A Solid Performance During Tumultuous Times

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

On that account, your Global Bull Market Alert portfolio is performing strongly over the past few weeks.

Your bet against the euro continues to soar, as the European currency breached the $1.20 mark on the downside on Friday. The UltraShort Euro ProShares (EUO) now is up 21.37%. Your bet on the dollar through the PowerShares DB US Dollar Index Bullish ETF (UUP) is up a solid 7.84% over the past two weeks. Your bet against China by shorting the iShares FTSE/Xinhua China 25 Index (FXI) is also off to a positive start, with your options up 14.87% in five trading days.

Opinions on the market remain divided. Permabear Nouriel Roubini believes that the stock market’s 14-month run-up was just the “eye of the economic storm” and that there is more pain to come. Technical analysts like John Bollinger look at the markets near-term action. He claims “the picture is so bullish that it is hard to contemplate a negative outcome."

The bears are certainly out in force. I found it interesting that even raging “China Bulls” are starting to concede that China may have a real estate bubble. With videos of China’s empty cities making the rounds on YouTube for more than eight months now, you kind of wonder what took them so long.

One thing is for sure. No country that has gone through the various phases of economic development has done so on a straight trajectory upward. During the 19th century, the United States experienced 15 recessions, several depressions, and a half a dozen financial manias before it solidified its position as the world’s leading economic power by 1900. To think that China is going to achieve that without similar booms and busts — even if it is going to be successful — is naïve and wishful thinking.

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At the same time, global markets have not been this cheap since they bottomed in March of 2009. But it takes a lot of gumption — and very wide stops — to be bullish during times like these. When conditions are as uncertain as they are now, it is best to remain defensive and allow yourself to profit from downside surprises. That approach is reflected in your current Global Bull Market Alert portfolio.

Portfolio Update

UltraShort Euro ProShares (EUO) hit yet another record high of $26.21 on Friday, and ended the week another 5.2% higher. With Hungary the latest European country highlighting the prospect of default, your bet against the European currency remains a BUY. Tighten your stop to $23.50.

iShares FTSE/Xinhua China 25 Index (FXI) dropped 2.56% this week (which is positive as you are short this position) and your put options jumped more than 14% as China sold off along with most emerging markets stocks. Your bet against China remains a SELL SHORT.

CurrencyShares Japanese Yen Trust (FXY) dropped back slightly this week. The currency came under pressure as the prime minister of Japan resigned. But as long as global markets remain edgy, FXY remains a defensive BUY.

PowerShares DB US Dollar Index Bullish ETF (UUP) rose 1.7% this week, as the U.S. dollar remains a safe haven. As a solid substitute for cash during uncertain times, UUP remains a defensive BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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After bouncing toward the end of last week, global stocks have resumed their downward trend.

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