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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The supercommittee’s failure to come up with $1.2 trillion in budget savings over the next 10 years should not affect the U.S. credit rating–or immediately affect the interest rates paid on Treasurys or their value. However, investors still need to be cautious about loading up on those securities–the longer term outlook is not so good.

Although the supercommittee did not agree to a combination of $1.2 trillion in spending cuts and tax hikes, the automatic trigger in the Budget Control Act will impose cuts of $1.2 trillion on defense, nonentitlement domestic spending and some payments to hospitals and health care providers.

Savings from winding down the wars in Afghanistan and Iraq were already scored into budget projections; hence, additional defense cuts will be from the “base” military budget–expenditures that maintain readiness and defend U.S. security interests around the globe. Continue reading…

A reader responds to the column: “HEARD ON THE STREET: Netflix Remembers to Rewind,” which ran Monday at 2:31 p.m. EDT:

As a Nexflix subscriber for three years now, and a novice stock trader, I see that the market seems to forget that of the 25 million domestic subscribers already, 99% of them do not care about earnings, stock price of Netflix, or what analysts say about the company.

Subscribers DO NOT KNOW ANYTHING about the “company”.

The ONLY thing 99% of the subscribers saw was;

1) a price increase

2) that they would have two websites to visit to order streaming (Quickster) or DVDs (Netflix)

3) two credit charge charges from both companies

4) and of course, a choice if they wanted both or just one.

That is, subscribers have no clue that some “expert” downgraded the stock.

The market seems to also forget that a lot of consumers have Blu Ray and high-definition TVs and surround sound systems. Continue reading…

These are the personal views of Sharon Snow, chief executive officer of Metropolitan Capital Strategies, an SEC-registered investment adviser in Manassas, Va.:

Metropolitan Capital Strategies believes there will be a positive market in 2011 primarily due to the increase in earnings of the S&P 500. Some experts are expecting operating earnings at $96/share for 2011 (Citigroup Global Markets, “US Portfolio Strategist,” Jan. 6) compared with $85 in 2010 and $62 in 2009.

This increase in earnings is a result of cuts in employees, brick-and-mortar stores and other expenses for the companies that make up the index, but regardless, revenue and earnings are two of the top fundamentals for a bounce in the equity markets.

The market will recover due to the increase in earnings and revenue, though revenue of individual companies may still be off a lower number. Some uncertainty has been cleared up for the time being, including the midterm elections and change in power, the continuation of quantitative easing with QE2 and talk of QE3, the federal government’s continuation of permanent open market operations and no change in the mark-to-market rules for the banks. This expansionary policy should assist the U.S. recovery.

The underlying “true” U.S. economy may remain weak, with the GDP projections for 2011 of 2.5%. U.S. employment and underemployment will remain weak but the stock market is forecasted to increase, with experts predicting between 1325 and 1400 for an end of the year number on the S&P 500.

Every investor should have a strategy that employs two things: the ability to make money or generate alpha, and the ability to keep that money or protect those profits once they are realized. Most investment strategies only focus on the making money side. A good New Year’s resolution for all investors would be to incorporate both into their strategy.

Looking ahead, Metropolitan Capital Strategies believes opportunities for double-digit returns with the corresponding high confidence will be found in 2011 in the broad-based U.S. stock market as well as in several sector ETFs. It could also occur in the global emerging market and some select countries. In the next five years, we could also see opportunities in commodities, bond ETFs, possibly inverse ETFs and the currency market.

An investor should always employ capital appreciation and loss avoidance or risk management in his or her portfolio.

Every asset class has risk at some point in time, even money markets and Treasurys, which are both assumed to be low risk but have lost money. It is important to keep a balance of short- and long-term goals for your money and use patience and discipline.

All market cycles go up and down, and investors should prepare for and expect that.

By Ian Salisbury

Dow Jones Newswires

NEW YORK — Last year’s months-long controversy over exchange-traded funds that let investors magnify bets on the stock market may finally have taken a toll on these products’ huge popularity.

So-called leveraged ETFs, securities that promise to double, or sometimes triple, daily returns of the stock market, or alternatively to let investors make double- or triple-sized bets against market moves, were an immediate hit when they appeared in 2006. They garnered headlines during the financial crisis for their high trading volumes and big daily moves at a time when the stock market was gyrating wildly.

But critics, including regulators, began to suspect the funds’ complicated mechanics were tripping up investors who held onto these securities for periods longer than the single day designated in the funds’ prospectuses. Warnings and new restrictions issued by the Financial Industry Regulatory Authority and the Securities and Exchange Commission, as well as moves by several large brokerage firms to curtail use of the funds by small investors, appear to have crimped their appeal.

Assets in leveraged ETFS, which grew steadily through 2007 and 2008, peaked in the middle of last year at about $35 billion and since then have stalled, and even fallen slightly, according to data from fund researcher Morningstar Inc. The funds held about $30.5 billion in January, the latest date for which data are available.

To be sure, leveraged ETFs remain one of the most popular types of exchange-traded funds, with funds like the $740 million ProShares UltraShort Financials ETF (SKF) trading millions of shares a day. Moreover, the market climate may also have had an effect on the funds’ popularity. Declining volatility could mean fewer chances for traders to profit using funds to bet on sharp stock market moves.

Market returns also affect these and other funds’ assets under management by altering the value of funds’ holdings. It’s difficult to quickly gauge the affect of last year’s bull market on the leveraged funds, however, because some are designed to rise and others to fall when stocks appreciate.

Michael Sapir, chief executive of ProFunds Group, the largest leveraged ETF company, says the funds “continue to prove themselves as valuable tools that can help enhance returns or manage risk in sophisticated portfolios.”

He notes investors poured about $700 million into the funds in the fourth quarter of 2009 and says the funds have attracted another $1 billion in 2010. However, those strong figures contrast with outflows of $2.5 billion from the funds in the third quarter of 2009.

Some traders may have been scared off after realizing how complicated the ins and outs of leveraged ETFs can be, says William Ahmuty, head of U.S. ETF sales and trading at Newedge USA LLC in New York, a brokerage specializing in derivatives. Investors that hold the funds for weeks or months, rather than a single day, can post significant losses even if they correctly guess the direction of the market.

“There is an education process that occurs,” he says. “They’re not suitable for investors on a long-term basis.”

In recent months, fewer investors have been trading leveraged ETFs at TD Ameritrade Holding Corp. (AMTD), says Sandra Motusesky, director of mutual funds and ETFs there. The funds accounted for about 5% of overall trading volume at the discount brokerage in January, down from about 14% in March 2009, she says.

Volume began to slip last summer as stories about leveraged ETFs’ tricky mechanics hit the news and Finra and the SEC issued a joint alert warning of “extra risks for buy and hold investors.” Motusesky says a turning point came late last year when Finra changed rules to make it more difficult for investors to trade leveraged ETFs on margin, that is, using borrowed money to add even more oomph to the funds’ magnified returns. The new rules made leveraged ETFs less attractive to many investors who otherwise might continue to use them, she believes.

“It took the wind out of their sails,” she says.