ETF XRAY

Economist's Business Books of the Year

By Carl Delfeld of the Chartwell ETF Advisor

Below are some of the Economist's picks for business and investment books of the year. They may help you in planning any changes in your global exchange-traded fund strategy. Chartwell will also be releasing a white paper on global sector ETF investing later this month.

The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It
By Paul Collier. Oxford University Press; 224 pages; $28 and £16.99
Crammed with statistical nuggets and common sense, this book, by an economics professor at Oxford University, should be compulsory reading for anyone embroiled in the thankless business of trying to pull people out of the pit of poverty.

The Age of Turbulence: Adventures in a New World
By Alan Greenspan. Penguin Press; 531 pages; $35 and £25
A memoir-cum-essay by the famously opaque former chairman of the Federal Reserve that provides few surprises, but is an unexpectedly enjoyable read.

Wikinomics: How Mass Collaboration Changes Everything
By Don Tapscott and Anthony D. Williams. Portfolio; 320 pages; $25.95. Atlantic Books; £16.99
A believers' guide to how the emergence of community on the internet is fundamentally changing business.

The Last Tycoons: The Secret History of Lazard Frères & Co—A Tale of Unrestrained Ambition, Billion-Dollar Fortunes, Byzantine Power Struggles, and Hidden Scandal
By William D. Cohan. Doubleday; 742 pages; $29.95
How an investment bank concentrated on providing corporate advice to the rich and powerful—a business model that relied not on its balance sheet but on the brains and wiles of the men toiling away in its famously ratty offices. William Cohan used to work at Lazard's himself.

The Black Swan: The Impact of the Highly Improbable
By Nassim Nicholas Taleb. Random House; 400 pages; $26.95. Allen Lane; £20
A Wall Street trader turned philosopher on the power of the unexpected.

China's Thanksgiving Snub to America

By Carl Delfeld of the Chartwell ETF Advisor and the Center for American Diplomacy

Despite the fact that hundreds of American military families had flown to Hong Kong for holiday reunions, the Chinese government effectively barred a US carrier group from visiting Hong Kong, forcing 8,000 American sailors and airmen and their families to miss the planned holiday.

The Financial Times reported that China had rejected the fleet’s initial request for a port call. The Ministry of Foreign Affairs gave no reason for the refusal. On Thursday it apparently attempted to reverse its decision but it was too little too late due to logistics and a storm brewing in the area.

“We spent [Wednesday] floating in limbo trying to figure out if [China] was going to let all of the ships into their territorial waters or not. Finally, in the afternoon we were told it was a no-go,” one US sailor, who gave his name only as Jim, wrote on a military bulletin board.

The Kitty Hawk, the Navy’s oldest warship, has been visiting Hong Kong since the Vietnam war, and its Thanksgiving stopover in the territory was intended as a farewell call since the carrier will be retired next year.

The Financial Times reported that Admiral Timothy Keating, head of US Pacific Command, and Admiral Gary Roughead, chief of naval operations, on Tuesday said China also had recently refused a request from two minesweeping ships – the USS Guardian and USS Patriot – to enter Hong Kong harbour to avoid a storm.

"It is not, in our view, ­conduct that is indicative of a country who understands its obligations as a responsible nation.” Admiral Keating said he was more concerned about the decision to deny the minesweepers, which he said had been sailing in international waters, access to the port during a storm.

“For the Chinese to have denied those two ships in particular, small though they may be, that is a different kettle of fish for us, and is in ways more disturbing, more perplexing than the denial for the Kitty Hawk’s port visit request,” he said. Separately, Admiral Roughead said the Chinese had not obeyed the first tenet of the sea, which was that you first provided assistance to vessels in potential trouble before sorting out other issues.

Net Flows to Money Markets Since August Top $100 Billion

By Carl Delfeld of the Chartwell ETF Advisor

While many exchange-traded funds are suffering declines, net investment flows by the world's large equity managers tracked by EPFR Global are leading to the building up of sizable cash positions.

EPFR comments that with sub-prime and global credit fears being fueled by almost daily news of fresh write-downs in the financial sector and evidence mounting that the US economy will slow going into next year, investors retreated from equity funds during the second week of November and shift into the relative safety of Money Market Funds.

All of the major EPFR Global-tracked equity fund and ETF groups posted net outflows for the week ending November 14, with $5.58 billion pulled out of emerging markets equity funds and $5.07 billion out of funds geared primarily to developed markets. Money Market Funds, meanwhile, absorbed $10.1 billion, bringing net inflows since the beginning of August over the $100 billion mark.

Global equity managers did put fresh money into Germany and South Korea Country Funds and injected over $2 billion into Financial Sector Funds and ETFs. During the second week of November they pumped $2.47 billion into Financial Sector Funds – nearly all of that money by way of ETFs – which took year-to-date flows back into positive territory. They also moved aggressively back into US Small Cap equity. Latin American funds and ETFs are year-to-date still sitting on a net gain of 60.76%.

Do you think some of these markets are oversold? Join ChartwellETF.com for a second opinion.

HSBC Credit Report Stops Global ETF Rally

By Carl Delfeld of the Chartwell ETF Advisor

The European DJ Stoxx 50 this morning is trading +0.87%. Asian-Pacific stocks rallied as well today with Japan +2.47%, Hong Kong +4.90%, China +4.18%, Australia +1.28%, Bombay +4.69%.

Country exchange-traded funds also jumped to a strong start this morning but weak credit numbers from HSBC stopped the rally cold.

HSBC recorded a $3.4bn charge for the three months ending September against its US consumer finance business, $1.4bn more than would have been expected if first half trends had continued. Of that $1.4bn, half related to non-mortgage loans.

Stephen Green, Chairman, said in an article by Maggie Urry in the Financial Times that problems with bad debts were spreading from the mortgage business to other loans, such as credit cards and for car purchases, as consumers found it harder to get credit and delinquency rose. He said that while delinquency rates were up, he noted that they were still lower than the level seen in previous downturns.

At the end of the third quarter, $1.6bn or 3.2 per cent of the bank’s US branch based mortgage book were two or more payments in arrears, up from $1.1bn at the end of June. Worse, $3.2bn or 8.2 per cent, of its Mortgage Services portfolio were that far in arrears, up from $2.6bn at the end of the second quarter.

Mr Green said, “I don’t think anybody knows” when the market would begin to recover, but the group now expected “more prolonged weakeness” which would last at least through 2008 and probably into 2009.

Seven Reasons Why a Weaker Dollar is Bad for America

By Carl Delfeld, President of the Chartwell ETF Advisor and Chairman of global think tank Chartwell America

Martin Feldstein, the Chairman of the Council of Economic Advisors under President Reagan, wrote an article for the Financial Times this week which outlines why he believes that a more “competitive” or weaker US dollar is good for America.

Here is my case why a weaker dollar hurts America.

First, a weaker dollar translates into a cut in the real spending power of American consumers - in effect - a reduction in real income.

Second, a weaker dollar weakens the role of the U.S. dollar as the world’s reserve currency. Why should investors and central banks around the world invest in US assets when their value is steadily declining?

Third, the chances of a weaker dollar leading to a sharp reduction in America’s trade deficit is highly unlikely since 40% of the current deficit is due to oil imports that are denominated in US dollars. An additional 20% is due to trade with China which is of course controlling the value of its currency.

Fourth, a weaker dollar is inflationary since it increases the cost of imports.

Fifth, business leaders know that discounting prices may bump near term revenue and profits but at a real cost to long term profitability not to mention inflicting damage to the brand name. This is what we are doing to the brand of America by trying to increase exports by lowering their price in the global marketplace. Better to stand firm on price and sell into global markets on the basis of what is great about American products – superior quality, innovation and service.

Sixth, investors seem to like a weaker dollar since the profits of American multinationals get a boost from foreign earnings being translated into U.S. dollars. Again, this is short-term thinking and vastly overstated since most multinationals have sophisticated treasury departments that hedge currency exposures.

What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar. The Australian dollar has climbed to a 25 -year highs, while the Singapore dollar has touched 10-year highs. The Brazilian real, which has jumped 18% in value against the U.S. dollar this year, and the Indian rupee's sharp appreciation against the U.S. dollar during the past year, have supercharged U.S. dollar investors' returns in those markets.

According to EPFR Global, investors are pouring money into global funds - with net inflows of $96.94 billion into world equity funds so far in 2007, while taking out $9.6 billion out of U.S. equity funds. Brazil's local stock exchange, the Bovespa, reported that investors have injected $1.2 billion into the market in September alone.

Foreign investors slashed their holdings of U.S. securities by a record amount as the credit squeeze intensified, according to the latest Treasury figures. The Treasury said net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. The August outflow exceeded the previous record decline of $21.2bn in March 1990.

Last and perhaps most importantly, I view a policy of weakening the U.S. dollar to improve America’s competitive position as the path of least resistance. Let’s not roll up our sleeves and cut federal spending, greatly simplify our tax code to encourage productivity and achievement or reduce corporate tax rates and excessive regulation. Let’s just wink and weaken and let our nation’s currency drift lower on automatic pilot.

My view is that the value of a nation’s currency reflects the perceived value of country in the global marketplace. Maintaining and strengthening the value of our nation’s currency is in the best interest of American consumers, businesses and investors.

China's Environmental Mess can be Investment Opportunity

By Carl Delfeld, President of ChartwellETF.com and Chairman of the Council on Asian Relations

Nobel Peace Prize co-winner Al Gore needs to rename his famous $40 million powerpoint presentation to “The Inconvenient Truth about China”.

While the media and policy establishment are preoccupied with global warming issues that may have important consequences in 50 years or may be vastly overstated, an environmental disaster exists in China right now. This significant challenge, however, is also a major opportunity for the Chinese leadership and American business.

To get your attention, below is just a just sampling of facts drawn from various sources including an excellent article by Elizabeth Economy in Foreign Affairs.

• China is the world leader in air and water pollution.
• Sixteen of the most polluted cities in the world are in China.
• According to World Wildlife Fund, China is the largest polluter of the Pacific Ocean.
• 2/3 of China’s largest 660 cities face a water shortage right now.
• The EPA estimates that 25% of the particulates hovering over LA originate in China.
• In converting coal into energy, America is six times more efficient than China, Japan is seven times more efficient and India is three times more efficient.
• About 190 million people in China are sick from contaminated water.
• Netherlands’ Environmental Agency states that China is the world’s largest contributor of CO2.
• A World Bank/China Government joint study estimates that about 750,000 infants a year face premature death due to respiratory disease.
• Chinese experts believe that only about 10% of China’s environmental laws are consistently enforced.

Clearly, decisive and immediate action is necessary. It requires three major ingredients.
The first, and by far the most important, is a major change in thinking on the part of the Chinese leadership. Of all people, I am a believer in economic growth but it has to be balanced against damage to the environment. For the most part, Chinese environmental laws and regulations are already on the books, they just need to be strictly enforced.

This means giving local and regional administrators more independent authority, something that the leadership is uncomfortable with given their top down, authoritarian bent. It also requires a change in its “economic growth at all costs” attitude.

Secondly, cleaning up China’s environment will require big bucks. No problem here in light of huge China’s $1.3 trillion in foreign exchange reserves. Setting aside $200 billion over the next three to five years should help enormously.

Thirdly, this environmental initiative will require technology and expertise. This is where American business, the global leader in environmental technology, comes into the picture. Congressional pressure on China concerning growing U.S.-China trade deficits is enormous and growing. Giving American firms the lead in helping China to address environmental issues will help the Chinese leadership to show its citizens that it is taking concrete action while at the same time sharply reducing trade tensions and imbalances.

The environmental challenge in China is daunting but procrastinating will make it ever the more unmanageable. American business is ready to saddle up and help wherever it can.

If all this happens, the following ETF baskets of American businesses could directly benefit if they have the foresight to go after opportunities in China.

PowerShares WilderHill Clean Energy Portfolio (PBW)
PowerShares Cleantech (PZD)
Market Vectors Environmental Services (EVX)
Claymore/LGA Green (GRN)
PowerShares WilderHill Progressive Energy (PUW)
First Trust NASDAQ Clean Edge U.S. Liquid (QCLN)
Market Vectors Nuclear Energy (NLR)

Chartwell ETF Welcomes WisdomTree 401(k) Plan

By Carl Delfeld of the Chartwell ETF Advisor

WisdomTree Retirement Services has introduced a turnkey all-inclusive 401(k) platform that incorporates exchange-traded funds.

The WisdomTree 401(k) Plan is comprehensive service platform that makes it easy to create an all-inclusive 401(k) ETF program that is fee-transparent, highly flexible and low in cost for your clients. Platform highlights include:

Pre-built ETF portfolios covering six risk-tolerance and target-date profiles and retirement needs or the ability to create custom portfolio(s)

An ETF investment solution with no trading commissions for buying or selling shares

Comprehensive participant record-keeping, education and enrollment services

Full-service website for financial professionals, plan sponsors and participants

Advisory or solicitation fees set by you, the financial professional

Additional, optional features, including a menu of no-load or load-waived mutual funds, third-party ERISA fiduciary services and investment advisory services

Flexibility in selecting a third-party administrator (TPA)

The only issue I have with this platform and plan is the pre-built ETF portfolios. I have not seen or reviewed them but my guess is that investors will want more flexibility and a wider range of options in terms of pre-built portfolios.

The Chartwell ETF Advisor has been building ETF portfolios since 2003 with excellent results. It plans to use this experience to enable 401(k) plan sponsors to offer a wide array of choices and to educate investors about ETFs and building an ETF portfolio that suits their goals.

Asian Markets and ETFs Jump

By Carl Delfeld of the Chartwell ETF Advisor

Asian stocks rallied sharply today with the Nikkei index closing +1.64%, Hong Kong +1.97%, and China +1.31%. I anticipate that the exchange-traded funds that track these markets, Japan, (EWJ), Hong Kong (EWH) and China (FXI), should open strongly this morning.

According to Barchart, European stocks are trading moderately higher this morning with the DJ Stoxx 50 up +0.61%. Global stocks are being boosted this morning by higher copper, gold and oil prices, which are boosting the mining and energy sectors. Gold prices are up 1% this morning. Global stocks are also being boosted by general earnings optimism as concerns fade about the US-European banking crisis.

The Financial Times reports that derivative markets in Asia are also jumping. The region now boasts two of the world's three busiest covered warrant markets by turnover. Hong Kong, the biggest market for covered warrants, has proved a leader for the development of the warrants which are predominantly call options, giving buyers the right to buy the underlying shares at a pre-determined price within a set time period. Surprisingly, warrants now account for roughly one-fifth of the Hong Kong Exchange’s turnover and South Korea has a fast growing market as well.

Chartwell ETF's Brazil Pick (EWZ) Up 4.8% on Friday

By Carl Delfeld of the Chartwell ETF Advisor

Chartwell ETF's Brazil (EWZ) exchange-traded fund recommendation was up 4.8% on Friday as investors continue to believe in its transition to a growth story.

What has been most interesting to me is that Brazil’s stock market’s performance during the past four years is not due to superior economic growth. It has had an annual average growth rate of only 2.6%, about half of world economic growth during the same period and way below the 7.7% annual average GDP growth of emerging markets. My view is that Brazil has been so far primarily a balance sheet story supported somewhat by the commodity boom.

Part of the higher growth story is the delayed impact of lower interest rates. Brazil’s central bank has been cutting interest rates for the last two years but last week it slowed the recent pace of cuts from 0.5 per cent to 0.25 percentage points, taking the benchmark rate to 11.25 per cent a year, down from 19.75 per cent in September 2005.

Inflation is muted and was only 3% during 2006. Brazil is almost energy independent and foreign exchange reserves are now almost $100 billion after paying off its nettlesome IMF debt. In 2006, it recorded a trade surplus of $46 billion and while interest rates are high, they are beginning to fall.

As a global ETF investor, what I welcome Brazil’s development into more of a growth story. This will depend on the second term reform agenda of President Lula. He is in a strong position with a 70% plus popularity rating and a solid governing coalition. With 187 million people and an area only slightly smaller than the United States, this leading South American economic power together with Chile and Colombia are changing attitudes toward the region as a whole.

Find out what other country ETFs belong in your portfolio by joining the Chartwell ETF Advisor.

The Chartwell Global 30 Consistently Beats Dow

By Carl Delfeld of the Chartwell ETF Advisor

What if there were a global alternative to the Dow Jones Industrial Average - one that kept its simplicity with 30 companies equally weighted - but also captured more international growth opportunities?

The Chartwell Global 30 is that alternative and is designed to offer investors a much better option than the Dow Jones Industrial index. The portfolio contains thirty multinational companies chosen from an universe of the largest hundred companies in the world - the S&P Global 100 index - and is evenly split between American and foreign companies, equally weighted and re-balanced annually.

The following factors determine which companies are chosen by the managers of the Chartwell Global 30. First, the economics of the business, its competitive advantage and quality of management are evaluated and scored. Secondly, the relative valuation of the company is determined based on factors such as price-to book, cash flow multiple, price-to-sales, price-to-earnings and price-to-cash flow.

Since the Chartwell Global 30 was created in April, 2005, it has beaten the Dow decisively including distributed dividends.

Since April 1, 2005: Chartwell Global 30, +59.1%, Dow, +40.3%
Last 12 months: Chartwell Global 30, +30.3%, Dow, +21.7%
2007 YTD: Chartwell Global 30, + 21.2%, Dow, +13.5%

To learn more about how to invest in the Chartwell Global 30 portfolio, call Carl Delfeld at 1-877-202-4939.

Favre Torches Vikings, Sets NFL Touchdown Record

By Robert Delfeld, author of How to Raise a Packer Fan: Even in Denver or Boston

After a pre-game dinner of a cheeseburger and fries and half a box of doughnuts for breakfast, Brett Favre and the Pack marched to a 23 to 16 victory over the Vikings in the Metrodome. More importantly, Brett Favre threw touchdown pass number 421, surpassing Dan Marino's earlier record of 420 touchdowns.

He would throw touchdown pass number 422 down the sideline to James Jones in the fourth quarter, putting the game away for Green Bay. For the day, Favre completed 32 of 45 passes for 344 yards with 2 touchdowns and no interceptions. Favre also passed another milestone throwing for 300 yards or more in 50 games.

The Packers are now 4-0 for the first time in nine years and face their arch rival Bears next Sunday night at historic Lambeau Field. I predict another victory as the Packers march to showdown with the Dallas Cowboys.

September ETF Performance

By Carl Delfeld of the Chartwell ETF Advisor

Broad U.S. equity exchange-traded funds gained about 4-5% during a rocky September while many international and sector ETFs did much better. ETF Trends well organized performance report gives you a comprehensive look at how many ETFs fared.

The World Ex-US (VEU) was up 7.9% for the month and here is a sample of how some other country ETFs performed during september, Canada (EWC) up 9.9% on the back of a strong currency, Germany (EWG) up 8.9%. China (FXI), up 21.3%, Australia (EWA), up 14.4% and Brazil (EWZ), up 24.4%.

Top performing sectors for September included steel and gold miner ETFs, each up 22%. The homebuilding sector continued to its downward trend, losing 12%.

Get started capturing the growth in these markets through ETFs by joining the Chartwell ETF Advisor.

Weekly Global ETF Calendar

By Carl Delfeld of the Chartwell ETF Advisor and Council on Asian Relations

There is a lot happening this week that could affect your exchange-traded fund portfolio.

On the U.S. front, this week’s US economic calendar is busy and the markets will continue to carefully watch the credit crisis situation. Today brings comments by Fed Chairman Bernanke on education. Tuesday brings September US consumer confidence and August existing home sales. Wednesday brings August durable goods orders and the Treasury’s 2-year T-note auction. Thursday brings weekly initial unemployment claims, the Q2 GDP revision and August new home sales and comments by Fed Chairman Bernanke. Friday brings August personal income and spending and core inflation number and the final September US consumer confidence report from the University of Michigan.

On the international front, it is rather a slow week with Gordon Brown today making his first address to the Labor party's annual conference. On Tuesday, the UN General Assembly reopens and on Wednesday the Group of 77 representing the world's least developed nations will meet in New York. On Thursday the Chicago Fed and IMF hosts an international banking conference and on Sunday the UK Conservative party will hold their annual conference.

Find out how these events will affect your global portfolio at the Chartwell ETF Advisor

Weekly ETF and Market Update

The following exchange-traded fund and market update is complements of ETF Trends

The Federal Reserve lowered interest rates by one-half of a percentage point on Tuesday, to 4.75%. This delivered a boost to Wall Street, as the Dow Jones industrial average and the S&P 500 rose 2.8% while the Nasdaq was up 2.7%.

Even with this renewed optimism, investors are still paying attention to the rising dollar and high commodity prices, which bring on concerns of inflation. The euro hit a record high this week against the dollar. The Canadian dollar was hovering around parity to the greenback for the first time since 1976. Gold finished the week at $731.40. Crude oil hit record highs this week and settled at $81.62 a barrel.

Foreign markets also benefited from the Fed’s decision. European markets were up about 5% for the week. Chinese ETFs continued to be top performers, up 8%, while other Asian ETFs were up an average of 3%. Latin America rose about 6%. Commodity-based ETFs followed commodity prices up, as ETFs tracking oil, gold and metals gained between 7-9% for the week. Homebuilder ETFs continued on a downward trend as they lost about 1% this week.

After volatile times in the market, the S&P 500 is now 4.8% above its long-term trend line. Many of the ETFs are above their individual long-term trend lines by 1-40%. We are approaching the end of the third quarter which means we’ll be getting earnings reports in less than two weeks.

For help in building a global ETF portfolio, go to the Chartwell ETF Advisor.

ETFs That Benefit From a Falling Dollar

By Carl Delfeld of the Chartwell ETF Advisor

The Federal Reserve’s decision to cut interest rates this week may have buoyed American stocks and exchange-traded funds but is nothing but bad news for the value of the U.S. dollar.

The Canadian dollar rose to parity against the US dollar for the first time since 1976 on Thursday, aided by soaring oil prices. The U.S. dollar dropped to a record low through the $1.40 against the euro, fell 0.4 per cent to $2.0093 against the pound, lost 1.5 per cent against the yen to Y114.44 and dropped 1 per cent to SFr1.1717 against the Swiss franc.

But for investors with a diversified global ETF portfolio, there are some simple strategies that can boost returns in a weak dollar environment.

For some ETF ideas that may work for your portfolio, click here.

Sweden's Privatization Plan Will Shine Light on ETF (EWD)

By Carl Delfeld of the Chartwell ETF Advisor

Part of the allure of the Sweden exchange-traded fund (EWD) which is weighted 1% in the MSCI World index is its fiscal discipline and the promises by the newly elected center-right government to privatize state-owned companies.

Recently, the Swedish government raised $2.7bn from the first privatization through the sale of an 8 per cent stake in TeliaSonera, the Nordic telecommunications company, to around 200 institutional investors. And the deal was oversubscribed by a large margin. The government has pledged to raise SKr150bn ($22.3bn) from the sales over the next three years. I like the fact that the offering was to global investors and a very open and transparent process. The TeliaSonera shares were primarily sold to foreign investors at SKr50 each with 40 per cent going to British investors, 17 per cent to the US, 28 per cent to Swedish and 8 per cent to other Nordic buyers.

I have had the Sweden ETF (EWD) in some of our ETF portfolios since before the election ten months ago. Politics and policy do matter and should be part of the mix when picking ETFs. The Swedish ETF is also full of top flight global companies that trade at attractive valuations and iuts overal market is trading at 12 times earnings according to Thomson Datastream.

The top company in the Sweden ETF (EWD) is the telcom equipment maker Ericsson which accounts for 21% of the basket. This is a good thing since Ericsson is a market leader and is trading at an attractive valuation. Ericsson has a 25% return on equity and a much stronger balance sheet than its peers. Just over 40% of all telephone calls worldwide go through an Ericsson system. Other top companies in the Sweden ETF include Sandvik, Volvo and Atlas Copco.

Another Swedish attraction is its central bank (Riksbank) which has raised rates seven times since the start of 2006. It is the oldest central bank in Europe and is a fierce inflation fighter. Official figures show Swedish inflation running at 1.9 per cent year-on-year in January, up from 1.6 percent in December. You can buy the Swedish Krona through the Swedish Krona currency ETF (FXS).

Build a global ETF portfolio using market intelligence from the Chartwell ETF Advisor

Global Markets and ETFs Start Week on Apprehensive Note

By Carl Delfeld of the Chartwell ETF Advisor

Global markets and the exchange-traded funds that track them got started on an apprehensive note with most markets down tempered by optimism about tomorrow’s FOMC meeting, which is expected to produce a cut in the official funds rate target of at least 25 bp to 5.00%. China, as usual these days, started strongly though concerns over Taiwan are rising.

Barchart reports that European stocks are trading lower this morning with the DJ Stoxx 50 index currently down -1.24%. Northern Rock Plc, the UK mortgage bank that received a bailout by the Bank of England last week, fell 30% today and depositors lined up to withdraw money (BBC reported depositor withdrawals of at least 2 billion pounds). In addition, Microsoft received news it lost its appeal of an EU antitrust decision.

The US Justice department started an antitrust investigation of flash-memory producers, causing a 2% sell-off in flash-memory-producer Samsung Electronics. Toshiba, another major flash memory producer, did not trade today due to the Japanese holiday. Asian stocks today closed mostly lower with Hong Kong down -1.20%, Australia down -0.56%, and Singapore down -1.70%. However, China's CSI 300 index today closed +1.88%, and South Korea closed slightly higher by +0.08%.

In early trading on U.S. exchanges, the Hong Kong (EWH) and Singapore (EWS) ETFs were down while Canada (EWC) and Mexico (EWW) were up.

Learn more about international markets and ETFs by visiting the Chartwell ETF Advisor

Portfolio Risk Management Using ETF Options

By Carl Delfeld of the Chartwell ETF Advisor

Many exchange-traded fund (ETF) investors don't realize that many ETFs have options that can be used as an excellent risk management tool. Options are the right to buy (called a call) or to sell (called a put) a stock at a certain price before a certain date. These rights have value and are themselves bought and sold on stock exchanges at evolving prices that reflect the fortunes of the underlying stock or ETF and the time left in the contract.

Here are some of the ways these options can be used. Want to lock in profits from a recent run-up in an ETF without selling the position and triggering taxes? Want to buy insurance against a drop in an emerging market like China? These and other defensive strategies can be obtained with the nearly 70 ETF options currently available. Although many large stocks offer options, trying to engage in many at once becomes a nightmare of expense, tracking and paperwork. ETFs make defensive options easy.

Here is just one example of how we have used options. After the Chinese market had a huge run up this year, we recommended that investors purchase a put option on the China ETF (FXI) giving them the right to sell it at a price close to its then current price for out to 18 months. This gave us the security to then hold FXI even though it seemed overvalued and vulnerable. If a market is all beaten up but you don't know if the worst is over - you could buy a call option and see what happens.

Find out about more global ETF strategies at the Chartwell ETF Advisor

US and UK Treasury Chiefs Comment on Market Turbulence

The crisis of confidence in credit markets and market volatility is likely to last longer than any of the financial shocks of the past two decades, Hank Paulson, US Treasury secretary, warned yesterday in a speech in Washington.

He said the uncertainty in credit markets would last longer than the turmoil that followed the Asian crisis and the Russian default of the 1990s or the Latin American debt crisis of the 1980s. Mr. Paulson was an investment banker during both bouts of turbulence and speaks from experience.

The Financial Times quoted Secretary Paulson regarding why current problems will take longer to work out.

"The reason it is going to take longer today [than in previous crises] is that we are more globalised," he said. US mortgages had been "sliced and diced" and were turning up at Landesbanken - state-run regional banks - in Germany.

"Secondly, it is the level of complexity," he said, adding that he had met daily with bankers trying to value asset-backed commercial paper and other products.

Meanwhile, Barchart reports that Bank of England Governor Mervyn King continues to take a hard line in dealing with the global banking crisis and indirectly is confronting the Fed and the European Central Bank for their active support in providing liquidity to the banking system.

Mr. King said in written testimony to the UK Parliament's Treasury Committee that the BOE will not expand its collateral rules or make longer-dated loans to banks. He said , "The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior. That encourages excessive risk-taking, and sows the seeds of a future financial crisis."

Mr. King's statement may make it more difficult for the Fed to consider a 50 bp rate cut and appear to cave in to bankers who are suffering from tight financing conditions.

By Carl Delfeld of the Chartwell ETF Advisor

ETFs Sunny Side Up

Keep in mind that despite the steady drumbeat of negative stories on TV business channels, the record of the American and global economy in weathering challenges is actually quite extraordinary. Take a look at the “sunny side” before going to cash and hibernating for the winter.

Here is the big picture which you can find in the American Funds mountain chart. The S&P 500's total return has exceeded the return on "risk-free" Treasury long-term bonds in all but four of the ten-year periods -- the ones ending in 1974, 1977, 1978, and 2002. Despite wars, inflation, recessions, gasoline shortages and housing crashes in various parts of the nation, the S&P 500, with dividends reinvested, has yielded an average ten-year return of 243% vs. 86% for the highest-grade bonds. Since 1959, there has only been one year, 1980, when consumer spending fell.

Here are some more reasons to be optimistic that the U.S. and global markets will again be resilient.

First, consumer spending will likely stay strong because the top 20% of income earners account for a higher percentage of total consumer spending than the lower 60%.

Second, share buybacks from a broad range of firms may help soften the blow of weaker share prices. Some of the companies with sizable pending buyback programs are P&G, Home Depot, Nestle, Wal-Mart, ConocoPhillips, UBS, Bank of America Johnson & Johnson, JP Morgan and Walt Disney.

Third, corporate earnings seem to be rather firm. According to data from Thomson Financial, earnings per share for S&P 500 companies in aggregate are expected to rise 8.1% in 2007 and 11.5% in 2008. For the MSCI World index companies, the number is 13.2% for 2007 and MSCI Asia is even stronger at just over 18%.

Fourth, corporate balance sheets in aggregate have improved. The net debt of S&P 500 companies has fallen 11% since 2001.

Fifth, there is now a wide expectation that the Federal Reserve will cut interest rates next month and central banks around the world have demonstrated their willingness to take actions to inject liquidity and calm markets.

Sixth, valuations in the U.S. and around the world do not seem overdone to me. The S&P 500 is trading at 16 times earnings and international markets, with the exception of Indonesia and India, appear undervalued. Ireland, Germany and the UK are trading at 11 times, the Netherlands at 10 times, Sweden and Singapore at 12 times and Mexico is trading at 13 times earnings.

Lastly, many global companies are increasing the proportion of their total sales to emerging market countries and economic growth in these fast-growing markets seems to be alive and kicking. The major themes driving this growth which has averaged well over 7% in annual terms over the past five years seem clear.

Economic market reforms, openness to foreign capital, better balance sheets and fiscal discipline leading to higher credit ratings and bulging FX reserves, urbanization leading to higher productivity, and the ability to catch up more rapidly due to breakthroughs in technology and communications have all helped emerging market countries catch up fast. The world is truly filling in leading to tens of millions moving from poverty to the middle class.

Indeed it appears that sophisticated global ETF investors are not backing away from international and emerging markets like Hong Kong (EWH), up 17.5%, and Thailand (TF), up 38%, but fueling their stellar returns.

While the S&P 500 Index is up 3.9% this year, Chartwell ETF Advisor picks have done much better. Brazil (EWZ) is up 32.1%, South Korea (EWY) is up 28.6%, Germany, up 18.8%, and Singapore (EWS) is up 18.3%. Click here to join today.

Bottom line: Keep healthy cash positions for flexibility and use dips in markets to accumulate shares in high quality U.S. and global ETFs that have strong currencies and that have demonstrated fiscal discipline and a commitment to market reforms.

By Carl Delfeld of the Chartwell ETF Advisor

Investment Flows Favor International, Move Away From Japan

The Chartwell ETF Advisor ETF selection model is momentum-led, valuation check. In addition to monitoring traditional 50 and 200 day moving averages, we watch investment flows from large global equity money managers tracked by EPFR Global.

This timely and complete data give one a good picture of where the money is flowing to around the globe so that you can position ETFs to take advantage of trends. Below is is a portion of some recent and excellent commentary from EPFR Global that will give you a flavor for how they add value to our ETF slection process.

Investors started trimming their cash piles and moving back into riskier, more rewarding asset classes during the final week of August. They pulled $6.05 billion out of Money Market Funds and another $8.64 billion out of US Equity Funds and channeled a good chunk of that money into Asia ex-Japan, Global and Latin America Equity Funds. They also made net contributions to High Yield Bond Funds for the first time in 12 weeks and to Europe Equity Funds for the first time in six weeks.

This investor goodwill did not extend to Japan Equity Funds, which posted net outflows for the 22nd straight week. Global Bond Funds also extended their unusual losing streak. And there was a marked effort to reduce sector exposure, with Financial, Utility, Real Estate and Energy Sector Funds all seeing significant investor withdrawals.

“The sector fund flows were heavily influenced by outflows from US funds,” noted EPFR Managing Director Brad Durham. “Now that the initial alarm about bad mortgages appears to be over, investors are realizing that fleeing from global assets into US assets is like running towards the source of the problem.”

A weaker US economy is still perceived as very bad news for Japan’s export-led economic recovery. With the latest data showing retail sales declining sharply, deflation still hanging on and wage growth stagnating, there is little faith in the ability of domestic demand to take over as a driver if US demand falters. Investors responded by pulling another $486 million out of Japan Equity Funds, bringing to $10.1 billion the amount they have removed from these funds since the current losing streak started in mid-April. Pacific Equity Funds, whose average Japan weighting is around 40%, continue to suffer by association, with a fourth straight week of redemptions pulling year-to-date flows into negative territory.

By Carl Delfeld of the Chartwell ETF Advisor

New Complementary ETF Global Investing Book

A new ETF book "ETF Investing Around the World" is now available to investors at no charge in ebook format.

The author is Carl Delfeld, President of the global investment advisory firm Chartwell Partners and the Chartwell ETF Advisor website.

"ETF Investing Around the World" will help ETF investors learn more about country, regional and global ETFs as well as discuss strategies to build and manage a global ETF portfolio. This book builds on the themes outlined in Delfeld's previous books, "Think Global, Grow Rich" and "The New Global ETF Advisor".

Americans Still Way Underweight International ETFs

ETF Trends reports that when investing in exchange traded funds (ETFs), often there is a disconnection between investor belief and investor action. As of late, investors are well-aware of the benefits of international investing, yet only a surprising 13% of individual investors own foreign stocks or ETFs and a meager 19% say they plan to own foreign investments within the next five years, reports Amanda B. Kish for The Motley Fool.

A recent study conducted by the London-based asset management firm Shroders points to most American investors believing that domestic economic dominance is over and yet they are timid to put their money overseas. This news highlights a potential area of growth for money managers and ETFs alike. The more investors who invest their money internationally, the more of a demand increase there will be for products that lead to overseas markets.

The main reason for investor shyness toward overseas investing is the lack of comfort and knowledge. Today, more than half of the total global stock-market capitalization happens outside the U.S. If the domestic markets fail, then foreign markets can provide other sources of return. A wide variety of international ETFs are available for investors and the Chartwell ETF Advisor specializes in helping ETF investors build global portfolios that fit their goals. It also provides members with seven model ETF portfolios which blend US and international ETFs.

Want to get strated today? Try Vanguard's FTSE All-World Ex-US Fund (AMEX: VEU), or the SPDR S&P World Ex-US Fund (AMEX: GWL) or get the Chartwell ETF Advisor newsletter for less than 40 cents a day!.

By Carl Delfeld of the Chartwell ETF Advisor

International Currency Update

Market moves for the week were again dominated by credit-related concerns and carry trade uncertainty. The net trend was for a fragile improvement in risk appetite and gains for high-yield currencies in a recovery from the deeply over-sold conditions seen at the end of last week according to trader education.com. The dollar traded lower based on concerns over a US and global slowdown. Following the discount rate cut last Friday, the Fed continued to inject funds into US money markets, but did not take any action on interest rates.

US money market rates dipped sharply in mid week as there was a notable increase in safe-haven demand for US Treasuries. Tensions eased slightly later in the week as Wall Street rallied, but market rates remained below the Fed funds rate as market pressure for a rate cut continued.

Following a meeting with Senate Banking Committee Chairman Chris Dodd, the Fed stated that it would use all tools that were available, but attempted to calm markets by stating that it was not alarmed over the current situation. US jobless claims were little changed at 322,000 in the latest week which did not indicate an immediate labour-market shift while durable goods orders rose a strong 5.9% for July.

In major international markets, the European Central Bank continued to add liquidity to stabilise money market conditions during the week while another German bank required emergency funding. The central bank maintained a firm stance on inflation and policy by stating that inflation was still its top economic priority. The German ZEW index weakened to -6.9 in August from +10.4 the previous month as confidence deteriorated while PMI index for August weakened to 54.2 from 54.9 in July. The data maintained expectations of a gradual slowdown in growth despite firm industrial orders data. Overall, the dollar weakened to lows around 1.3620 against the Euro on Friday.

The Bank of Japan left interest rates unchanged at 0.50% following the latest monetary meeting with a split 8-1 vote as Mizuno voted for an immediate increase. Concern over the higher yens impact on growth plus continued weak consumer spending killed any chance of the much needed rate increase.

By Carl Delfeld of the Chartwell ETF Advisor

Key Housing Numbers Will Affect Market and ETFs

Whle today’s July durable goods orders report showed a strong increase of +5.9% overall and +3.7% excluding transportation orders, it has to be discounted a bit since the global credit crisis did not officially begin until August 8.

It will be interesting to see how real estate exchange-traded funds such as the iShares Dow Jones U.S. Real Estate (IYR) responds to home sales data. Barchart reports that this morning's July new home sales report is expected to show a modest decline of –1.7% to 820,000, adding to June’s sharp decline of –6.6% to 834,000. This would be a new seven year low and the new home series has plunged by an overall 40% to the 7-year low of 830,000 posted in March.

American homebuilders are continuing to cut back new building plans and their overhead costs in order to stay in the game through the current housing slump. Even before the recent melt-down in the mortgage market, homebuilders were forced to slash production due to slow new home sales and the big backup in the level of unsold homes to see if the supply of new homes on the market in July hits a new 16-year high, which would add another bearish factor to the housing market outlook.

The outlook for new and existing home sales has deteriorated significantly in the past several weeks due to the closure of more specialist mortgage banking firms, the downfall of the mortgage securitization market, and the much tougher credit underwriting criteria for all types of mortgages. The target pool for homebuilders has been greatly reduced due to the reduced number of people that can qualify for mortgages.

By Carl Delfeld of the Chartwell ETF Advisor

European and Japanese Central Banks Will Not Raise Rates

The Chartwell ETF Advisor believes that Japan's central bank will not raise its benchmark interest rate this week and that the European central bank will not raise rates in September.

Japan will punt on raising rates especially given the recent increase in the value of the hyen which hurts its giant exporters. In addition, the political weakness of the ruling party makes a rate hike very unlikely.

The uncertain economic outlook will lead to the European Central Bank’s to decide not to go ahead with a planned increase on September 6th in eurozone interest rates, especially after US Federal Reserve warnings about the potential risks to US economic growth.

German investor sentiment is perhaps overreacting to market turbulence. The ZEW institute’s “economic sentiment” indicator fell for the third consecutive month to the lowest level since December last year. At minus 6.9 points, down from 10.4 points in July, the index remains significantly below its historical average.

By Carl Delfeld of the Chartwell ETF Advisor

Watch Out for Country ETF Premiums

Because some exchange-traded funds hold baskets of foreign stocks that trade as an ETF basket during American market hours while their own market is already closed, some odd situations can develop which can work against your global ETF portfolio.

Take last Friday for example. On Friday, international markets were generally down. The Nikkei index fell very sharply by -5.42% due to the general concern about growth and earnings seen in other stock markets combined with worries about threats to Japanese exporters tied to the sharp rally that has been seen in the yen in the past week. South Korea took a hit of -3.29%, but other Asian stock markets saw losses of less than 2%.

US markets got a shot in the arm Friday morning with the discount rate cut and many stocks, including international ETFs, were off to the races. But wait a second, how can the companies in the ETF basket be trading at higher prices than that which the underlying companies just closed at in their home markets?

Let's take the South Korean iShare ETF (EWY) as an example. The leading companies in this ETF such as Samsung and Posco lost ground in the Seoul market with the ETF as a whole losing 2.7% of its net asset value. But the Korean ETF rode the surge during Friday's rebound finishing up for the day 3.94%. Investors are clearly paying a premium to the underlying net asset value of the basket of companies that are in the ETF.

Institutional investors note this value gap and move into action. They take the underlying stocks in the Korean ETF, deliver them to Barclays Global investors and in turn receive iShares units which are injected into the market brings supply and demand into closer sync and the price of the ETF basket closer to its net asset value. Watch what happens when EWY opens Monday morning.

The key is be wary of buying into these ETFs on days like Friday and instead sell into sharp upticks and keep up on how these foreign markets closed. Learn more by joining the Chartwell ETF Advisor.

By Carl Delfeld, publisher of the Chartwell ETF Advisor and manager of the Chartwell World Country ETF Rotation portfolio.

Will Global Financial Problems Lead to Global Economic Slowdown?

The key question for global exchange-traded investors is this: will the current financial turmoil over time work itself out or will it spread to the real economy leading to a global economic slowdown or worse a global recession. If it is the former, I say start building positions in cheap ETFs like the Netherlands (EWN) which is trading at an incredible nine times earnings. If it is the latter, best to keep your powder dry.

Global economic growth is still robust with the IMF forecasting global growth of 3.4 per cent for this year. But will this forecast hold up if financial problems eventually impact economic growth as they did following the bursting of the tech bubble in 2000?

The Financial Times points out two ways that financial problems could hurt the real economy. The first is consumption. Across the world, household spending has been supported by both property and equity prices. If the US housing slump deepens and markets continue to be weak, consumption growth will slow. Home Depot's and Wal-Mart’s gloomy outlook plus weak auto sales are worrying trends. In turn, many emerging economies, including China, are still to some degree tied to American and European consumers.

In addition, there is the negative effect of rising borrowing costs on companies’ capital spending and hiring. Global business spending has been supported by record cash flows, as well as by debt-funded investment. While expenditures in these areas may slow gradually as companies adapt to the new environment, there is already some evidence that software and equipment spending is softening in the US. Employment would also be dealt a blow and this, in turn, would hit consumption consumption as the level of employment is closely linked to real disposable income growth.

Watch for signs that highlight what is happening to the real economy: jobs, spending and capital expenditures, and act accordingly to position your ETF portfolio.

By Carl Delfeld of the Chartwell ETF Advisor

Floods Hit India Markets and ETFs

While everyone is talking sub-prime as the main concern of global ETF investors, India-savvy investors are watching the weather while tracking exchange-traded funds like (IIF).

Many areas in southern Asia and northern Europe have endured massive flooding. China and India have been hit particularly hard by these floods that have affected tens of millions of people. You can have too much of a good thing and Matthews Funds writes that heavy monsoon rains and overflowing rivers have swept over many parts of northern and northeastern India, and the threat of disease outbreak will test the ability of the government to respond in the days ahead.This excessive rainfall may negatively impact agricultural production and India GDP. Many parts of the fertile land in eastern India is under water, hurting the rice, corn and lentil crops.

Almost 60% of the employment and 40% of India's population is dependent on agricultural-related activities. Even with the current flooding, the Indian Meteorological Department considers the monsoons which typically occur from June through September are "normal" relative to historical patterns.

Carl Delfeld of the Chartwell ETF Advisor

Global Stocks and ETFs Down As Central Banks Inject Reserves

Global stocks and exchange-traded funds are trading lower this morning as the fallout continues from US subprime mortgage concerns. The S&P 500 is down 1.1% this morning, the Nikkei closed down 2.4%, and the European DJ Stoxx 50 index is down 3%.

Barchart reports that central banks around the world injected reserves to battle tightening liquidity. The Bank of Japan today injected $8.5 billion into the banking system and the Australian central bank also injected extra reserves. The European Central Bank today injected $84 billion in reserves following yesterday's injection of $130 billion. The markets will be expecting the Fed to provide extra reserves today as well following yesterday's injection of about $9 billion in extra reserves.

Global central banks appear to be battling liquidity shortage tied to the spreading effects of the US subprime mortgage and slower economic growth as evidenced by today's 1.5% drop in copper prices and weakness in petroleum prices. The overnight Libor rate today rose as high as 5.96% due to strong bank demand for cash. The Australian central bank raised interest rates for the first time in the middle of an election season and the Australian iShare ETF (EWA) is down 2.5% this morning.

By Carl Delfeld of the Chartwell ETF Advisor

Global ETF Benchmark Blindspots

One of my favorite exchange-traded funds is the S&P Global 100 (IOO) which is composed of the largest 100 companies in the world in terms of market value.

But even though Samsung is one of the 70 largest companies in the world and one of the 10 largest companies in global technology. It does business in more than 100 countries. But because Samsung is based in South Korea, it is considered an “emerging market” stock by other index providers.

In an article in the Financial Times, Kelly Haughton writes that market indices should not constrain membership by sector, whether by arbitrarily leaving some companies off or failing to add new ones in a timely way. Combined with annual reconstitution, this tends to represent new industries earlier than other index providers. Russell Investment Group was the first to include financial exchanges – NYSE and Chicago Mercantile Exchange – in its index family.

Kelley's view is that the most efficient approach to index creation ensures companies are added to indices when they become investable by global investors, not when some arbitrary rule comes into effect.

This makes sense since the number of companies from China, India and Russia has grown over the past few years, while the number of companies from Brazil, Hungary and Mexico has remained relatively constant. I do think that advisors need to make some careful distinctions. Even though a company from China may be very large, this doesn't necessarily mean that it has world-class systems and accounting in place.

By Carl Delfeld of the Chartwell ETF Advisor