His own sage advice notwithstanding, George Soros, the “Babe Ruth” of the hedge fund world, is having a remarkably tough time under current market conditions. Consider that Soros had his two biggest (20%+) publicly reported positions in Lehman Brothers Holdings (LEH) and Brazil’s Petrobras (PBR). This morning, Lehman Brothers sought Chapter 11 bankruptcy protection. Meanwhile, Petrobras’ stock price has plummeted 49% from its May 21 peak. Like Babe Ruth, Soros swung for the fences and struck out. Though he certainly cut his losses at some point, Soros’ big bets going awry highlights the difficulty of forecasting market movements in the current environment.
So where can you put your money to work? Although the dollar was down sharply this morning on the news from Wall Street, the U.S. dollars’ upward trend is one of very few sustainable bullish themes in global markets. The U.K., European and Japanese economies all contracted last quarter. In contrast, all of the doom and gloom headlines notwithstanding, the U.S. economy grew at a rate of 3.3% during the same period. If the U.S. economy stabilizes and employment picks up in the next several quarters, look for the Fed to begin raising the key federal funds rate from its current level of 2.0%. Those higher interest rates will further support a strong dollar.
We now have three picks in the Global Bull Market Alert portfolio that play on this strong dollar theme: the Market Vectors Double Short Euro ETN (DRR), the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) and last week’s short position in the CurrencyShares British Pound Sterling Trust (FXB). These first two picks hit record highs last Thursday. The continued (relative) strength of the U.S. economy and the weakening of Europe’s economies bode well for the prospects of all three of these picks.
Your bet on Biotech through the S&P Biotech ETF (XBI) actually bucked the market trends last week by rising slightly, as it continues to be among the strongest sectors in an otherwise weak market.
The market drop caused us to stop out of WisdomTree India Earnings ETF (EPI) on Friday for a loss, as well as a small loss in the remaining half of our EPI options. We previously notched a gain on the first half of the EPI options. We also stopped out of our position in iShares MSCI Turkey ETF (TUR) at a loss this morning. Finally, we stopped out of iPath DJ AIG Livestock TR Sub-Idx ETN (COW) — the last remaining commodity play in the Global Bull Market Alert portfolio — for a loss.
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