Starting the New Year with a Bang

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Stocks rose sharply on the first trading day of 2012, thanks to encouraging economic reports from the United States and around the world. The Dow rose 1.4%, to 12,397.38 — its highest close in more than five months. Spurred by stronger-than-expected manufacturing reports out of China and the United States, the S&P 500 Index finished up nearly 20 points at 1,277, just about the same level it stood exactly a year ago. 
The S&P 500 ended the day comfortably above its 200-day moving average. Holding at that level would be an excellent, long-term bullish sign. That said, markets have penetrated this crucial level several times over the past few months, only to pull back sharply below it.
Another index worth looking at is the S&P 500 Volatility Index (VIX). Coming off of its twice-tested 2011 high of nearly $48, the VIX is very near the $20 low baseline level it languished at throughout the first half of 2011. Low volatility often equates with increased risk appetite, and may signal a sustained beginning-of-year rally for stocks. Its current level is also below its 200-day moving average, also a bullish sign.
Overall, it was a strong holiday-shortened week for your Alpha Investor Letter portfolio. All of your positions, with the exception of your short position in ProShares UltraShort FTSE China 25 (FXP) and your defensive position in the iShares JPMorgan USD Emerging Markets Bond (EMB), rose last week. On average, you saw a 2% increase on all of your positions, and most outperformed the S&P 500’s relatively meager weekly 1% gain. Several of your positions shifted from HOLD to BUY.

Portfolio Update

WisdomTree Japan SmallCap Dividend Fund (DFJ) rose 2.90% last week. Even the January 1, 2012, quake, which measured 4.0 on the Richter scale in Tokyo, could not slow the recent run in DFJ’s price level. Ironically, the disastrous fallout of the damaged nuclear power plants may serve as a catalyst for huge growth in Japan’s alternative energy sector. Development of safer new power sources — such as wind, solar, geothermal, and ocean wave-based technology — may yield big economic gains for the Japanese economy. DFJ recently broke through its 50-day and 200-day moving averages and is a BUY.
Las Vegas Sands Corp. (LVS) rose 2.18% over the past five trading days. Macau gambling revenue rose 25% in December, year-over-year. In addition, 2011 gambling revenue rose a whopping 42% to a record $33.47 billion. This figure is nearly five times greater than analysts are projecting for 2011 revenues at the Las Vegas Strip. LVS is just below its 50-day moving average and is a HOLD.
ProShares UltraShort FTSE China 25 (FXP) dropped 3.91%. In an effort to head off a potential banking crisis, China has increased its bank “required reserve ratio” from 15.5% to 21.5%. That boost effectively removes $650 billion from its economy, acting as a further drag on growth. FXP is a HOLD.
MSCI South Korea Index (EWY) rose 2.22% last week. Morgan Stanley projects a 1.3% increase in capital expenditures, a resilient net-positive export-to-import ratio, and continued low 3.5% unemployment for South Korea in 2012. EWY is a BUY.
MSCI Malaysia Index (EWM) moved up 1.57%. The Malaysian Institute of Economic Research recently revised its 2012 Malaysian economy gross domestic product (GDP) growth forecast from 4.6% to 5.0%. EWM is a BUY.
Market Vectors Russia ETF (RSX) gained 2.33% last week. Russia’s central bank (RCB) lowered the refinance rate by 25 basis points on Dec. 23. The RCB also raised the deposit interest rate for Bank of Russia by 25 basis points. The market has been also buoyed by recent Iranian threats to block passage through the Strait of Hormuz, a major “oil transport highway,” putting strong upwards pressure on future oil prices. RSX is a HOLD.
iShares JPMorgan USD Emerging Markets Bond (EMB) dipped 0.82% over the past five trading days. The recent dip in the U.S. dollar, coupled with Tuesday’s big stock market rally, put downward pressure on EMB yesterday. EMB is a HOLD.
Market Vectors Indonesia Index ETF (IDX) went up 1.22% last week. Projections for Indonesia’s future in 2012 continue to be bright. Indonesia is much more insulated from regional market downturns than its Asian neighbors are. Consumer demand has held up well and shows no signs of weakening. Inflation is moderating and solid economic fundamentals underpin the country’s recent ratings upgrade. IDX is just above its 50-day moving average and is now a BUY.
iShares Singapore ETF (EWS) rose 1.27%. EWS reacted positively on Tuesday to news that December manufacturing reports were better-than-expected across markets. Tuesday’s rally lifted EWS off of a major support level that has been holding since late November. EWS is a HOLD.
Berkshire Hathaway (BRK-B) was flat last week. For 2011, Berkshire’s book value rose 1.7% to $160 billion for the period ending Sept 30. That is a gain of $2,720,000,000 — and that is not too shabby by anyone’s standards. BRK-B is a BUY.
Listed Private Equity ETF (PSP) moved up 2.87% over the past five trading days. Private equity firms are normally large buyers of distressed assets at the bottom of any economic downturn. If 2012 continues to see economic recovery, private equity investments will blossom as those assets recover. PSP is now a BUY.
iShares MSCI Hong Kong Index (EWH) rose 2.26%. A report on China’s Purchasing Managers Index (PMI) was better-than-expected, rising to a six-month high, and showing a sign of growth. EWH is now a BUY.
Freeport McMoRan Copper & Gold Inc. (FCX) jumped 3.08%. FCX declared a $0.25 cash dividend on its common stock last week. The dividend will be payable on Feb. 1 to stockholders who hold FCX stock as of Jan. 13. FCX will also report earnings on Jan. 19. FCX moved above its 50-day moving average Tuesday and is now a BUY.
Visa Inc. (V) moved up 0.50% last week. Visa has risen 14% since Thanksgiving. With analysts estimating more than 16% yearly earnings-per-share growth for the next five years, V is a stock to hang onto. Please raise the stop price on Visa to $88.00. V is a BUY.


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