Secure Your Castle

There was a lot of hoopla surrounding this month’s climate conference in Copenhagen, Denmark. At the heart of the meetings attended by global leaders was the hope there would be agreement on a plan to reduce greenhouse gases across the world. Unfortunately such an agreement was not able to be reached.

The difficulties stemmed from the last climate conference 13 years ago in Kyoto. At that conference industrialized countries agreed that they would help finance the reduction of greenhouse gas (carbon dioxide, methane, nitrous oxide, and sulphur hexafluoride) worldwide. Two countries in particular, China and India were considered developing countries in 1997 and were set to receive benefits from industrialized nations. Since 1997, a lot has changed in the worldwide economic landscape and China and India are no longer developing nations. China still would like their cut of money to reduce greenhouse gases.

What does this mean for alternative energy, which would have definitely benefited from a worldwide climate accord agreement? While I think that an agreement would have been a boost to the clean-tech energy industry, I am still bullish on the industry long-term. Individual countries, including the United States will go forward with their individual plans on developing cleaner energy sources. In the US, billions of dollars have been earmarked for the alternative energy, and where the money goes, talent will follow. With all of the research and innovation done in this space, I think it is a matter of time before a clean energy source is developed that is cheaper than oil. That will be the game-changer.

There has been a lot of press recently about leveraged ETF’s and how bad they are for investors. Several brokerages such as Wells Fargo are banning their advisors from selling them and there are even cases of class action lawsuits against them because people have lost money investing in them. I don’t understand all the hoopla. These ETF’s clearly state that they are leveraged and what their risks are. I believe we should be spending more time looking into hidden fees in investment vehicles such as 401k plans, annuities, and 529 plans. (Burying fee and expense information in a 50 page prospectus does not constitute being upfront)

About a year and a half ago, I was talking to my friend Michael Sipper about the crazy run in the price of oil at the time and whether we thought it had more to go up or if there was going to be a pullback and it would make sense to short it. Instead of buying crude oil contracts on the commodities exchange Mike suggested looking into two ETF’s called DIG and DUG which track the Dow Jones Oil and Natural Gas Index. Mike said that these two ETF’s are leveraged and if the Dow Jones Oil and Natural gas Index goes up two points, your investment in Dig goes up 4 points. Conversely if the Dow Jones Oil and Natural gas Index goes down 3 points, your investment in Dig goes down 6 points. It was pretty clear to understand what my risk would be if I invested in these.

I currently do not have any of my clients in leveraged ETF’s, however I could see their purpose in a portfolio, especially to provide a hedge. Pundits claim that they are not meant to be long-term investments. I disagree. Even As a short term investment the expense ratio’s on the ETF’s make them a lot cheaper than if you were to use margin.

I have posted my August Newsletter, “The Wealth Chronicle” to the Newsletters page of my website. This month’s newsletter has a couple of articles on Mutual Funds and a focus on Matt Scheidel, a dog trainer who provides a great service.

You can read the newsletter by clicking here