Global Stock Investor Hotline 18

Nicholas Vardy

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

Excitement in global financial markets seems to have wilted in the sunshine of summer. Global markets are trading in the lower end of a trading range, reaching lows last seen after the sharp sell-off in mid-June. Japanese stocks have fallen for six straight sessions. Even China’s red-hot Shanghai Composite declined 1.1% yesterday, breaking a four-session winning streak. That said, your bet on Taiwan through the iShares MSCI Taiwan Index Fund (EWT) is holding up well, ending the week up 1.9%.

While most global markets remain firmly above their 200-day moving average, the S&P 500 closed below its 200-day moving average for the third time in the past 26 sessions. Interestingly, the S&P 500 is trading at its highest historic level relative to cash flow, making global stock markets that much more attractive.

One overarching theme in your Global Stock Investor portfolio is the prospect for a continued weakness in the U.S. dollar as a result of heavy borrowing by the U.S. government. And even though China backed off from the statement last week that it wants a new international super-currency, the prospect of the U.S. dollar’s eventual replacement as a reserve currency is putting additional pressure on the Greenback.

Dollar weakness should benefit foreign stock holdings like Chemical & Mining Co. of Chile Inc. (SQM) and the Market Vectors Gold Miners ETF (GDX). Forbes magazine recently wrote that it expects precious metals to outshine the dollar, and it says that gold and silver prices have “nowhere to go but up.”

Finally, your short position in U.S. Treasuries through the UltraShort 20+ Year Treasury ProShares (TBT) should resume its upward trend, especially as talk of a second Obama economic stimulus package — and hence the prospect for even higher fiscal deficits — becomes louder.

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Portfolio Update

A performance chart of the Wisdom Tree Dreyfus Chinese Yuan Fund (CYB) has been flat, but that may change sooner than we expect. On July 2, China announced that it will allow companies to use the yuan to settle cross-border trade, as part of a program designed to reduce the reliance of importers and exporters on the U.S. dollar. It is China’s first step to make the yuan global and boost its role in the world currency system. CYB remains a defensive BUY.

iShares MSCI Taiwan Index Fund (EWT) closed yesterday at $10.28, one of the few global stock markets that ended the week in positive territory. The technical indicators for the Taiwanese market are still among the most bullish among emerging markets. EWT remains a long-term BUY.

Freeport-McMoRan Copper & Gold Inc. (FCX) ended the week at $45.00 after the price of copper dropped sharply. FCX will be announcing earnings on July 21. With commodities getting hot and hard across the board, and the stock closer to our stop price, I am moving FCX to a HOLD.

ICICI Bank Ltd. (IBN) fell below the $28 level for the first time this month as the market reacted negatively to the Indian government’s expansionary budget. But, it’s worth recalling that India’s second biggest private bank had hit a low of $9.60 at the height of the crisis. IBN is another long-term BUY.

Market Vectors Gold Miners ETF (GDX) ended the week slightly down. A weaker U.S. dollar this fall and rising inflation concerns in early 2010 are reasons that this leveraged play on the price of gold remains a long-term BUY.

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Chemical & Mining Co. of Chile Inc. (SQM) ended the week flat. Asia accounted for 15% of SQM’s $1.8 billion in revenue last year, and that share is expected to rise as China increases its fertilizer imports. SQM announces earnings next month. SQM remains a BUY.

UltraShort 20+ Year Treasury ProShares (TBT) also ended the week largely unchanged. This bet against U.S. Treasuries remains a BUY.

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In an interview in Jack Schwager's classic book "Market Wizards," a young Jim Rogers reflected that "one of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do." When the market does not offer you any exceptional opportunities, it is better to just go read a book, go to the beach, and withdraw from the game altogether. Doing nothing is better than throwing money away on suboptimal trades.

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