Nicholas Vardy

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

The last two weeks have seen big movements in your Global Stock Investor portfolio as risk aversion has returned to financial markets and global stock markets have sold off sharply.

As you recall, we are attempting to balance the portfolio fairly evenly between positions that do well when stock markets go up, and others that profit when stock markets go down.

Fortunately, today — unlike in the bear market after the dotcom crash — you have a lot more instruments and asset classes available to you to allow you to construct a portfolio in this manner. As a result, your current portfolio consists of positions in a wide range of asset classes, including a foreign currency, a short position in commodities, a short position in U.S Treasury bonds, and two long positions in emerging market stocks.

And if that seems much more complicated than what you are used to, you are not alone. Today’s challenging market conditions mean that yesterday’s investment game of “buy and hold” is like a simple game of checkers, while today you’re playing the equivalent of three-dimensional chess.

Your bearish positions have performed as advertised during the recent stock market sell-off.

The CurrencyShares Japanese Yen Trust (FXY) has rebounded back to the $111.00 level, and is once again approaching its record high set back in December.

The PowerShares DB Commodity Double Short ETN (DEE) hit a record high of $87.26 yesterday, as both the oil price and commodities prices have stumbled on the back of reduced demand and the global economic slowdown.

Your most recent position, a bet against the U.S. Treasury bonds through the UltraShort Lehman 20+ Treasury ProShares (TBT), is up slightly in its first week in the portfolio.

On the flipside, the initial enthusiasm in the stock market — as evidenced by the technical breakout of both Millicom International (MICC) and Nextel Holdings (NIHD) that I highlighted in the beginning of January — has come and gone. Both of these positions are now off sharply from the levels we entered them just two weeks ago. Fortunately, you re-entered these positions with a relatively small amount, so the damage to your portfolio is manageable. This also demonstrates why the right position size is so crucial in managing your portfolio.

That said, global stock markets are as technically oversold as they have been since the mid-November lows. That means that you are likely to get a sharp rally in the markets at some point relatively soon. Assuming you don’t get stopped out, I expect these volatile positions to perform exceptionally well once the market turns. But it isn’t a particularly pleasant ride so far.

Portfolio Update

The WisdomTree Dreyfus Chinese Yuan Fund (CYB) barely budged from the $25.00 level during the last couple of weeks. The Chinese government seems to be tightening the range in which it is managing the yuan. I am keeping CYB at a HOLD.

PowerShares DB Commodity Double Short ETN (DEE) hit a record high of $85.53 yesterday. With the global economy slowing, and this position acting as a hedge to global stock markets, I am moving DEE back to a BUY.

The CurrencyShares Japanese Yen Trust (FXY) nudged back to the $111.00 mark yesterday, as risk appetite waned in the markets. I am moving FXY back to a BUY.

Millicom International (MICC) was awarded a license in Rwanda as the third national telecoms operator in early January. Sadly, that did not help its share price, which has tumbled sharply in the past two weeks. With the share price near its stop price, I am temporarily moving Millicom to a HOLD.

Nextel Holdings (NIHD) performs broadly in line with Millicom, and depends on overall market sentiment for its performance. As with Millicom, NIHD is near its stop price, so I am moving Nextel Holdings to a HOLD.

UltraShort Lehman 20+ Treasury ProShares (TBT) was broadly flat in its first week in the portfolio. Cracks are already appearing in the appetite of foreigners for U.S. Treasuries, as an investment manager at South Korea’s national pension fund said Monday that his fund might sell U.S. Treasuries because of the prospect that they will become less profitable and stoke inflation. TBT is a BUY.

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Carefully balanced between both "bullish" and "bearish" positions, your Global Bull Market Alert portfolio had a mixed week with defensive positions soaring, and bullish picks set to climb during a coming rebound in a highly oversold market.


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