A Yen for Defense

Nicholas Vardy

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

In the middle of the summer doldrums and with economic recovery looking to take longer than was thought just a few weeks ago, the urgency for buying shares has waned. After seeing a 40% to 50% move off the bottom, global financial markets are in the lower end of a trading range, waiting for economic data to buttress the recent rally in global stock markets. Solid second-quarter results from U.S. banks this week might awaken the market from its current lethargy. But, as you’ll see in the “Portfolio Update” section below, I now have moved most of your Global Bull Market portfolio picks to HOLDs. And with both the Russian market and the ruble weakening, Russia’s Mechel (MTL) is now a SELL.

With the market’s drop last week, we hit our stop price of $89 in SPDR Gold Shares ETF (GLD), so we now are out of that position. Since we typically sell the relevant options when we stop out of a stock, sell your position in PowerShares DB Gold Double Long ETN (DGP), which we had been trading as an option for the GLD pick.

This atmosphere of uncertainty is also reflected in this week’s Global Bull Market Alert bet on the CurrencyShares Japanese Yen Trust (FXY). As a traditional safe haven bet, you can expect this position to rise as nervous investors reduce their exposure to riskier asset classes.

The investment case for the Japanese yen is simple: when global markets zig, the yen tends to zag. That’s why the yen was one of the best-performing assets during the financial meltdown last fall. And over the past four weeks, investor confidence has been knocked by tumbling oil prices, falling bond yields, and retreating equities and commodity prices. Unsurprisingly, that has triggered a surge in safe haven demand for the Japanese currency.

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After spending three months in investors’ doghouse during the recent strong, global equity market rally, the yen is back. Even as global markets tumbled, the yen surged 3.7% against the dollar — a five-month high. The yen also breached a series of key technical levels, which indicate that its rise has more to go.

So, buy the CurrencyShares Japanese Yen Trust (FXY) at market today and place your stop at $102.60. With the options on FXY overpriced, if you want to play a leveraged version of this bet, I recommend the Ultra Yen ProShares (YCL) and place your stop at $23.50.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) drifted lower as both Indian and Russian stocks tumbled, even as Chinese stocks managed to eke out a gain. BKF is now a HOLD.

The WisdomTree Dreyfus Emerging Currency ETF (CEW) fell as investor sentiment also hit emerging market currencies, sending the South African rand down 3.7% over the week, the Brazilian real 3.2% lower and the Turkish lira 1.4% weaker. CEW is now a HOLD.

The iShares MSCI Chile Investable Market Index (ECH) closed just below the $43 mark last week. ECH is now a HOLD.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) fell back below the $40 level last week. I am moving EIS to a HOLD.

The iShares MSCI Hong Kong Index (EWH) fell slightly last week as nervousness about markets grew. EWH is a HOLD.

Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) drifted to lows not seen since early May, as the yellow metal fails to act as a safe haven. We stopped out of GLD on July 8 and I want you to SELL DGP today to close our play on gold.

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The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) is locked in a trading range around the $30 level. “Dr. Copper” remains a BUY.

Russia’s Mechel (MTL) announced expectedly poor earnings last week. With both the Russian market and the ruble weakening, MTL is now a SELL.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) dropped below the $14.5 level mid-week as investors flocked into U.S. Treasury bonds. With risk aversion rising, I am moving RYJUX to a HOLD.

Shanda Interactive Entertainment Ltd. (SNDA) fell back down to levels last seen in the last week of June. I am moving this high-risk stock to a HOLD.

Rydex Weakening Dollar 2x Strategy H (RYWBX) ended the week flat yet again, even as potential gains were tempered by worries that the dollar’s reserve status might be up for discussion at the G8 meeting of global leaders in Italy. A bet on continued U.S. dollar weakness, RYWBX remains a BUY.


P.S. The constantly changing market environment continues to present investors with some of the most challenging times in recent history. Not since the Industrial Revolution has the financial landscape seen such major shifts in how wealth is held today. The MoneyShow is the only forum where you’ll meet, hear from, and find out how to profit from leading experts. Join me at this year’s MoneyShow San Francisco, August 21-23, 2009, at the San Francisco Marriott, where I will address some of the most pressing issues facing us today and introduce you to the newest and most successful tools and strategies for managing your portfolios in these challenging times. I urge you to attend and I look forward to meeting you personally. Register FREE by calling 800/970-4355 (priority code 014319) or by going online at The MoneyShow San Francisco!

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