Global Bull Goes to Cash

Nicholas Vardy

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

Most global markets are now technically extremely oversold. If you’re bearish, that’s reason enough to run for the hills. If you’re bullish, the current pullback offers a perfect time to buy. That said, in times of uncertainty, it’s best to avoid making big bets either away. There is no reason to throw money at sub-optimal trades. That’s why I recommend that you hold off on adding to any of your current positions in the Global Bull Market Alert portfolio this week.

That’s also why this week’s Global Bull Market Alert is essentially a bet on cash through the WisdomTree Dreyfus Emerging Currency (CEW) ETF. This ETF bets on a diversified array of currencies from all around the developing world. In Latin America, it holds the Mexican peso, the Brazilian real, and the Chilean peso. From Europe, the Middle East and Africa, it holds the South African rand, the Polish zloty, the Israeli shekel, and the Turkish new lira. In Asia, it holds the Chinese yuan, the South Korean won, the Taiwanese dollar, and Indian rupee.

CEW is a defensive bet. With global markets on the cusp of either a downturn or a resumption of a bull run, this is neither the time to bet on bottoms nor to throw out the baby with the bath water and liquidate all of your positions. At the same time, it’s a “cash plus” position that gives you exposure to an asset class — emerging market currencies — that moves independently of global stock markets.

CEW also indirectly increases your bet against the U.S. dollar — a bet you’ve already made through the Rydex Weakening Dollar 2x Strategy H (RYWBX). The Greenback is under pressure on all fronts. The Obama administration must raise $3.25 trillion between now and the end of the 2010 fiscal year. The Chinese and Russians are making ever louder noises about replacing the U.S. dollar as the global reserve currency. That makes betting against the U.S. dollar by investing in the currencies of emerging markets a safe bet in the context of uncertain global stock markets.

So buy the WisdomTree Dreyfus Emerging Currency (CEW) and place your stop at $19.40. Here’s a word of warning. This is a brand new ETF, and liquidity in it may be limited. There are no options on this one.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) fell 7.55% this week on a general pull back in the “big four” global BRIC emerging markets. I am moving BKF to a HOLD until markets settle.

PowerShares DB Commodity Double Long ETN (DYY) dropped back below the $7.50 level. This bet on crude oil, heating oil, corn, wheat, gold and aluminum is now a HOLD.

The iShares MSCI Chile Investable Market Index (ECH) was one of the few global markets to rise this week, ending the week at $47.70. Even when markets turn downwards, Chile’s extraordinarily strong fundamentals give it an edge. Chile remains a BUY.

The iShares MSCI Hong Kong Index (EWH) fell last week, but may have hit a bottom, as Hong Kong’s benchmark Hang Seng index surged more than 2% before erasing some gains to close up 138.62 points, or 0.8% in overnight trading. EWH is a BUY.

Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) have been trading in a very narrow trading range for the last few weeks. Both GLD and DGP remain a defensive BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) dropped sharply last Monday, but since then has been trading in a narrow range. Inventories are still very low and the physical marketplace is tight. “Dr. Copper” remains a BUY.

Russia’s Mechel (MTL) ended the week down, although it has been trading steadily upward since Wednesday. This is a speculative play that will soar when sentiment turns. Until global stock markets settle, I am moving MTL to a HOLD.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) ended the week flat. With the U.S. government trying to auction off $104 billion of Treasuries this week, this week is a critical test for the world’s appetite for U.S. debt. RYJUX remains a BUY.

Shanda Interactive Entertainment Ltd. (SNDA) remains a volatile pick that thrives in up markets. The stock may have bottomed last Tuesday, as the Chinese market continues to rise, thereby decoupling from its global counterparts. If you have the appetite for volatility, this pick remains a BUY.

Rydex Weakening Dollar 2x Strategy H (RYWBX) ended the week flat as currency markets continue to seek direction. If there is a weak auction of U.S. government debt this week, expect the U.S. dollar to tumble. This 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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