Pausing at the Precipice…

Nicholas Vardy

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

The good news is that your Global Bull Market Alert stock market bets continued to outperform the broader market. Both the MSCI Thailand Investable Market Index Fund (THD) and Global X/InterBolsa FTSE Colombia 20 ETF (GXG) hit new record highs. The Market Vectors Indonesia ETF (IDX) also flirted with new highs, even as the iShares MSCI Chile Investable Mkt Idx (ECH) took a breather from its relentless trek upward.

The question of the week among the financial media is whether Ben Bernanke’s comments finally have triggered the long-awaited collapse of U.S. bonds. Getting the timing right on the bubble bursting just might make or break the year of some of the world’s top money managers. The world’s largest bond manager, PIMCO, has very publicly reduced its holdings of U.S. government debt over the past few months, simultaneously increasing its holdings of emerging market debt. Last week’s Global Bull Market Alert recommended the same strategy, suggesting you buy the high-yielding iShares JPMorgan USD Emerging Markets Bond (EMB).

With the market outlook so uncertain, I am holding off on making a specific recommendation this week. In addition, we now are entering the month of September, which has a particularly dangerous history. Better to keep your powder dry and wait for the dislocation in the bond market to settle.

If we do get an extended market sell-off in September, I would expect you to profit with your short position in iShares FTSE/Xinhua China 25 Index (FXI), as well as your bet against the euro through the UltraShort Euro ProShares (EUO). You may wish to add to these positions if you are particularly negative in your market outlook. I would expect your other stock market-related positions to hold up better than the broader market.

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Portfolio Update

iShares MSCI Chile Investable Mkt Idx (ECH) ended the week slightly lower. With Chile’s ETF trading near 52-week highs, and still showing remarkable relative strength, ECH remains a BUY.

UltraShort Euro ProShares (EUO) spent most of the week rising but ended the week slightly lower. Nevertheless, with the two-month correction in the euro over, EUO remains a BUY.

iShares JPMorgan USD Emerging Markets Bond (EMB) started off on a down note, falling during its first week in the portfolio. As a sign of the times, PIMCO recently reduced holdings in U.S. government debt, while upping its emerging market debt exposure to 11%. You should do the same. EMB remains a BUY.

iShares FTSE/Xinhua China 25 Index (FXI) fell below the $40 mark early in the week, and stayed there, despite the market rally on Friday. This position, the weakest performer among global emerging markets, remains a SELL SHORT.

Global X/InterBolsa FTSE Colombia 20 ETF (GXG) bucked the trend in global emerging markets, rising 3% last week. Although there are expectations that the central bank will intervene to curb the Colombian currency’s appreciation, GXG remains a BUY.

Market Vectors Indonesia ETF (IDX) flirted with yet another new record high, before ending the week slightly higher than the previous week’s close. The “Next BRIC” remains a BUY.

Itaú Unibanco Holding S.A. (ITUB) ended the week flat. With global markets edgy, your bet on Brazil’s booming banking sector, ITUB, remains a temporary HOLD.

iShares MSCI Thailand Investable Market Index Fund (THD) jumped 1.6% last week, hitting yet another record high. With the Thai finance minister noting that the country’s stocks are “still very under held by international investors,” THD remains a BUY.

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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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Investor sentiment turned negative in global markets this past week, after a record plunge in home sales in July, adding to evidence that the U.S. economy is stumbling. Global markets as a whole have pulled back -- erasing the last month's worth of gains. With most Asian markets down overnight, you can expect more red ink in today's trading.

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