Nicholas Vardy

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Our bet that Week 36 was to be one of the single, worst-performing weeks of the year for equities was spot on. Sharp sell-offs in the market confirm that market skittishness is still weighing in stocks, even as the global megatrends that underlie our stock picks remain intact. With September the weakest month, let’s hold off on moving back into the markets for now. Once we have the Fed rate decision next week, we will have a clearer view of how to move ahead.


Currency Shares Japanese Yen Trust (FXY) is getting more press from the slow but steady unwinding of the carry trade, in which investors borrowed yen and invested in higher-yielding currencies such as dollars. The yen started near 119 to the dollar and by March 5 had moved to 115.56, before quickly sliding to 123.94, where it bottomed on June 22. After falling back somewhat, it has now closed at record highs again. This is a terrific defensive position during times of turmoil and it also offers solid, steady upside. The pick remains a BUY.

Tesco (TSCDY) rose this week after an upbeat note from Lehman Brothers, which raised its recommendation on the stock to overweight largely on the prospects for Tesco’s overseas expansion. "International returns have been constrained as Tesco’s management focuses on implementing the long-term infrastructure required for a successful business in each country," according to Lehman. "With much of this infrastructure in place and the capital sunk, it is our opinion that the international business will start to thrive." The stock remains a BUY.

Anglo American (AAUK) is emerging as a likely frontrunner to buy Canadian-listed and Democratic Republic of Congo-focused Katanga mining. Anglo American is carrying out due diligence, and people within Katanga say a deal could be concluded by the end of the month. This will be a large transaction — valued at close to $1.5 billion — and it confirms the high level of merger activity in the marketplace. Anglo American also was upgraded by broker Sanford Bernstein this week.

ABB Ltd. (ABB) Chief Financial Officer Michel Demare said ABB can generate $15 billion through cash, a share issue and debt for acquisitions. Although ABB may look into other options, it will focus on acquisitions and not share buybacks. ABB shares have more than tripled since the company’s last major purchase in September 2001.

America Movil (AMX) got a boost as Mexican legislators broke a months-long deadlock on Tuesday and approved the first article of a tax reform bill sought by President Felipe Calderon.

Expectations that the Fed will lower its benchmark federal funds rate on Sept. 18, perhaps by as much as 50 basis points from 5.25%, could boost growth in the United States and act as a particularly strong fillip to America Movil’s stock price.

ICICI BANK (IBN) is launching a $2 billion infrastructure fund to invest in ports, power and aviation projects. The bank says it estimates that Indian companies plan to invest about $250 billion in infrastructure over the next three years. The government estimates India will need $470 billion of investment in the sector in the next five years. The ICICI fund will have a life of at least 10 years and could tentatively be up and running within three months. The bank plans to attract funds from international investors, with investment bank Credit Suisse acting as an advisor.

Millicom International (MICC) highlighted the impact of Mr. Market’s mood swings as the stock plummeted 8.5% Monday on the back of absolutely no news. Baffling.

Arcelor Mittal (MT)
, the world’s largest steelmaker, announced that its internal growth plan calls for it to increase shipments by more than 20% to reach 131 million metric tons by 2011. "Underlying demand for steel globally remains buoyant with world steel production expected to maintain a yearly growth rate of between 3% and 5%. Considering our high exposure to developing markets and industrial leadership, we are well positioned to capture growth opportunities which will permit us to increase shipments from our existing operations by some 23 million (metric) tons by 2012," the company said.

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Dry-bulk shipping would not win any awards for "sexiest investment sector" -- that is, until you look at your investment returns in the sector over the past year or so. Once you shift your attention away from the headlines and the hand-wringing surrounding U.S. subprime credit woes -- specifically, to the Baltic Dry Index -- you get an entirely different view of both the sector and the world economy.

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