Global stock markets took a breather last week as most of your Global Stock Investor equity positions consolidated their recent gains. However, Asian markets soared overnight after the strong performance of the U.S. stock market yesterday. The iShares MSCI Taiwan Index (EWT) rose about 3% last week, and added another 3% overnight. The Indian market also added almost 4%, which should benefit your new position in ICICI Bank Ltd. (IBN) in today’s trading.
Global assets — whether in the form of stocks, commodities and currencies — are now benefiting from a strong new tailwind: the sudden weakness of the U.S. dollar. Remember, every time the U.S. dollar drops, your positions in foreign stocks and currencies gain by the same amount, as higher value foreign currencies are translated back into U.S. dollars.
The U.S. dollar is now firmly back on a downward path, as concerns about the Obama administration’s spending plans are finally sinking in. After Standard & Poor’s put the United Kingdom’s AAA rating on negative watch, concerns have risen that a downgrade of the U.S. credit rating cannot be far behind. With the negative trend against the U.S. dollar overwhelming the euro’s fundamental weakness, I moved UltraShort Euro ProShares (EUO) to a HOLD last week. This may turn into a SELL very shortly.
Your position in the UltraShort Lehman 20+ Treasury ProShares (TBT) jumped 7.9% this week over concerns about the long end of the Treasury market. The Treasury yield curve has been as steep as it is today only two other times in recent history. Unlike on the other occasions, this steepening is led not by a reduction in short-term interest rates but rather by a rise in long-term interest rates. This is the perfect storm against Treasuries: long-term interest rates are being pushed higher as inflation expectations rise. Meanwhile, the Treasury is embarking on the most massive bond sales in history, flooding the market with unprecedented supply. Bad news for Treasuries is good news for TBT — as well as all of your positions in foreign stocks and currencies.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) rose to a record high of $25.60. It’s difficult to glean the central bank’s intent behind the recent spike in the central parity, but some said it may be a defiant message to U.S. Treasury Secretary Timothy Geithner’s imminent visit to China this coming weekend. CYB remains a defensive BUY.
The iShares MSCI Taiwan Index (EWT) rose over 3% in the past week and was up another 3% in overnight trading. Some 64.5% of the Taiwan public is optimistic about the developing relations with mainland China over the coming year. EWT remains a BUY.
The UltraShort Euro ProShares (EUO) is falling precipitously as the dollar weakens across the board. EUO is now a HOLD.
Freeport-McMoRan Copper & Gold Inc. (FCX) stayed around the $50 level for the week. With copper prices improving to about $2/lb thanks to record purchases from China, I am still bullish on the Asian-led economic recovery and the price of copper. FCX is a BUY.
ICICI Bank Ltd. (IBN) will rise in today’s trading along with the rest of the Indian market. With India mustering up 5% to 5.5% growth this year, and recent elections guaranteeing further economic reform, IBN is a BUY.
Chemical & Mining Co. of Chile Inc. (SQM) fell slightly this week. With Chile boasting among the best fundamentals in emerging markets, SQM remains a BUY.
The UltraShort Lehman 20+ Treasury ProShares ETF (TBT) soared above the $55 mark this past week. With U.S. Treasuries getting hammered, the U.S Treasury bubble may be set to pop. TBT remains a BUY.