Global Markets Recover… Can it Last?

Nicholas Vardy

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

Markets offered investors some relief as the S&P 500 Index rose 4.5% over the past five trading days. However, the S&P 500 is still down 11% from its April high, with more than half of the losses accruing in August alone.

Mixed economic data has complicated trading decisions lately. In a positive move, the S&P/Case-Shiller Home Price Index fell less than expected. But consumer confidence recently dropped more than expected, hitting a two-year low despite a July rise in consumer spending. The minutes from the Aug. 9 Fed meeting confirmed that members were divided on additional stimulus plans. Members managed to reach a compromise on interest rates, and elected to keep them at historic lows for two more years.
This past month will go down in stock market history as one of the most volatile ever — confounding even the Alpha Traders of the world. August has been the worst month for hedge fund traders since the Lehman collapse in September 2008 and the fifth-worst month for hedge funds since 1990. Plenty of big-name fund managers — ranging from John Paulson to Bruce Berkowitz to “Bond King” Bill Gross — took big hits due to swift negative August market action. Paulson currently is down 39% for the year, while Berkowitz is down 26%. Bill Gross recently lifted his short position in U.S Treasuries — abandoning his high-profile bet against U.S. debt.
Your Alpha Investor Letter portfolio had a very good week. Nearly all of your positions gained, with the exception of Market Vectors Indonesia (IDX) which fell 1.66%. Las Vegas Sands (LVS) was the big winner, rising 9.68% and moving back to a BUY. LVS got a nice boost as subsidiary Sands China Ltd. announced that first-half net income more than doubled.
Market sentiment is still supportive of further recovery. Buying interest from “insiders” is still near record highs — a positive signal for stocks going forward. But traders are cautious, and trading volume is low, as many large trading entities are vacationing this week. Employment data will emerge on Friday and could be a major market mover. A key indicator to watch this week is the 1,200 level on the S&P 500 Index. Holding this level will be a positive sign for future market movement.
None of the positions listed on our “Watch List” have recovered to their 50-day moving averages. I will continue to monitor these as we wait for appropriate entry points.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) ended the week flat with a 0.08% loss. The Chinese Yuan hit an all-time peak (vs. the dollar) as traders predicted more appreciation through the end of 2011. CYB is above its 50-day moving average and remains a BUY.
WisdomTree Japan SmallCap Dividend Fund (DFJ) gained 1.60% for the week. Japan elected a new Prime Minister on Tuesday. Many expect that Yoshihiko Noda will use his past experience as Finance Minister to curb Japan’s huge public debt, spurring Japan’s economic recovery. DFJ is nearing its 50-day moving average, but remains a HOLD for now.
Las Vegas Sands Corp. (LVS) jumped 9.68% during last week’s market action. LVS experienced good gains this week as its Hong Kong-listed subsidiary Sands China Ltd. announced a doubling of its net income. LVS shot through its 50-day moving average and is back to a BUY.
Market Vectors Gold Miners ETF (GDX) rose 2.46% over the past five trading days. A recent analysis by BMO Capital Markets found that a “defined group of gold stocks have not been this inexpensive in 20 years.” In addition, RBC Capital Markets noted that gold companies currently are enjoying historic record high margins. GDX is a BUY as gold mining stocks catch up to the rise in gold prices.
Market Vectors Indonesia (IDX) fell 1.66% last week. Indonesia currently enjoys low labor costs and an unemployment rate under 4%. Its Debt-to-GDP ratio is currently 26%, which is one-third of many developing nation’s rates. The best-performing market in the world so far in 2011, IDX continues to move towards its 50-day moving average, but remains a HOLD for now.

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