After the market closed on Monday, the Joint Select Committee on Deficit Reduction–the so-called “super committee”–announced that it had failed to reach an agreement on cuts to the federal budget. Despite being given broad powers to achieve its deficit reduction mandate, congressmen from both parties decided to once again defer tough decisions in lieu of compromise. The political calculus seems to be that it’s easier to manage the fallout that results from the $1.2 trillion in automatic spending cuts than for either party to make the concessions necessary to reach such a deal just prior to the upcoming election cycle.

While the level of cynicism our political leadership has shown is depressing, it is nice to see that Democrats and Republicans are willing to share something, even if it is pain.

Not everyone is sad to see the committee fail, however.

The failure of the super committee is actually good news for the beleaguered Obama administration, since the president can capitalize on this impasse by campaigning against Congress next year rather than address voters’ displeasure with his policymaking. Since voters now have greater disdain for Congress than any other American institution, including banks, a campaign that targets congressional shortcomings could resonate with the electorate.

The super committee’s failure is also good news for agricultural outfits. Heartland politicians have long used subsidies to curry favor with farmers, and such subsidies were in real danger of being cut by the super committee. Members of the House and Senate who represent more urban districts had little skin in the game on farm subsidies, so these subsidies were widely seen as one of the first spending areas where an agreement on cuts could be reached.

That fear has weighed on Market Vectors Agribusiness ETF (NYSE: MOO) and other agricultural exchange-traded funds (ETF) for the past month or so. In the wake of the super committee’s failure, Market Vectors Agribusiness ETF made gains in yesterday’s trading session despite the general market weakness.

Ironically, US government debt has been a clear winner in this situation, too. iShares Barclays 3-7 Year Treasury Bond ETF (NYSE: IEI) along with every other government debt-focused ETF has posted respectable gains so far this week as investors flee riskier assets. With the doubt plaguing other global economies, US government debt is still a coveted safe haven.

The biggest potential loser from this congressional impasse, aside from Congress itself, is the defense sector, though the worries there are likely overblown. Names such as Northrop Grumman (NYSE: NOC), Lockheed Martin Corp (NYSE: LMT) and Boeing Company (NYSE: BA) have come under pressure since defense spending cuts will now automatically be triggered.

But many investors have lost sight of the fact that these automatic cuts won’t come into effect until 2013, well after next year’s elections. The act of Congress that created these automatic spending cuts can simply be rescinded by another act of Congress, a move that is quite likely.

While Osama Bin Laden is now dead, the world is still a very dangerous place and global terrorist threats are numerous. On top of that, China’s emergence as a world power has increased its tensions with the US. And though far weaker than it was during the Soviet era, Russia has strategic aims that may not be aligned with those of the US. While the odds of a hot conflict between the US and either of these global powers are small, a robust defense program is still an important geopolitical tool. As such, we expect much of the US defense budget to remain intact.

So while the failure of the super committee should be disheartening for all Americans, as investors it will enable us to profit from continued strength in these sectors.

What’s New

Contango, a futures market scenario in which the spot price of a commodity trades below its futures price, has long been the greatest enemy of commodity exchange-traded products (ETP). In contrast, commodity ETPs perform best during periods of backwardation, which is when the spot price of a commodity trades above its futures price.

When a commodity is in contango, a commodity ETP’s performance is undermined because the fund is forced to sell low and buy high when it rolls its contracts each month. As a result, commodity ETP sponsors have focused on innovations geared toward reducing the effect of contango on their products.

To that end, United States Commodity Funds launched United States Copper Index Fund (NYSE: CPER) last week. The fund is designed to cope with contango and benefit from backwardation. Each month, management will assess whether the copper market is experiencing contango or backwardation. Then, they calculate the annualized percentage price difference between the front-month contract and the contract slated to expire the following month.

When the copper market is in backwardation, the fund’s portfolio is constructed such that the two contracts with the greatest price difference each receive 50 percent allocations. When copper is in contango, the two contracts with the greatest price differences are each weighted at 25 percent, while the following month’s contract is weighted at 50 percent. As a result of that strategy, the fund maximizes its benefit from backwardation and minimizes the impact of contango.

The fund carries a 0.95 percent annual expense ratio, rebalances monthly and is the only copper ETP on the market designed to combat contango.

iShares S&P International Preferred Stock Index Fund (NYSE: IPFF) also launched last week and tracks international preferred stocks issued in developed markets.

Preferred stocks are a hybrid security, which exhibit features of both equities and bonds. Like bonds, preferred stock makes fixed payouts and has a fixed maturity. Unlike bonds, preferred stock has greater upside potential driven by the success of its issuer. Additionally, preferred stock falls in the middle of a company’s capital structure, so it’s considered junior to bonds in the event of a firm’s bankruptcy (though still ahead of stocks in that respect).

While numerous firms have issued preferred stock over the years, banks are the largest issuers of this security because they use it as a tool to boost their capital ratios. As such, this ETF allocates almost 85 percent of its assets to financials. The ETF also allocates 7.7 percent of assets to the energy sector and just over 3 percent of assets to utilities.

From a geographic perspective, Canada has one of the most liquid preferred stock markets in the world outside of the US, so it receives a weighting of 73.4 percent of assets. The ETF also allocates 10.7 percent of assets to the United Kingdom and 7.9 percent of assets to New Zealand.

The portfolio is comprised of roughly 70 issues with a range of market caps, all of which are denominated in local currencies. For now, the fund is largely a play on the direction of the Canadian dollar relative to the US dollar. The fund charges a 0.55 percent annual expense ratio.

Portfolio Roundup

Over the trailing week, the Global ETF Profits Model Portfolio declined in value by 4.9 percent, almost matching the performance of the MSCI EAFE Index. Meanwhile, the S&P 500 dropped by 5.1 percent. Anxieties about China’s prospects for continued growth weighed heavily on our portfolio over the past week due to our Portfolio’s sizable exposure to the Middle Kingdom. Exports from China have slowed in recent months and recent surveys out of the country show weak sentiment in the manufacturing sector. Still, we expect China to produce sustained growth, particularly if the Chinese government provides greater monetary easing in the months ahead.