A Hurricane Shortened Week

Nicholas Vardy

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

It was a shortened trading week with the New York Stock Exchange closed for trading for two days because of Hurricane Sandy.

As of Friday, the Dow Jones Industrial Average was up a hairsbreadth of 0.04%, and the S&P 500 was down 0.08%. The MCSI Emerging Markets Index rose 0.41%.

There was a lot more action in your Alpha Investor Letter portfolio. Most notable was Stratasys inc. (SSYS), which rocketed 10.39% on high earnings expectations based on rival 3D Systems’ (DDD) recent blowout financial results.

Other gainers in the Alpha Investor Letter portfolio included MSCI Malaysia Index (EWM), up 1.35%; iShares MSCI South Korea Index Fund ETF (EWY), climbing 1.29%; Vanguard Global ex-U.S. Real Estate Index Fund (VNQI), rising 1.29%; and Visa Inc. (V),adding 1.22%. Both iShares Singapore Index ETF (EWS) and Stratasys (SSYS) moved back above their 50-day moving averages (MA) and now are back to a BUY. You were also stopped out of The TJX Companies (TJX) and Apple (AAPL).

It is unclear what long-term impact that Hurricane Sandy will have on U.S. financial markets. That said, global electronic futures continued to trade over the past two days, and offer a clue on where stocks might trade when the markets reopen. During yesterday’s session, the Dow Jones Industrials’ futures fell from the open and ended with about a 70-point loss. But after an initial drop this morning, Dow futures recovered all of that ground, closing near Friday’s levels. For the S&P 500, the current futures prices are actually pointing to a minor gain. So far, the impact seems to be minimal.

Last week, I met with Jeffrey Gedmin, the American CEO of London’s Legatum Institute, where we discussed the remarkable decline of the United States in the Institute’s “Prosperity Index.”  Yesterday, he published the results in the Wall Street Journal. And the results aren’t pretty. The United States no longer even makes it into the top 10.

The Legatum index identifies eight “foundations” for national success, including factors such as effective and accountable government, personal freedom, national security and personal safety. Across the eight components that make up the Index, the United States declines in five, including the economy, personal freedom, and entrepreneurship and opportunity. The biggest fall is in entrepreneurship and opportunity, which has declined eight places in the last four years. Businesses’ start-up costs are rising. Fewer Americans believe that working hard will get them ahead.

This decline is reflected in the financial markets, as well. On Friday, the S&P 500 closed at just about the same level it was in July of 1999. That means the U.S. market has not budged in over 13 years. And that does not account for the 30% decrease in purchasing power due to inflation.

Exclusive  A Bullish Bet on the U.S. Market for the Rest of 2011

Keep that in mind when you vote next Tuesday, Nov. 6. I’ll be at the American Embassy here in London for a special election night reception — outnumbered by President Obama supporters by about 10 to 1.

Finally, if you happen to be in London, I’ll be heading up a panel on alternative investments at the London Money Show. You can find the details by clicking here.

Portfolio Update

MSCI Malaysia Index (EWM) gained 1.35% over the past three trading days. EWM touched its $15.00 resistance level and 52-week high for the fourth time in six weeks. Each touch saw a lesser previous dip, while a rising 50-day MA is adding support from below. This is excellent trading behavior and signals a likely break above the $15 level soon. EWM is a BUY.

iShares JPMorgan USD Emerg Markets Bond (EMB) dipped 0.45%. Bond-related exchange-traded funds (ETF) are turning in a fantastic year, with the emerging markets class being particularly robust. In fact, bond ETFs account for one-third of all 2012 ETF inflows. Recent analyst estimates suggest that bond ETFs may have a staggering $2 trillion in assets-under-management by 2020. EMB is a BUY.

Berkshire Hathaway (BRK-B) was flat for the week. Warren Buffett sat down for a lengthy interview on CNBC’s “Squawk Box” last week where he stated he was feeling “just fine” after wrapping up his recent prostate cancer treatments. Warren also said he has over $40 billion in cash, and is “salivating” for a big, new Berkshire Hathaway acquisition. Look for some big moves in the months ahead. BRK-B is a HOLD.

Exclusive  Market Overdue for a Sustained Bounce

Visa Inc. (V) added 1.22%. Visa will report earnings today, after markets close, and analysts expect good news. Estimates are for earnings of $1.50 per share, and $2.67 billion in revenue. These figures are up on a year-over-year basis, from $1.27 per share on $2.38 billion in revenue. Even better, analysts have an historical record of regularly underestimating Visa’s earnings. V is a BUY.

iShares Nasdaq Biotechnology (IBB) fell 0.91%. Standard & Poor’s Capital IQ highlighted three biotech exchange-traded funds last week, and IBB was on this short list. The recent boost in Food and Drug Administration (FDA) approvals for new drugs, and the “robust commercial prospects” for these up-and-coming therapies, were cited as positive factors. IBB is a HOLD for now.

WisdomTree Japan SmallCap Dividend ETF (DFJ) rose 1.20% over the past week, once again settling back to its 50-day MA. A 2012 report that ranked countries, based upon the “ease of doing business” for small businesses, placed Japan in second place, beating out big competitors such as India, Mexico and China. DFJ is a HOLD.

Market Vectors Indonesia Index ETF (IDX) ended the week flat. With a wealth of natural resources and a growing middle class in a population nearing 250 million, Indonesia remains a great investment prospect. IDX is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) gained 0.52%. Private equity investing has been gaining steam in 2012, and a primary driver of this positive trend is favorable debt markets. Investors are seeing higher returns as well managed. Cheap credit provides cost-effective leverage in their investments. PSP is a BUY.

iShares Singapore Index ETF (EWS) rose 0.45% over the past three trading days. The long-term cooling trend affecting the Chinese economy is providing stimulus to the smaller markets in the Southeastern Asia region, as outgoing capital looks for greener pastures. Singapore is a direct beneficiary of this phenomenon. EWS moved above its 50-day moving average and moved back to a BUY.

Statoil ASA (STO) ended last week flat. Statoil reported good earnings last Friday, delivering a 4% year-over-year (YOY) increase in net operating income and boosting Q3 net profit by 38.2%. STO also increased production by 10% (YOY), and by 8% compared to its 2011 average. STO is a HOLD.

Exclusive  Largest Single-Country European Fund Targets German Equities

Lennar Corp (LEN) drifted 1.93% lower last week. Rising 92% year-to-date, LEN appears on the very short “Best Stocks of 2012” list. This is no surprise, given that 2012 is the first year the housing market has recorded any sustained growth since the financial crash. LEN is a BUY.

iShares MSCI South Korea Index Fund ETF (EWY) gained 1.29%. The iShares MSCI Emerging Markets Index Fund (EEM) is a favorite of emerging market investors. Looking back over the past three years, EWY is up over 35% — handily beating the 15% benchmark set by EEM. EWY is now a HOLD.

iShares MSCI Mexico Investable Market Index (EWW) dipped 0.62%. Mexico’s Central Bank released commentary last Friday, leaving the overnight interest rate unchanged at 4.5%. EWW is a BUY.

Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) was up 0.96% over the past three trading days. SQM took a positive turn last week after a recent dip below its 200-day MA. With an operating profit margin over 37% and an earnings per share growth rate of nearly 43%, SQM is set to move higher in the months ahead. SQM is scheduled to report earnings on Nov. 20. SQM is a HOLD.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 1.29%. VNQI nearly touched its 52-week high of $53.30 for the third time since mid-September. With a rising 50-day moving average approaching from below, the upward pressure continues. VNQI is a BUY.

Stratasys (SSYS) jumped 10.39% last week. SSYS announced a new high-performance thermoplastic product named ULTEM 9085 at a recent Las Vegas trade show. This material is lightweight, super strong, and resistant to flame. Stratasys client and fender-maker Minimizer is using the new product to make full-size, completely finished fenders for 18-wheel trucks, citing huge benefits in strength and the lack of any post-processing needs. SSYS will release its third quarter 2012 earnings report on Nov. 2. Moving robustly above the 50-day MA, SSYS is now a BUY.

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U.S. equity markets will reopen tomorrow after the longest weather-related shutdown in more than a century, after the New York Stock Exchange was spared by Hurricane Sandy as it swept through New York Monday.

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