The drama in global stock markets continues. On Monday, U.S. markets were rocked by the news that the U.S. House of Representatives rejected the widely anticipated $700 billion rescue package for U.S. banks. Wall Street responded by hurtling the Dow Jones Industrials down nearly 7% — the biggest drop since September 11, 2001. The Dow’s almost 780-point decline was the largest one-day point drop ever for the index. The next day, the Dow rose 485 points, or more than 4.5%. That was the third-biggest point gain in the Dow’s history and the largest percentage climb in the Dow in six years.
Meanwhile, the U.S. Senate is set to vote tonight on a new version of the emergency financial rescue package rejected Monday by the House of Representatives. This will include a provision to increase the current $100,000 cap on the level of deposits in bank accounts insured by the federal government to $250,000.
I continue to believe that with volatility in markets hitting record highs, our currency recommendations are the only safe havens in times like these. Your latest Global Stock Investor pick, the CurrencyShares Japanese Yen Trust (FXY), actually rose 1.8% when the Dow collapsed on Monday. The WisdomTree Dreyfus Chinese Yuan Fund (CYB)‘s stability now rivals that of a U.S. money market fund — but with much higher upside. Both of these currency recommendations remain BUYs.
The Market Vectors Double Short Euro ETN (DRR) has been on our watch list ever since we were (unfortunately) stopped out of it on Sept. 18 on the back of some extraordinarily high intra-day volatility. This week, I am going to recommend that you re-enter this position and place your stop at $37.50.
This bet against the euro assumes that the U.S. Congress will finally get its act together and pass some version of the $700 billion rescue package. For all of the criticism surrounding the U.S. government’s efforts, even critics must concede that it is at least an attempt at a systemic solution. In contrast, Europe is still behind the curve and addressing crises on a case by case basis. Yet with the housing bubble in the United Kingdom, Ireland and Spain bigger than in the United States, the real estate loan problems of Europe’s banks are no less serious. Once it becomes clear that the U.S. authorities are moving fast to put their financial house in order, Europe’s approach will appear dithering and evasive. Just this week, Europe had to bail out no fewer than three banks in two days — making the need for a systemic solution increasingly apparent. All of this spells extended weakness for both the euro and the British pound sterling.
The other stocks on our watch list — telecom play NII Holdings (NIHD), India’s ICICI Bank Ltd. (IBN) and Millicom International Cellular (MICC) — have been enduring stomach-churning volatility. But once markets settle, I can see each of these doubling over a short span of time. As I’ve noted, I want to see a more firmly established uptrend in these picks before we re-enter these positions.
PORTFOLIO UPDATE
Market Vectors Double Short Euro ETN (DRR) soared yesterday as the euro plunged against the dollar and rising signs of trouble in the European banking sector created robust overseas demand for greenbacks. The euro is slightly higher against the dollar today, which makes it a good time to enter this position. DRR is a BUY.
WisdomTree Dreyfus Chinese Yuan Fund (CYB) continues to be an oasis of calm in the eye of the global financial market storm. CYB is a BUY.
CurrencyShares Japanese Yen Trust (FXY) soared 1.8% on Monday to its highest levels since June, even as markets were collapsing on Monday, before correcting on the market rally yesterday. The yen zigs while global stock markets zag. FXY is a BUY.
P.S. Surging oil and food prices, as well as deteriorating economic confidence, have stoked inflation fears around the world in recent months, leaving volatile markets and jittery private investors in their wake. In times such as these, it’s good to have this forum to discuss key developments and to hear from the best financial minds in the world. I invite you to join me at the 4th Annual World Money Show London, 14-15 November, at the Queen Elizabeth II Conference Centre. Call 800/970-4355 and mention priority code 009613 or visit The World Money Show London to register FREE today!
