The Dow Jones industrials climbed nearly 400 points yesterday — rising around 3.2% — to 12,654.4. Indeed, all of the major U.S. stock indexes were up more than 3%. Asian stocks also surged overnight amid a growing belief that the worst of the credit crisis is over, following a similar rally on Wall Street. The Nikkei 225 index rose 4.2% in Tokyo. Hong Kong’s index climbed 3.2%. Australia, Singapore, South Korea, Taiwan and the Philippines all gained more than 2%.
Optimists believe the credit crisis in the United States is over. Well, the burden of proof is on them. As I’ve noted many times before, short, sharp rallies are very typical of bear markets. It’s only with the benefit of 20/20 hindsight that you can tell whether a rally is the real thing. And even short, sharp rallies can turn out to be pretty long. Recall that global markets had a very strong run last year between Aug. 16 and early October, as the credit crunch seemed to be contained then, as well.
Psychologically, it’s a tough time to be looking at your positions on a daily basis. One day you are horrified that the United States is entering the next Great Depression. The next day, you are wringing your hands about missing out on the next market rally.
Here is a quick refresher on how your Global Stock Investor portfolio is positioned. On the one hand, you have defensive positions in the PowerShares DB Agriculture (DBA), Elements Rogers International Commodity ETN (RJI), Barrick Gold (ABX) and the CurrencyShares Japanese Yen Trust (FXY). These positions are designed to zig when others zag. They will do well on days when the “world is falling apart.”
On the other hand, if market sentiment does improve, whether over the short or longer term, you will see your other positions rally strongly — including iShares MSCI Brazil Index ETF (EWZ), Millicom International (MICC), ArcelorMittal (MT), Coca-Cola Hellenic (CCH) and Potash (POT).
As Yogi Berra said: “Prediction is hard, especially about the future.” Your best bet is to have positions that benefit from both scenarios, and then adjust them, as the conditions evolve.
Barrick Gold (ABX) has pulled back considerably on the fall in the gold price. If you believe, as I do, that gold still is in a bull market, this is still a good time to add to your positions. BUY on the dips.
Coca-Cola Hellenic Bottling (CCH) hit a new record high this week, even as The Coca-Cola Company and illycaffe SpA announced that the companies have finalized their global joint venture and will be introducing three premium ready-to-drink coffee products in several European countries in April. The initial launch is a result of a joint venture between Ilko Coffee International and Coca-Cola Hellenic. This Warren Buffett-style, “one decision stock” remains a BUY.
PowerShares DB Agriculture (DBA) did not have a strong week, although it did recover in trading yesterday. Get beyond the recent stomach-churning volatility and the fundamentals remain in place. Worldwide grain demand will continue to outrun grain supply. And no one can repeal the law of supply and demand. The recent sell off has been unpleasant, but this remains a top theme in your Global Stock Investor portfolio. DBA remains a BUY.
iShares MSCI Brazil Index ETF (EWZ) ended the week up, rallying strongly in yesterday’s bull market. This is the strongest of the emerging market picks and it will soar on any shift toward positive sentiment in the markets. Brazil is a BUY.
CurrencyShares Japanese Yen Trust (FXY) pulled back to below $100 this past week. The yen always zigs when markets zag. It remains your top hedge on the markets. It is a defensive BUY.
Millicom International (MICC) will do very well if the markets have bottomed and sustain a rally. Millicom is announcing earnings this month and next month you will get a $2.40 per share dividend. This highly volatile stock is a BUY.
ArcelorMittal (MT) soared more than 7% this week, and is now up 38% from its Jan. 23 low. Credit Suisse expects "another set of positive and bullish presentations from management" at ArcelorMittal today when the world’s biggest steel maker holds an investors day in New York. With the global industry facing a genuine structural supply constraint, MT remains a BUY.
Potash (POT) nudged back up toward $160 this week. There are rumors in the market that Potash may be acquired by one of the giant commodity companies like BHP for upwards of $200 per share. Potash is a BUY.
Elements Rogers International Commodity ETN (RJI) steadied this week, but with the recent sharp sell off in commodities, it has not gotten off to a strong start. Nevertheless, as with most diversified commodity plays, it has terrific, long-term potential and is a BUY.
P.S. Join my Eagle Publishing investment colleague Mark Skousen and me for FREEDOM FEST 2008, "The Trade Show for Liberty," on July 10-12, 2008, Bally’s/Paris Resort. FreedomFest will feature more than 88 speakers, 100 exhibitors, and 1,000 attendees. Guests will include John Mackey, CEO of Whole Foods Market, Congressman Ron Paul, a 2008 Republican candidate for president, Steve Moore, of The Wall Street Journal editorial board, David Boaz, vice president of Cato Institute, Robert Poole, Jr., of Reason Foundation, Jeremy Siegel, "The Wizard of Wharton," and Rick Rule, one of the country’s top money managers. Also hear Frank Holmes, Doug Casey, Larry Abraham, Ron Holland, Frank Trotter, Bert Dohmen, Keith Fitz-Gerald, Peter Zipper, John Mauldin, and many more.