RSSMore Taxes, Dollar, Wind and Gold
By Jim Farrish | August 15, 2008 | 8:58 AM | 2 Comments
Obama lays out tax increase to pay for more government. Capital gains and dividend taxes would go to 20% versus the 15% they are currently. That means an extra 5% of your hard earned gains on your money goes to the government. To put it in simple terms if you worked hard to accumulate money for retirement and earn $50,000 in capital gains on your money, you get to send in an extra $2,500 according to this plan. I understand there is more to his plan, but this was enough to send me down the street yelling. Why? I have read the rationale of tax the rich. But let’s face it the rich are already paying all the taxes. Between high income earners and corporations 92% of all the taxes are collected. How about cutting government? That would be a unique twist on things. Don’t get me stated on the proposal to hike social security taxes.
Okay let’s look at some sectors so we can earn enough money to help Obama out. One place I would like to revisit since our last conversation, the dollar. At last look the greenback was breaking above the 77 mark on the dollar index (DXY). After consolidating between March and July the breakout is significant in many ways at this point both economically and investment related. The long consolidation period is important to the upside and as we see looking at a daily chart the rise has been quick. In browsing comments by analyst and others the common belief is the dollar will not hold the gains and this is a reaction to the slowing economies in Europe. I agree with that to some degree, but there is still the fact the Fed has not hiked rates. I could see some resistance at the 77.76 mark short term and then a potential move towards the 82 mark. You can play the dollar through ETFs such as UUP which is PowerShares Dollar ETF. Short term look for a pullback on the rise to maybe the 10 day moving average and then a potential move higher from there. Watch economic data releases as they will have a potential impact to the index. Other ways to play this move would be to short the euro, yen, pound, etc. against the dollar move. This can be done through ETFs as well. Borrowing the shares could be a challenge with some clearing and brokerage firms.
The energy complex continues to struggle as the price of crude drops. I have discussed this in several pieces so today I wanted to take a detour to one of the alternative energy ETFs. FAN which is the First Trust Global Wind Energy ETF launched in mid June has fallen from $31 to $25. The 19% decline has been in related to the decline in crude and the energy sector overall. So why bring up this bad news? Simply because the outlook for demand on wind energy has not declined and this is something worth putting on a watch list somewhere. Yesterday Vestas Wind Systems (VWDRY), a wind turbine manufacturer, announced strong second quarter net profit. They stated they have a backlog of orders for the balance of 2008. The reaction from investors to the decline in crude prices has been to exit the sector along with anything related. This brings opportunity and this is one I will be watching.
Scanning through the country specific ETFs the last week isn’t a pretty picture. This is evidence of the news concerning the declining growth in Europe. Asia is showing signs of slowing as well. Hong Kong announced 2nd quarter GDP growth at 4.2% versus the expected 5.3%. This as I referenced above is helping the dollar move higher. It is also pushing gold lower. Overnight gold fell to $785. The metals continue to come under selling pressure and if you are still invested here you need to revisit your objectives and the use of stops. This could get worse if the dollar bandwagon riders proceed with the parade for a stronger dollar. On the other hand, this could be an opportunity if gold gets oversold short term. Either way I am waiting this one out on the sidelines.
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Comments (2) | Related Topics » Speciality ETFs | Energy | Farrish Files | Economy | Politics | Precious Metals | Financials
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