European shares had their worst week in history, falling 22%, even as Wall Street recorded its second-biggest weekly drop ever. At its low point on Thursday, the Dow was down as much as 23.64% for the week. The U.K. stock market dropped 21% — a fall second only to the crash of October 1987 — and closed the week at a five-and-one-half year low. Japan’s drop was its worst weekly percentage fall in history. All the major stock markets now have fallen about 40% from their peaks about a year ago. And what it took developed markets a week to do, emerging markets achieved in a single day. On Monday, trading in Russia was suspended as Moscow slumped 19% in just one day.
By Wednesday, U.S. investors had withdrawn $40 billion from mutual funds. The main volatility gauge, the Chicago Board Options Exchange’s Vix index, rose above 75, having never even breached 50 before last week. We are indeed in uncharted territory.
So how did your Global Bull Market Alert portfolio do during this market turmoil? Remarkably, every one of your positions ended the week up.
Market Vectors Double Short Euro ETN (DRR) rose 6.06%.
CurrencyShares Japanese Yen Trust (FXY) gained 4.36%.
CurrencyShares British Pound Sterling Trust (FXB) climbed 3.8%. (This is a short position so you gained from FXB’s downward trend on the chart).
Last week’s pick, the Direxion Funds Dollar Bull 2.5x Fund (DXDBX), jumped 6.07% (no chart available).
The PowerShares DB U.S. Dollar Index Bullish December $22.50 Call (UUPLX.X) also soared and now is up 55% since our initial recommendation. This is not a time to get greedy, so sell your options here to lock in your gains.
Looking ahead this week, both the British pound sterling and the euro may strengthen a bit on the coordinated bailout plan outlined by the European governments this weekend. This will be a good time to add to your positions in both the Market Vectors Double Short Euro ETN (DRR) and your short position in the CurrencyShares British Pound Sterling Trust (FXB).
Also, remember that at one point global equity markets will rally, and that these rallies tend to be short and sharp. At that point, your currency positions will underperform, and you may feel like you’re missing out on some big gains. But in times of uncertainty, your objective should be to preserve your capital and make money from sustainable currency trends. With valuations having collapsed as much as they have, there will be plenty of time to make profits when markets rebound.
PORTFOLIO UPDATE
The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) hit a record of $39.13 as investors rushed to the U.S. dollar as the most liquid of safe havens. Raise your stop to $33.00.
Your bet on the Market Vectors Double Short Euro ETN (DRR) also closed at a new record high of $52.50 on Friday. Raise your stop to $42.50.
Your short position in the British pound sterling through the CurrencyShares British Pound Sterling Trust (FXB) gained this week as the U.S. dollar rose another 3.5% to $1.71 against the pound. With both the Bank of England and the European central bank cutting interest rates last week, expect both the euro and the pound sterling to weaken further over the medium term.
Finally, the CurrencyShares Japanese Yen Trust (FXY) soared against all major currencies including the Australian dollar (down 20%) and the Canadian dollar (12.6%). The U.S. dollar fell 5.2% against the yen breaking the psychologically important 100-level as the carry trade continues to unwind.
P.S. Surging oil and food prices, as well as deteriorating economic confidence, have stoked inflation fears around the world in recent months, leaving volatile markets and jittery private investors in their wake. In times such as these, it’s good to have this forum to discuss key developments and to hear from the best financial minds in the world. I invite you to join me at the 4th Annual World Money Show London, 14-15 November, at the Queen Elizabeth II Conference Centre. Call 800/970-4355 and mention priority code 009613 or visit The World Money Show London to register FREE today!
