MoneyNews
Monday, June 20, 2005

1. Real Budget Deficit: $2.3 Trillion

Government accounting understates the real federal budget deficit by a staggering $2.3 trillion, according to an ominous new report.

"Both the Democrats and the Republicans, in or out of office, have been using accounting methods that are, at best, quaint and, at worst, criminal," financial writer Scott Burns reports in the Dallas Morning News.

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Officially, the unified budget deficit – which takes into consideration the Social Security surplus – is projected to be $427 billion in fiscal 2005.

But government accounting doesn't figure in the cost of long-term pension, disability and health care obligations – expenses a public corporation must consider when stating its bottom line.

And trustees' reports on those obligations show that they are underfunded by $33.7 trillion over the next 75 years, says Burns.

In 2004, underfunded obligations of Social Security and Medicare were $31.4 trillion. So the programs have actually increased the budget deficit by $2.3 trillion in a single year – a number that doesn't show up in the official accounting figures.

That official accounting now serves to "mislead and confuse," says Burns, who adds:

"Until more accurate figures are presented. Neither party knows what it is talking about or where the country is going."

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2. Desperate EuroTunnel Rebuffs Soros Salvage Plan

Eurotunnel, the debt-laden operator of the channel tunnel linking Great Britain and mainland Europe, has publicly rejected a reported plan from George Soros to rescue the company.

The company acknowledges that it is almost $11 billion in debt and could be only four months from bankruptcy.

Recently, a Boros proposal to salvage Eurotunnel was leaked to the media – but the company was quick to distance itself from the billionaire financier.

Eurotunnel's current administration has made it clear that while Boros is a "smaller" Eurotunnel creditor, they want no part of his solution – and more importantly, they want to clarify that he had no authority to publicly announce it on their behalf.

Soros associate George Berlioz had suggested that French courts should be allowed to intervene and decide on how much debt the troubled company can realistically carry forward.

Says a Eurotunnel spokesman: "He [Berlioz] is a regular commentator on Eurotunnel matters, but this plan is news to us. Our position is very clear — this is not a Eurotunnel proposal.

3. Hot Sectors for the Rest of 2005 - Analysis by Andrew Wilkinson

Now we know that had you invested one dollar in the core S&P 500 index at the start of this year, your buck would be worth a half-cent less after six months.

If you decided to stick with Dow industrial stocks, you'd be down a penny on the dollar by now, while technology followers will have dumped more than four cents on every dollar invested.

Since financial advisers will usually remind you that investing is a long-term proposition, you might try not to be too disappointed by a fairly flat mid-term report.

You probably already know that these indices are well off their worst levels for the year, as the S&P 500 index sustained losses of as much as 6.2% at its worst point in 2005.

And that's peanuts compared to the tough year the NASDAQ index has faced so far. The 4.5% it currently shows is a far cry from the earlier 11.7% loss it returned.

But these observations beg a deeper question: Where can investors place their cash pile if the market is so lackluster?

If you take another look, you'll see that the stock market has offered up some pretty decent returns in 2005. Investors just need to know where to dig.

You see, many investors are advised to diversify their assets between equities and bonds to achieve a balanced mix of risky assets.

And we'd agree with that approach.

But it seems that few investors know how to go about achieving that diversity – at least without paying a fat fee to their stockbroker in the process.

Here's a good place to start: Look at the ten basic sectors within the S&P 500 index itself.

As you'll see in the accompanying chart, stock performance differs markedly depending on which sector of the economy you choose to follow.

Some of you might not be surprised to see that the hottest performer so far this year has been the energy sector – up some 21% in 2005. The second-best performer has been the utility sector – up 11% since the year began.

Two other sectors managed an overall gain for the year so far – healthcare is up 5% and staple consumer goods has gained around 1%.

At the other end of the spectrum, technology sector losses of 3.7% were slightly lower than those of the overall tech market.

It might seem unusual that basic materials was the second-worst performer, given the strength in commodity prices, but readers should realize that this sector has had a strong performance during the last two years and has only recently fallen from grace.

So now you probably have a few questions.

For example: How practical is the observation that energy has led the investment pack?

Or: How can I possibly invest my assets in the right stock to benefit from these trends?

MoneyNews aims to answer all this and more, educating you on how to benefit from the investment themes we discuss.

For some time now, our flagship publication Financial Intelligence Report has detailed exactly how our readers can make the most of geopolitical trends.

But recently FIR publisher Christopher Ruddy decided that our readers might enjoy more frequent and active information – so we are taking things a step further.

Recently, we developed SectorTrade, a pure sector trading service designed to show readers how they can build their wealth using the astute market observations we provide.

For a more in-depth look at what this valuable service can do for you, go here now.

We have found that relatively few investors are aware of the immense potential to be found in specific sectors.

The results presented in the above chart are not from some common index – they are actual tradable shares in exchange-traded funds (ETFs).

An ETF is simply a fund containing shares of many different companies from within the sector they are meant to represent.

Take the leading energy-sector ETF iShares Dow Jones U.S. Energy (ticker symbol: IYE) as an example.

When you buy shares of this fund, you are effectively purchasing shares in Exxon Mobil, Chevron, ConocoPhillips, Occidental and many other leading oil and energy companies.

For the current share price of $78.04, you are buying a diverse selection of stocks that prove their worth when energy is the hot sector.

Though they are traded just like mutual fund shares, ETFs provide more benefits than mutual funds. Since they trade all day long on an exchange, you don't get tied down throughout the day worrying about when to get in and when to jump out. And ETFs don't have the expensive fees that mutual funds often come with.

Our aim at SectorTrade is to introduce you to developing market trends ahead of time by uncovering economic and sector-specific trends.

Already, investors who have signed with SectorTrade are learning how to harness huge gains within our No. 1 focus sector.

With more than 160 sector ETFs to choose from, investors are provided with an array of domestic, international and bond funds from which they can select.

Our role is to show SectorTrade readers how to navigate the minefield of investing and help position their assets for dynamic future growth.

Among other sector ETFs that have outperformed the domestic benchmarks this year:

• Oil services (+20%)
• Natural resources (+16%)

AND

• Biotechnology (+9%)

Had investors bought the top-performing international ETFs available at the start of 2005, they could have beaten U.S. stocks handsomely.

The South Korean ETF is up by 14%, while Brazil and Australia are showing gains of 8% and 6% respectively.

Time is money – don't waste another minute. Sign up for SectorTrade today!

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Editor's Note:

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• Learn to Glean Extraordinary Wealth from the Hottest Sectors - only with NewsMax's SectorTrade - go here