dow

Last week in this space, I pointed out that the Dow Industrials jumped up by 125 points on Wednesday, June 6. The rise has continued, despite a lot of uncertainty and fear about the general election in Greece on Sunday, June 17. My view was that the market started going up on June 6 because of results in elections the day before in Wisconsin, and in two California cities, San Jose and San Diego. I felt these three elections represented a triumph for the taxpayers who want to bring wages and benefits for government workers more into line with what’s available in the private sector. The outcome of these three elections seems to have raised the spirits of investors who hope for a pleasant outcome to the U.S. debt and deficit problems. The reaction to the general election in Greece this past Sunday is less clear cut. But it too will tend to improve investor confidence from its recent low level....

Last Wednesday, June 6, the Dow industrials moved up by 125 points after a two-month decline, and many investors wondered what happened in Europe to make stocks go up so much. I think that’s the wrong question. My view is that the market went up because of results in elections the day before in Wisconsin and in the second- and third-largest California cities, San Jose and San Diego. Investors are generally focused on Europe’s finances, since that’s what’s in the news. But many successful investors are more concerned about where the U.S. is headed in the next few years, and how it will deal with its vastly expanded debt and overwhelming budget deficit. They worry less about Greece’s current finances and more about the risk that in five or 10 years, the U.S. will wind up like Greece. To reach a balance in Greece or the U.S., tax revenues have to go up and/or spending has to come down. But rising taxes can hurt economic growth. And it’s hard to cut spending because special interest groups immediately attack any politician who dares to suggest cuts in the spending they profit from....

Most stock markets are down lately due to investor worries about a potential eurozone breakup, sluggish U.S. growth and a slowdown in China. Still, the long-term outlook is positive. One way to profit from a rebound is to add exchange traded funds (ETFs) that track major stock market indexes to your portfolio. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You must pay brokerage commissions to buy and sell ETFs, but their low management fees still give them a cost advantage over most mutual funds....

U.S.-based ProShares (www.proshares.com) offers a range of short-selling products for U.S. stock indexes. It also sells products that take long positions. ProShares offers three types of exchange traded funds (ETFs). All have MERs of 0.95%. 1) ProShares Short ETFs are designed to move in the opposite direction of the underlying index....

The ability to weather a crisis is one of the distinguishing characteristics of the blue chip stocks we recommend. This multinational, one of the last survivors of the original 12 Dow Jones stocks of 1896, suffered a sharp setback during the financial crisis of 2008-2009. But its deep resources and diverse industrial base have allowed it to stage a recovery. General Electric Co. (New York symbol GE; www.ge.com) is one of the world’s largest manufacturers. It makes equipment for generating and distributing electricity, such as turbines (31% of revenue, 32% of earnings); aircraft engines (13%, 17%); health care equipment, such as medical scanners (13%, 14%); home appliances and lighting (6%, 1%); and locomotives (3%, 4%)....

Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. Last week, one Inner Circle member asked for stock investing advice on one of the world’s largest chemical manufacturers. Pat notes that the company has made headway with new specialty chemicals, but that its future is closely tied to the economic recovery. ...

Dow Chemical Co., $35.68, symbol DOW on New York (Shares outstanding: 1.2 billion; Market cap: $42.8 billion; www.dow.com), is the world’s second-largest chemical maker. (BASF SE of Germany is the largest). Based in Midland, Michigan, Dow makes over 5,000 products at 197 plants in 36 countries. Europe, the Middle East and Africa account for 35% of its revenue, followed by the rest of the world (33%) and the United States (32%). Dow operates through six main divisions:...

Not everybody is happy with the agreement on Greece’s national debt that was reached after much hard bargaining. But it didn’t exactly bring world stock markets crashing into the abyss, either—although many predicted just such a disaster. That gives it a resemblance to the Y2K crisis of a dozen years ago. Y2K, in case you missed it, was media shorthand for the crisis that was supposed to hit at midnight on December 31, 1999. That’s when the world’s computers were supposed to freeze up; they were programmed to designate years by their last two digits, and they wouldn’t know how to handle the year “00”. Many investors thought this would usher in an immediate stock market plunge. Nothing of the kind happened. Before 1999 ended, owners of all of the world’s most important computers had found ways around the problem in time to avoid it....

Here’s the text of the quarterly letter I sent to our Portfolio Management clients in late February: “Investor reaction to economic statistics of the past couple of weeks tells us something about today’s investor psychology. The U.S. economy grew at an annual rate of 2.8% in the fourth quarter of 2011. That’s undoubtedly a modest rate of growth. However, the U.S. achieved it despite the depressing effect of today’s much-discussed negatives. These include the possibilities of Greek debt default and a breakdown of the euro, the continued weakness of the U.S. housing industry, the prospect of another $1 trillion budget deficit in the U.S., the Iranian nuclear program and so on. Taken in context, this fourth quarter growth seems somewhat impressive. But the most common response to the news was dismissive. In particular, many economists zeroed in on the idea that we need growth of 3% or more to bring down the rate of unemployment....

SPDR DOW JONES INDUSTRIAL AVERAGE ETF $126.91 (New York symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average.

The fund’s top holdings are IBM, ExxonMobil, Chevron Corp., 3M, Johnson & Johnson, McDonald’s Corp., Coca-Cola Co., Caterpillar Inc., United Technologies and Boeing Inc. The fund’s expenses are about 0.18% of its assets.

SPDR Dow Jones ETF is a buy.

...