Maybe this final and definitive corroboration of the fact of recession was like the straw that broke the camel’s back.

The NBER is equally careful on saying when recessions end. It did not announce the end date of the last recession (November, 2001) until July 17, 2003, nearly two years later. In fact, the NBER did not announce the beginning of the last recession (March, 2001) until November 26, 2001, which turned out to be the month it ended.

It seems pretty safe to say that is not the case this time, as there is little doubt we are still in recession and will be into 2009, if not longer. It remains to be seen how huge economic bailout and stimulus plans, both recent and soon to come, will impact the eventual end date of this recession. The only safe bet now is that this recession will be over long before the NBER tells us so.

Posted 12/7/08 7:45pm ET in Economy | Permalink | Comments (0)

Retail Sales

The Christmas shopping season is not looking so good this year, or is it? On one hand, retailers cut prices enough to get lots of shoppers out the day after Thanksgiving, nicknamed Black Friday because it traditionally is when large retailers finally have enough sales to go from operating in the red to operating in the black for the year. But the deep discounts needed to get shoppers out combined with Thanksgiving falling late in November have really cut into profits this year. For example, Abercrombie & Fitch’s November same store sales were down 28%, Kohl’s were down 17%, Target’s were down 10.4%, and Costco’s were down 5%. Wal-Mart stood out with November same store sales that increased 3.4%. Same store sales declined an average of 2.5% for 40 retailers that reported on Thursday, according to TNS Retail Forward, a market research and consulting firm. A year ago, the same retailers reported same store sales had increased an average 4.3% from 2006.

But take a look at how Select Retailing has performed in December, gaining 6.45% in the first five trading days this month, more than any other Select fund. The stock market is usually an advance indicator for the economy. Is Select Retailing’s gain just an anomaly, or is the market trying to tell us something about retail sales?

Posted 12/5/08 9:35pm ET in Economy | Permalink | Comments (0)

Missing Out

The November/December issue of Fidelity Investor’s Monthly has a good article about the hazard of missing time in the stock market. An S&P 500 index investor who capitulates after big drops in the index and sells his position can easily miss some of the best days in the market. For example, if you sold on Black Monday, October 19, 1987, when the S&P 500 fell 20%, you would have missed out on the 15% rally over the next two days. If you sold on October 10, 2008, after the S&P 500 fell for eight consecutive days, you would have missed out on the S&P 500’s 12% gain the following day. More recently, if you sold on November 20, 2008, after the S&P 500 fell 17.4% over five days, you would have missed out on the 19.2% gain over the succeeding five days.

The Fidelity article also charted the performance of the S&P 500 from January 1, 1980, to October 31, 2008, nearly 28 years. A $10,000 investment in the S&P 500 would have grown to $202,730 with a buy and hold strategy. If the investor had missed just the best five days for the S&P 500, the portfolio’s ending value would be only $134,842, 33% less. Missing the 10 best days lowers the ending portfolio value to $104,648, a drop of 48%. Missing the 30 best days impacts the ending portfolio value even more, lowering it to $45,703, 77% less. Finally, missing the best 50 days leaves the investor with an ending portfolio worth only $22,969, 88% less.

Analyses like this one are popular during times of market downturns, but that doesn’t make them any less meaningful. It never hurts to emphasize the perils of trying to time the market, especially in times of great turmoil, when it is even more tempting to do so.

Posted 12/4/08 12:02pm ET in Market | Permalink | Comments (0)

Current Data

Fidelity Select Fundranker takes great pride in presenting the latest data available on its results on this website. It is important to us for you to know exactly how well the Fundranker system and its Top Eight Model Portfolio are doing in the current market situation. Although you can find a lot of historical information on this website as well, we don't feel it is right to keep boasting about some great return we made three years ago or five years ago, as if that is the only criterium on which you should base a decision to subscribe to Fidelity Select Fundranker and follow the Fundranker system with your investments. It's nice to know how the Fundranker system has performed in the past, but it is also important to know how it is performing right now.

That said, it seems anticlimatic to report that as our current economic crisis has pulled the general market down significantly, the Top Eight Model Portfolio has followed it down. Because of Fundranker’s heavy weighting in energy and natural resource sectors early in the bear market that started last November, the Top Eight Model Portfolio was able to buck the downtrend through June. It even made all time highs in May and June, while the general market was declining. Since June, however, with the energy and natural resources sectors falling precipitously, and the entire market following suit, the Top Eight Model Portfolio has given it all back and then some.

Fundranker has stayed invested in the market through this difficult time and will continue to stay invested. If you are following the Fundranker system, now is not the time to capitulate and exchange your Select funds to cash. If you have stayed disciplined and fully invested up to now, in fact, this could be a particularly bad time to exchange to cash. It is quite possible that this bear market has reached its lows and now will begin to recover. If you stay fully invested, you won’t miss significant upturns. Staying fully invested repeatedly has been shown to be superior to trying to time the market and almost certainly missing some of the upturns to the detriment of your overall investment return.

Posted 11/1/08 9:15pm ET in Fundranker | Permalink | Comments (0)

Two Opinions

Two opinion pieces in the October 9 NY Times point out both cause to worry about the financial crisis and reasons not to worry too much.

Paul Krugman, NY Times Op-Ed columnist and professor of economics and international affairs at Princeton University, calls this the moment of truth. He feels that the United States and European Union responses to the crisis have been woefully inadequate. Finally, though, the British government on Wednesday announced a plan to inject massive new capital into banks and provide extensive guarantees for financial transactions between banks, and now U.S. Treasury officials say they plan to do something similar, which Congress allowed in the rescue package, even though, until a few days ago, the U.S. Treasury remained resolutely opposed to it. He questions whether these moves are too little, too late, but hopes for a credible announcement this weekend of a new financial rescue plan involving not just the United States but all the major players. Because top financial officials from the major advanced nations are meeting today and the annual International Monetary Fund/World Bank meeting takes place over this weekend, Krugman says this is a golden opportunity for a new global rescue plan to be put in place.

Casey B. Mulligan, professor of economics at University of Chicago, makes a very different case. He contends that using some of the $700 billion in the rescue package to buy ownership stakes in banks is based on two faulty assumptions: first, saving America's banks won’t save the the economy, and second, the economy doesn't really need saving—it’s stronger than we think. He says the economy outside the financial sector is healthier than it seems and bases his reasoning on the profitability of non-financial capital, which economists call the marginal product of capital. When this measure of profitability is higher than average, future rates of economic growth also tend to be above average. Since World War II, the marginal product of capital has averaged 7 to 8 percent per year. In 2007 and 2008, when oil prices spiked and housing prices collapsed, the marginal product of capital was 10 percent per year, much higher than average. Mulligan also points out that third-quarter earnings reports from some companies already suggest that America’s non-financial companies are still making plenty of money.

Posted 10/10/08 4:06pm ET in Economy | Permalink | Comments (0)

Reverse Auction

To give maximum flexibility to the U.S. Treasury and the Federal Reserve, the newly legislated financial rescue plan is short on specifics on how the troubled assets will be priced and purchased by the government. A clever reverse auction process is one of the key ideas and deserves serious consideration. In this process, financial firms would offer to sell their troubled assets to the government at prices of their own choosing, and the government would buy the troubled assets in ascending order.

Presumably, the more anxious a financial firm is for help, the more they would lower the price they ask for their troubled assets. To make a reverse auction work most efficiently from the taxpayer viewpoint, the government would need to set up separate reverse auctions for various homogenous groups of assets, specify the total amount of money for each reverse auction, and set a maximum price it would pay for individual assets.

Posted 10/8/08 9:31am ET in Economy | Permalink | Comments (0)

Bailout Defeated

The U.S. House of Representatives rejected the bailout bill in a close vote 228 to 205. Even before the news of the bill’s failure reached Wall Street, the Dow Jones Industrial Average started falling. After the vote, it plunged even faster, falling 777 points for the day, its largest one-day point loss ever. Democrats supported the bill in greater numbers than Republicans, but significant percentages of both parties’ legislators voted against it.

What’s next? Conventional wisdom is that Congress must do something, and do it soon, but there is much concern that this particular bailout package is not necessarily the best plan. The stock market has given its snap opinion on doing nothing. Will Congress regroup and work this through to develop and pass a plan with strong bipartisan support before they adjourn for the year? Perhaps if Congress slows down a little, commits to working on the plan for a week or two weeks, it can give both Wall Street and Main Street more confidence that a viable solution to our financial system problems can be found and implemented.

Posted 9/29/08 7:02pm ET in Economy | Permalink | Comments (0)

Bailout Angst

Congressional leaders thought they had reached an agreement Thursday on the $700 billion bailout. McCain and Obama dropped their debate preparation long enough to attend a meeting Thursday to put in their two cents. McCain even promised to put off Friday’s debate, if necessary.

Then the wheels came off. Did McCain and Obama get in the way? They aren’t even on the committees that are putting the plan together. Did House Republicans throw a wrench in the works with their insurance-instead-of-bailout plan? They claimed that the so-called agreement congressional leaders thought they had was never the case.

So the Senate and House committees went back to work Friday. Obama had already said that Friday’s debate should go on regardless of the bailout crisis, and McCain finally decided he could attend the debate despite no agreement. By midday Saturday, Congress had made significant progress on a bailout agreement. They want to announce a deal by Sunday evening, before Asian stock markets open. The market could be in for a wild ride this week.

Posted 9/27/08 1:27pm ET in Economy | Permalink | Comments (0)

Wallstreet Bailout

The Bush administration, the Treasury Department (Henry Paulson), and the Federal Reserve (Paul Bernanke) have been working nonstop since late last week with Congressional leaders to come up with a plan to bailout the U.S. financial industry. So far they have come up with a $700 billion price tag and just a few details. Democrats are asking for additions to the administration plan to build in strong oversight, to require the government to adopt a systematic approach for preventing foreclosure on mortgages it acquires in the bailout as well as loans held by Fannie Mae and Freddie Mac, to allow judges to rewrite mortgages to lower bankrupt homeowners’ monthly payments, to limit executive pay packages of companies which sell their bad assets to the government, and to require that the government get shares in those companies.

The market responded to rumors of the plan as well as new limits on short selling of financial companies on Thursday and Friday with sizeable rallies. Today, however, after digesting a few more details on the bailout plan as well as news that the government approved requests from Goldman Sachs and Morgan Stanley to change their status to bank holding companies, the market gave back nearly half of those gains. Congressional action on the bailout plan could come as early as Wednesday.

Posted 9/22/08 5:56pm ET in Economy | Permalink | Comments (0)

Market Meltdown

The Dow Jones Industrial Average lost 500 points on Monday and 450 points on Wednesday this week in the wake of the bankruptcy of Lehman Brothers and the Federal Reserve’s unprecedented bailouts of Fannie Mae, Freddie Mac, and American International Group. The Federal Reserve is doing everything in their power to keep our financial system from completely unraveling. How successful will they be? How quickly? If you believe in America, you have to believe that we will survive this crisis.

How and why did our financial system get into this mess? Many pundits are blaming the move toward deregulation. Think of the battle between regulation and deregulation as a pendulum. It’s pretty obvious that the pendulum soon will swing back toward regulation.

Posted 9/18/08 3:38pm ET in Market | Permalink | Comments (0)

Stay Disciplined

The Top Eight Model Portfolio was heavily weighted through August in Fidelity Investments energy and natural resources Select funds. For a considerable length of time, this weighting proved advantageous as the Top Eight Model Portfolio made all time highs in May and June. The energy and natural resource funds let us down in July and August, however, and Fundranker has reduced the Top Eight Model Porftfolio’s exposure to them, at the same time increasing it’s diversification.

Many investors turn tail in tough market conditions, sell their shares, and park the proceeds in cash. Then they are in the unenviable position of having to figure out when to reinvest in the market. It is easy for them to miss out on major upside market moves while they try to decide.

Fundranker, however, remains invested and trusts its technical investment system to reposition the Top Eight Model Portfolio into currently best performing Select funds in order to maximize its potential for future returns. It never misses out on major upside market moves because it is always in the market. In a long term rising market, this strategy more than makes up for market downturns.

Stay disciplined. Stick with the Fundranker system, and let it position you in the best performing funds. View downturns as opportunities to invest new money, rather than as times to panic and cash out.

Posted 9/10/08 3:08pm ET in Fundranker | Permalink | Comments (0)