The global gloom continues, even as the epicenter of the global financial crisis shifts across the Atlantic toward Europe. European stocks saw their biggest drop in 20 years on Monday, after Europe’s haphazard efforts of addressing its own banking crisis rattled stock markets across the old continent. In London, the FTSE 100 index fell 7.9%, while the German DAX index and the French CAC-40 indexes sunk 7.1% and 9%, respectively. Russia suspended trading on its stock exchanges for two days this morning after blue chips posted double-digit percentage losses in the first 35 minutes of trading. Compared to global markets, the United States is getting off easy.
Each hour yesterday brought a new attempt to avert disaster somewhere in the banking world: a $37 billion state loan to Russia’s banks, a $41 billion Spanish scheme to buy distressed securities, the U.S. Federal Reserve’s move to buy commercial paper from issuers (or to lend directly to non-financial companies) and the U.K. decision to inject $80 billion of new capital into its banks. Tiny Iceland is on the verge of becoming the first country in recent European history to go bankrupt, even as it is forced to go hat in hand to Russia for $5.4 billion of new capital.
So how is your Global Stock Investor portfolio doing in these turbulent times? Even as the world’s top hedge funds such as Chicago-based Citadel dropped more than 15% in the month of September (its previous worst month ever was a 4% drop), your defensive stance in your Global Stock Investor has paid off remarkably well.
I’ve reproduced the charts of your three currency holdings during the last three months and how they performed against the S&P 500.
CurrencyShares Japanese Yen Trust (FXY)
Market Vectors Double Short Euro ETN (DRR)
WisdomTree Dreyfus Chinese Yuan (CYB)
To be fair, you haven’t held all of these positions for the entire duration of these charts; I recommended the CurrencyShares Japanese Yen Trust (FXY) just last month and you were briefly stopped out of the Market Vectors Double Short Euro ETN (DRR). Nevertheless, these charts should give you comfort about how your currency bets are remarkably effective defensive plays in even the most turbulent of times.
I also want to emphasize how much money you saved by sticking to your recommended stops.
A big winner in your Global Stock Investor portfolio during the past 12 months was fertilizer company Potash Corp. (POT), which you entered last October. Look at what happened to the stock after you stopped out of it in July, recording an 82.57% gain.
Also look at how the iShares MSCI Brazil Index (EWZ) performed after you were stopped out in July and locked in your 22.18% gains.
Both of these positions have dropped well over 50% from the time you exited them. Imagine the losses you’d be sitting on had you not stuck to your sell discipline.
The lesson? Disciplined risk management is absolutely crucial to successful investing. It’s a topic I cover in some detail in my “Hedge Fund Secrets Revealed” seminar at the Money Shows. You can find more information on the upcoming seminar here. I’ll also be covering more on risk management in the next issue of Global Stock Investor.
I continue to see that these currency recommendations are the only safe havens in times like these. The CurrencyShares Japanese Yen Trust (FXY) actually rose 3.51% when the Dow collapsed on Monday and FXY rose yesterday, as well. The Market Vectors Double Short Euro ETN (DRR) closed at a record high of $51.44 on Monday. I continue to see weakness ahead for the euro as Europe struggles to resolve its own banking crisis. Move your stop up to $39.50. The WisdomTree Dreyfus Chinese Yuan Fund (CYB) bounced around a bit more than usual this past week. But as a managed currency, you can be sure that the Chinese government won’t let the yuan get too much out of whack with Chinese central bank policy.
All of these currency recommendations remain BUYs.
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!
