Global financial markets shook off the news of North Korean dictator Kim Jong Il’s death over the weekend remarkably quickly. A surprisingly strong report on U.S. housing starts and building permits, coupled with a successful Spanish debt auction, drove the S&P 500 Index up just under 3% on Tuesday, making it the best day for stocks all month. Rising consumer confidence in Germany also helped ease worries over Europe’s debt crisis.
But Tuesday’s rally was deceptive in that the S&P 500 ended the week up only 1.27%. Aside from this one-day big move, markets have been rather dull. Market volume has been low and investors seem more risk-averse than usual for this time of year.
All major global indices continue to languish below their 200-day moving averages — although the Dow did manage to pop above that crucial level yesterday. The next two weeks are traditionally among the strongest two weeks of the year. With any luck, we will finish 2011 on a high note.
The strongest performer in your Alpha Investor Letter portfolio was last week’s addition, Visa Inc. (V), which added 3% yesterday for its second-straight, all-time high. Market Vectors Indonesia Index ETF (IDX) crossed back over its 50-day moving average and is now a BUY. Your position in MSCI South Korea Index (EWY) was hit hard on Monday after the death of North Korean dictator Kim Jong Il, but it bounced back 4.2% in yesterday’s trading. Market Vectors Russia ETF (RSX) also took a strong bounce this week — although it remains a HOLD.
I’ll be taking a holiday break during the week of Monday, Dec 26, flying back to my hometown of Pittsburgh, where I’ll be spending Christmas with my parents and family. (Interestingly, Pittsburgh was the subject of a positive story and video in London’s Financial Times last week, as an example of a successful American turnaround story.) Your next Alpha Investor Letter update will reach you in 2012. In the meantime, I want to extend you warm wishes for the holiday season and wish you a Happy New Year.
Finally, I want to make sure you are aware of a Special Holiday Renewal Offer for you, the details of which you can find at the end of today’s update. We all work hard to make the Alpha Investor Letter a valuable and entertaining publication with a unique perspective, and I hope that you will join us in 2012, as well.
Portfolio Update
WisdomTree Japan SmallCap Dividend Fund (DFJ) was flat for the week, rising just 0.41%. The companies included in DFJ’s portfolio will likely be among the first to post gains in Japan’s economic recovery. DFJ’s chart currently reflects an 11% upside potential with just 3% downside risk, making DFJ a good bet. DFJ made a large upward move on Tuesday — stopping just short of its 50-day moving average. DFJ is a HOLD.
Las Vegas Sands Corp. (LVS) rose 1.99% over the past five trading days. Las Vegas Sands sold off recently due to an investigation by Hong Kong securities regulators. The regulators sounded the “all clear” on Monday, removing the cloud overhanging the stock. LVS should be able to rally back now. LVS is a HOLD.
ProShares UltraShort FTSE China 25 (FXP) dropped 2.41%. With China having significant ties to North Korea, the recent death of North Korean leader Kim Jong Il will likely cause some negative ripples for China. FXP’s “ultrashort” nature may magnify these ripples and cause a nice upside move in the fund. FXP has been tangling with its 50-day moving average over the past few days and is currently a HOLD.
MSCI South Korea Index (EWY) moved down 1.24% last week. The recent death of the North Korean leader opens the possibility that South Korean companies may enjoy a more open and prosperous relationship with their northern neighbors. In addition, EWY has formed significant support at the $50 level since early August. Having just bounced off of this same level last month and bouncing once again on Tuesday, EWY may be ripe for a comeback. EWY is a HOLD.
MSCI Malaysia Index (EWM) declined 1.13%. Recent Malaysian consumer inflation numbers predict inflation to remain steady, on a month-over-month basis. EWM is a HOLD.
Market Vectors Russia ETF (RSX) jumped 4.67%. Russian oil has been powering North Korea for decades. Any positive economic moves by the new North Korean ruler could see an increased demand for Russian oil. RSX is a HOLD.
iShares JPMorgan USD Emerging Markets Bond (EMB) remained nearly flat, posting a 0.30% rise. EMB has traded sideways for nearly a month. However, EMB has stayed above its 50-day moving average like a train on a track. EMB is well positioned to maintain this pattern and break to the upside. EMB is a BUY.
Market Vectors Indonesia Index ETF (IDX) went up 2.19% last week. Goldman Sachs economist Jim O’Neill coined the term “the BRIC’s” (Brazil, Russia, India and China) exactly 10 years ago. If he were doing that today, he’d probably leave out Russia, and include Indonesia instead. The only global market in the plus column this year, IDX is trading just above its 50-day moving average and is a BUY.
iShares Singapore ETF (EWS) fell 2.16%. A recent European Central Bank survey estimated Singapore’s gross domestic product (GDP) to rise 3% in 2012 and non-oil domestic exports to rise over 3%. EWS is a HOLD.
Berkshire Hathaway (BRK-B) gained 0.32% last week. Mr. Buffett made two significant investments in the solar industry over the past two weeks. He purchased a 49% interest in a 290-megawatt Arizona solar project this week, and purchased a sizeable stake in a second large solar project with Pacific Gas and Electric last week. Interestingly, both projects are backed by significant government incentives. Warren is a man who knows how to sweeten deals in his favor. BRK-B closed $0.02 under its 50-day moving average on Tuesday and is a HOLD.
Listed Private Equity ETF (PSP) moved up 1.16% over the past five trading days. Still hovering near its year-to-date low, this position has good upside potential. PSP is a HOLD.
iShares MSCI Hong Kong Index (EWH) rose 0.39%. The World Economic Forum recently ranked Hong Kong at first place in its Financial Development Index, ahead of the United States and the United Kingdom. This is quite an achievement, as no Asian country has ever attained this goal. EWH is a HOLD.
Freeport McMoRan Copper & Gold Inc. (FCX) fell back a mere 0.53%. Deutsche Bank kept a “Buy” rating on FCX with a $48 price target. That’s a 20% upside from current levels. FCX is just under its 50-day moving average and is a HOLD.
Visa Inc. (V) jumped 5.67% last week. Visa also made a fresh all-time high on Monday and Tuesday. V is a BUY.
Sincerely,
Nicholas Vardy
Editor, The Alpha Investor Letter