Silver Loses Its Luster

Nicholas Vardy

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

To recap our strategy: Our Global Bull Market Alert portfolio has spent much of 2008 invested in defensive positions in currencies and commodities. At the same time, we have been shifting toward more traditional stock picks during the past month or so.

This week, we are lightening up our positions in commodities once again, by selling our holding in iShares Silver Trust (SLV), even as we look for some of our oversold stock positions to rally strongly in the coming weeks.

Commodities and Currencies Positions

iShares Silver Trust (SLV) has broken down technically as investors shift assets out of precious metals and embrace more risk. Equally importantly, I have become aware of some technical tax issues in holding the Silver ETF. It technically is a partnership, which makes holding this position a real tax headache. So let’s sell SLV and the related options here at a slight loss.

iPath DJ AIG Agriculture TR Sub-Idx ETN (JJA) is our bet on the soaring prices of agricultural commodities. With high agricultural prices in the headlines, why this agricultural ETN is off its highs may seem to be a bit of a mystery. But I’m betting that wheat, corn, soybeans and sugar will resume their upward trend and that this ETN will come back.

CurrencyShares Japanese Yen Trust (FXY) zigs when stocks zag. FXY is our top defensive position in the Global Bull Market Alert portfolio. Hold on to your position in the yen for now.

Stock Positions

Your stock positions in Global Bull Market Alert are focused on some powerful fundamental themes in global financial markets: the soaring price of fertilizer, steel and oil, as well as the relatively strong Latin American stock markets this year.

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Potash Corp. of Saskatchewan, Inc. (POT), the world’s #1 fertilizer producer, has been a vertigo-inducing, roller-coaster ride during the past couple of weeks.  After enduring a huge sell-off since announcing that its record first-quarter profit almost tripled, the stock is due for a big bounce. This one may hit $300 before it finishes its strong run.

Mechel Open Joint Stock Company (MTL), our Russian steel play, is also due for a strong bounce. With steel prices at record highs, the company on a steady path of expansion, and 93% of fund managers buying the stock on its recent dip, I expect this stock to come roaring back. My target price for MTL is between $190 and $215.

Atwood Oceanics Inc. (ATW), our bet on the exploding demand for offshore oil drilling rigs, has gotten off to a slow start. The stock is now as technically oversold as it was when global markets bottomed in mid-March. The company is announcing earnings this Thursday, May 8. If there is a stock split and/or an announcement of a special dividend, look for ATW to soar. I’m looking for $130 on this stock over the medium term.

Nextel Holdings Inc. (NIHD) jumped almost 5% during its first week in our portfolio. The stock is benefiting from both its own corporate turnaround as well as the Latin American markets’ strong performance this year. My long-term target price for this pick is $80.

P.S. Join my Eagle Publishing investment colleague Mark Skousen and me for FREEDOMFEST 2008, "The Trade Show for Liberty," on July 10-12, 2008, Bally’s/Paris Resort. FreedomFest will feature more than 88 speakers, 100 exhibitors, and 1,000 attendees. Guests will include John Mackey, CEO of Whole Foods Market, Congressman Ron Paul, a 2008 Republican candidate for president, Steve Moore, of The Wall Street Journal editorial board, David Boaz, vice president of Cato Institute, Robert Poole, Jr., of Reason Foundation, Jeremy Siegel, "The Wizard of Wharton," and Rick Rule, one of the country’s top money managers. Also hear Frank Holmes, Doug Casey, Larry Abraham, Ron Holland, Frank Trotter, Bert Dohmen, Keith Fitz-Gerald, Peter Zipper, John Mauldin, and many more.

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Overall, your Global Stock Investor holdings pulled back this week, after a strong run since late March. Your previous top performer, Potash (POT), dropped sharply from last week's record highs as some analysts suggested that the stock had gone too far, too fast. Potash may show some weakness in the next month or so, but its target price still is comfortably above its current levels.

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