The Dull Days of December

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
The S&P 500 Index and emerging markets both rose more than 5% this past week. Most of the gains occurred during last Wednesday’s big surge. However, markets have been trading in a very narrow range since then, and this situation has made things dull, dull, dull.
The market’s attention remains heavily focused on European events. On Monday, Italian Prime Minister Mario Monti unveiled new austerity measures to Italy’s parliament. In addition, the International Monetary Fund (IMF) agreed to release $2.95 billion in funds to debt-ridden Greece. More importantly, French President Nicolas Sarkozy and German Chancellor Angela Merkel outlined a plan to toughen fiscal discipline within the euro zone.
Last night, I attended the University of Chicago Business School’s annual forecasting panel at its London campus. The annual affair goes back to 1955. One of the business school faculty’s big wigs, John Huizenga, suggested that Europe’s problems are so overwhelmingly complex — including sovereign defaults, liquidity issues, credit crunches, and a potential break-up of the euro — that no single solution is adequate. He argued that none of the current efforts are likely to address all of the market’s concerns, as there are just too many moving parts in what is a complex, three-dimensional chess game. The panel members’ estimates for next year’s U.S. Gross Domestic Product (GDP) growth varied from 1.7% to 2.7% — a remarkably wide range that highlights the level of uncertainty concerning the economic outlook over the coming 12 months. The panelists all agreed, however, that the U.S. economy would not grow enough to make a dent in the unemployment rate, thereby all but dooming President Obama’s re-election chances.
Overall, the panel was more pessimistic than it was last year at this time. Yet if anything, I would take this sentiment as a contrarian indicator. This time last year, the same panel was much more optimistic, and this year has turned out to be a wash. As your most recent Alpha Investor Letter bet on Warren Buffett’s Berkshire Hathaway (BRK-B) suggests, I am much more bullish than the consensus about the prospects for the U.S. economy over the coming year.
It was a strong week for your Alpha Investor Letter portfolio across the board, with most of your positions averaging a 4% gain or better. Your biggest gainer was Freeport McMoRan Copper & Gold Inc. (FCX), up 11.13%, and your position in Listed Private Equity ETF (PSP) came in second place, rising 7.49%. Both of these positions tend to do well when the market embraces risk, as it has done in the past two weeks or so. Among your other holdings, Market Vectors Russia (RSX) was down for the week — weighed down by the political shenanigans surrounding the Russian election. Your ProShares UltraShort FTSE China 25 (FXP) fell, as well.
The S&P 500 Index (SPX) has spent the past three days bumping up against the 200-day moving average, desperately trying to make a break above it. However, with markets looking overbought, I’d expect a short-term pullback. As always, make sure you stick to your stops.

Portfolio Update

WisdomTree Japan SmallCap Dividend Fund (DFJ) rose 1.49% over the last five trading days. Big-name investors such as Wilbur Ross and Warren Buffett have been shopping in Japan lately for “cheap” companies with good investment opportunity. DFJ has rallied nicely the past two weeks and stopped just short of the 50-day moving average. DFJ is a HOLD.
Las Vegas Sands Corp. (LVS) jumped 4.37%. Deutsche Bank reiterated its “Buy” rating for LVS on Monday, and set a whopping $62 price target. That’s a whopping 36% upside from current levels. LVS is a BUY.
ProShares UltraShort FTSE China 25 (FXP) dropped 13.14%. FXP moved inversely with the market’s gains last week as global optimism on Europe took its toll on this double-short exchange-traded fund (ETF). FXP is currently a HOLD.
MSCI South Korea Index (EWY) powered 5.27% higher over the last week. EWY heavyweight holding Samsung just won a major court battle in its war against Apple and its nifty little iPhone/iPad devices. The U.S. court hearing the patent case ruled that it will not issue an injunction against Samsung and force it to halt sales of its Android-based products in the United States. Samsung’s holiday sales volume should yield a very profitable fourth quarter for Samsung, and EWY. EWY is a BUY.
MSCI Malaysia Index (EWM) gained 3.55%. China’s recent bank reserve-requirement ratio cut was a big win for EWM. After the announcement, EWM call option buying at the $14 level made Wednesday’s call buying volume shoot to 15 times the daily average. EWM is a BUY.
MSCI Hong Kong Index (EWH) ended the week 2.93% higher. Hong Kong shares are now trading at their highest level in three weeks. EWH is a BUY.
Market Vectors Russia ETF (RSX) gave back 1.30% over the last week, due mainly to controversy surrounding its recent elections. Nothing worries a market like an unstable political environment. However, the rising price of oil helped RSX stay above its 50-day moving average. RSX is a BUY.
iShares JPMorgan USD Emerging Markets Bond (EMB) rose 1.70% last week. EMB continued its two-week, non-stop move upwards. EMB is a BUY.
Market Vectors Indonesia Index ETF (IDX) jumped 4.37%. IDX should also benefit from the measures taken by Chinese authorities to re-inflate their economy. IDX is a BUY.
Gold Miners ETF (GDX) ran up 4.53% over the past five trading days. Since the Standard & Poor’s rating agency put 15 of the European governments on a “negative” credit watch list, things could get very interesting for gold. Big investors like George Soros and Steven Cohen, not to mention many of the world’s central banks, have spent the past week buying heavily into gold. The pending rise in gold prices will benefit the miners greatly as they sell their gold into the inflated markets. GDX is a BUY.
iShares Singapore ETF (EWS) rose 4.11%. EWS made strong gains the past two weeks, moving above its 50-day moving average. EWS is now a BUY as it hobbles along its 50-day moving average.
Berkshire Hathaway (BRK-B) gained 4.02%. Berkshire Hathaway announced Wednesday that it would acquire the Omaha World Herald Company. This includes daily and weekly newspapers covering two states. The acquisition will close in December. BRK-B is a BUY and is now above its 200-day moving average.
Listed Private Equity ETF (PSP) rocketed 7.49% over the past five trading days. PSP has rallied the past two weeks and is now above its 50-day moving average. PSP is now a BUY.
iShares MSCI Hong Kong Index (EWH) rose 2.93%. Moody’s issued a report over the weekend stating “Hong Kong’s strong “Aa1” bond rating is a good sign of high economic resiliency and strong government finances.” EWH is now a BUY.
Freeport McMoRan Copper & Gold Inc. (FCX) powered upwards 11.13% last week. The “risk-on” trade is returning to copper (and oil), and FCX stands to benefit greatly. FCX made a definitive move above its 50-day moving average and is now a BUY.

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