"Street Critique"-Chuck Jaffe, Senior Columnist at Marketwatch
Wednesday, November 28, 2007JEFF YASTINE: Last week may have been Thanksgiving, but tonight's "Street Critique" guest says he still has a turkey of an investment to avoid. He's Chuck Jaffe, senior columnist at Marketwatch, where he writes the stupid investment of the week column. Chuck, welcome back to NIGHTLY BUSINESS REPORT.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: Thanks for having me, Jeff.
YASTINE: All right, so tell us what this turkey or in this case turkey leftover is.
JAFFE: Well, it might surprise people because today it had a big hit on the upside, but its financial services sector exchange traded funds. It's the ETFs that are dedicated to the financial services companies. I made them stupid investment of the week but recently, a week or two ago, you might think with this pop that we just had today that, hey, it's the right time. Maybe this is a sign that they're turning around. No they're still a bad idea for the average person.
YASTINE: Let's take a look at the charts of some of these financial services ETFs.
XLF - FINANCIAL SELECT SECTOR SPDRS IYG - ISHARES DJ US FINANCIAL SERVICES INDEX IYF - ISHARES DJ US FINANCIAL SECTOR INDEX
They all look essentially the same with pretty sharp declines, but today or earlier today, we had Mr. Kohn, one of the Fed governors talking about and hinting at a rate cut in December. Perhaps more rate cuts to come as we go into 2008. Why not look at the financial sector?
JAFFE: Well, I love the financial services sector but the reason not to do it on this kind of news, let's face it. The next time there's another hiccup in the sub-prime situation -- and that's only a day or two away the way things are going -- we're going to see all the gains we had today given back and then some. So while you're going to have the Fed cuts being positive news and I suspect that that will be positive news for the next year or so, the truth is you've got too many stocks involved here that we're still waiting to see them shake out. And you're broadly diversified in a case where maybe you can make a case for owning a couple of financial services stocks, but these ETFs they're dominated by five big names, including Citigroup and Freddie Mac. I think there's a lot of news to come out of those companies and a lot of uncertainty that investors are going to wind up riding this tide and get sea sick on it.
YASTINE: Chuck, at what point though would you say that there's an all clear here to buy these things because in some ways, you're supposed to be buying when the financial blood, so to speak, is running in the streets. A lot of these write-offs, right-downs have already been out there. I mean it seems hard to believe there's that much more and that these stocks are going to somehow go that much further down any time soon.
JAFFE: Well, I think that if you wanted to go up and buy individual financial services sector stocks and you wanted to pick some of the names that have avoided the trouble, that this would be a fine time to do it. But if you're talking about doing it for the ETFs for the average investor -- and it's important folks know that's who I write for -- you got to wait until the springtime just because all of the uncertainty around Citigroup is basically guaranteed to continue that long.
YASTINE: All right. Any disclosures to make here?
JAFFE: No. I don't own any of the stocks involved or any of the ETFs that we've talked about.
YASTINE: Chuck, thank you very much for your time.
JAFFE: Thanks for having me.
YASTINE: Our guest Chuck Jaffe of Marketwatch.
