Nicholas Vardy

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

Your Global Stock Investor portfolio had a topsy turvy week. After acting as a safe haven during the market collapse in October, the U.S. dollar sold off sharply in global foreign exchange markets this past week. With yesterday’s truly shocking announcement that the Federal Reserve would let its central Fed Funds rate drop to zero, the United States has officially turned Japanese. For the first time since 1993, the Fed’s rates are lower than those of the Bank of Japan (currently 0.3%).

This was both good and bad news for your Global Stock Investor portfolio. The CurrencyShares Japanese Yen Trust (FXY) closed at a record high of $112.35 yesterday. With the Japanese yen in a strong uptrend, you should feel comfortable adding to your positions here.

In yesterday’s Global Stock Investor Special Alert, I reminded you that you were stopped out of your “strong dollar” bet in the form of the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) last week. Because the euro had sliced through some strong technical resistance points so quickly, I also recommended that you sell your position in the Market Vectors Double Short Euro ETN (DRR) even before it hit its original stop price.

As you can see on the chart below, the U.S. dollar experienced a similar bout of weakness back in September, just prior to the collapse of global stock markets in October. That pull-back proved to be temporary, and you soon re-entered your bullish positions in late September and early October when the dollar’s upward trend was confirmed. This pullback, however, is already looking sharper.

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Global investors’ flight to the safety of the U.S. dollar after Lehman Brothers’ collapse is largely why the trade-weighted dollar has risen so far, so fast. But with the Fed cutting U.S. interest rates to a target range of 0 to 0.25%, the dip in the dollar that began last week could be more than a temporary blip. In any case, it is better to be safe than sorry — which is why I recommended that you close your long dollar positions.

Portfolio Update

The WisdomTree Dreyfus Chinese Yuan Fund (CYB) recovered some of its (relatively) sharp losses of a couple of weeks ago, settling back into a well-established trading range. Although it is unlikely that the Chinese government will devalue the yuan as a way to spur slowing Chinese exports, I am keeping CYB at a HOLD.

PowerShares DB Commodity Double Short ETN (DEE) has steadied around the $72 level. With the world economy slowing, and demand for commodities continuing to falter in China, I expect that this leveraged bet on a drop in commodity prices will resume its uptrend soon. DEE is a BUY.

The CurrencyShares Japanese Yen Trust (FXY) closed at yet another record high of $112.35 yesterday. The Japanese yen will continue to do well as the U.S. dollar weakens. This is your safest bet in the portfolio and remains a BUY.

The Rydex Managed Futures Strategy Fund (RYMFX) dipped this week as a result of sharp changes in the trends of both currencies and commodities. Managed futures strategies always have their biggest challenges when established long-term trends suddenly reverse. Because this may be one of those turning points, I am moving RYMFX to a HOLD.

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