Stock prices continued to fall yesterday, with the Dow Jones Industrial Average closing down 167 points versus the prior day's close. Over the past five trading days, the Dow has fallen 796 points, or 5.8 percent, as the subprime mortgage fallout continues to spread and the housing slump appears far from over.
Financial Intelligence Report began warning subscribers about the housing slump back in February 2005 in its exclusive interview with Sir John Templeton. His advice is still valuable today. Go here now.
Yesterday afternoon, the National Association of Realtors (NAR) reported that existing home sales fell to a four-year low and declined in 41 states during the April-June quarter, while home prices fell in a third of the metropolitan areas surveyed.
In a separate report, the National Association of Home-Builders (NAHB) reported that their index of builder's confidence fell to 22, the lowest level since January 1991. This index measures prospects for sales in the next six months and rates the traffic of prospective buyers. Readings below 50 indicate that most builders view sales conditions as poor. August marks the sixteenth consecutive month that the index has been below 50.
Then, early this morning the U.S. Department of Commerce reported that new privately-owned housing starts fell during July to the lowest level in a decade. Meanwhile, building permits for new housing starts, which is a leading economic indicator, also fell to a 10-year low.
In a related development, a Merrill Lynch analyst said yesterday that Countrywide Financial Corp., the largest U.S. lender, could face "effective insolvency" because of the ongoing credit crunch.
Adding fuel to the flame, the U.S. Department of Labor reported this morning that initial claims for unemployment benefits, another leading economic indicator, rose to its highest level in two months.
But, rather than go on and on about the deteriorating state of the economy and the crumbling stock market, I would rather show you how you can protect your portfolio and even profit during a stock market plunge.
One of the better ways to protect your portfolio against a slowing economy and falling stock prices is to invest in exchange-traded funds (ETFs) that increase in value when the economy is slumping and stock prices are declining. And, with more than 500 ETFs now available to investors, there are numerous ETFs that do just that - that rise in value when stock prices in general, such as the Dow Jones Industrial Average or S&P 500 Index, are falling.
There are also ETFs that enable you to profit from big price declines in financial and housing stocks. For example, one housing ETF has appreciated 73 percent since it first became available to investors in February of this year. And a financial sector ETF has risen 37 percent over the past month while most financial stocks have been declining.
As consumers spend more and more money at the grocery store, because of rising food prices, you can make money by investing in ETFs that increase in value when agricultural prices rise.
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