Profiting from the Demise of a Dictator

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
December has not been a pleasant time in the U.S stock market. Last week, the S&P 500 closed below its opening price for five straight days. It has also done likewise for 15 out of the last 21 trading days. That said, such stock market action has been a positive sign historically and stocks tend to rise over the coming week. Seasonality also points to the probability of a rally. Historically, the next two weeks are one of the strongest periods of the year.
 
This week’s Bull Market Alert recommendation attempts to profit from this weekend’s welcome “Black Swan” event: the death of Kim Il Song, the second-generation North Korean dictator who defied global condemnation to build nuclear weapons while 2 million of his people starved. 
 
With 1.4 million troops amassed along the border between North Korea and South Korea, South Korea’s currency, the won, declined as much as 1.6% to a two-month low and government bonds dropped after the news. The South Korean stock market is down 3.43% as I write this alert.
 
But it’s also important to keep things in perspective. North Korea’s economy is less than $28 billion Gross Domestic Product (GDP) — around 3% the size of South Korea’s GDP. North Korea has also relied on economic handouts since the 1990s to keep it afloat. So, it is hardly a military super power.
 
Of course, it’s hard to predict what will happen in North Korea after the “Great Leader’s” death. But if the past is any guide, financial markets overreact at times like this. Almost without exception, negative news from North Korea has not had a lasting impact on the South Korean stock market.
 
That means that after an initial sell-off, you can expect the South Korean markets to bounce back quickly. In fact, because the market is so pre-occupied with other “bad news” out of Europe, I expect the attention on North Korea will wane very quickly.
 
So, if you want to take advantage of this quick bounce, I recommend that you buy the iShares MSCI South Korea Index (EWY). Since this is a very short-term play, I recommend that you place your stop at a tight $48.00.
 
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) pulled back on Friday. As a result, the position stopped out for a loss.
 
I am also taking a holiday break during the week of Monday, Dec. 26. Your next Bull Market Alert will reach you in 2012. My colleagues and I extend you warm wishes for the holiday season and a Happy New Year.

Portfolio Update

Alexion Pharmaceuticals (ALXN) rose 2.01% last week. ALXN took another jump up off of its $62.50 support level and ended the week above its 50-day moving average. This is the third occurrence of this sort in the past six weeks. The likelihood of a sustained upwards move increases each time this pattern reoccurs. ALXN is back to a BUY.
 
Bank of Ireland (IRE) fell 15.62% over the past five trading days. In a bid to regain its financial footing, Bank of Ireland is sending a message to its delinquent debtors to “pay up or face the consequences.” IRE recently, and aggressively, assumed control of three high-profile Dublin office buildings from its financially stressed owners. These properties are located in the pricey Merrion Square area and lease office space to prestigious clientele such as lawyers and doctors. IRE is currently a HOLD.
 
National Bank of Greece SA (NBG) gave back 20.83%. NBG announced last week that it was moving forward on plans to obtain a 1 billion euro government capital infusion. This move would issue preferred stock shares to the Greek government in exchange for capital funding. Such a move would help NBG weather any future debt write-down. Note that this position is hedged by your May $.50 put, which is up 33% since our initial recommendation. NBG is a HOLD.
 
Companhia de Bebidas Das Americas (ABV) remained flat, losing just 0.08%. Although dipping early in the week, AmBev made a new 52-week high last Friday. ABV is a BUY.
 
ProShares Ultra S&P500 (SSO) dropped 5.86% over the past five trading sessions. SSO remains in your portfolio in an effort to capture year-end gains. Major market players may push a year-end rally as they attempt to bolster their 2011 year-end numbers. SSO just moved under its 50-day moving average and is now a HOLD.
 
MasterCard Inc. (MA) took a 4.04% loss last week. MasterCard is making another move down towards its 50-day moving average. Historically, its 50-day moving average is a long-established rallying point. Warren Buffett not only continues to hold his sizable position in MasterCard, but he recently purchased 2.3 million shares of Visa as well. MasterCard is a BUY.
 
Spreadtrum Communications, Inc. (SPRD) fell 11.66% last week. SPRD announced a $50 million stock buyback program last Friday. As SPRD buys its own shares back, it decreases the supply in the markets and, in turn, may increase demand — ultimately increasing share price. Such a move often signals that the corporation’s board of directors feels the current stock price is a good value. Lastly, SPRD took an encouraging bounce up off of the mighty 200-day moving average last Thursday. SPRD is a HOLD.
 
Ford Motor Co. (F) gave back 7.07%. Rating agency Fitch issued positive comments last Thursday regarding Ford and the U.S. auto industry in general. Fitch predicts an improved 2012 outlook for U.S. automakers, and even noted Ford and TRW Automotive Holding Corp. as the “most likely candidates” to see an upgrade. Additionally, Ford’s price level is currently very near $10. This price has been the “floor” for Ford’s stock price since January 2009, and has held nearly unbroken since then. F is currently a HOLD.
 

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