The U.S. Fed’s version of “shock and awe” — its announcement of “quantitative easing” last Wednesday — put a spanner into your Global Stock Investor portfolio, even as the strong bounce in global stock markets since March 5 is showing signs of petering out.
As your sole stock position, the Chemical & Mining Co. of Chile Inc. (SQM) was the star performer in the portfolio, rallying another 5.6% this week. It remains a BUY.
I had highlighted in last week’s Global Stock Investor Hotline that any announcement by the Fed that it would “print money” to buy the U.S. government’s own debt would have a sharp, negative short-term impact on the UltraShort Lehman 20+ Treasury ProShares ETF (TBT). That’s exactly what happened as TBT fell sharply after the Fed’s announcement.
Nevertheless, the longer-term investment thesis behind betting against U.S. Treasuries — a combination of the U.S. government’s record funding needs and rising inflation, thanks to a remarkable expansion of the Fed’s balance sheet from $8 billion to $3,365 billion by the end of the year — has only strengthened. Reports indicate that the U.S. Treasury is already unable to place some of its longer-dated Treasury bonds, as interest among investors other than China seems to be drying up. All of this is bearish for America, but bullish for TBT, which remains a BUY.
The Fed’s announcement also triggered an immediate and broad sell-off in the U.S. dollar’s value, its biggest one-day loss against a basket of currencies since 1985. As a result, you were stopped out of the UltraShort Euro ProShares (EUO).
I believe this was an overreaction. With Europe’s economic slowdown about twice as severe as that of the United States, and the both European governments and central banks either unwilling or unable to grease the wheels of commerce to get the European economy going, it’s hard to see the euro sustaining its current level. The euro already has begun to weaken again since then, so I am going to recommend that you BUY EUO again. Place your stop at $17.50.
As a result of the strong rally in the equity market last week, you were stopped out of the PowerShares DB Commodity Double Short ETN (DEE) with a gain, as commodity prices rallied sharply. As I have mentioned, with commodities massively oversold, I expect to recommend the opposite of this position at some point.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) was flat this week, even as the head of China’s central bank called for the creation of new global currency to replace the U.S. dollar, the euro and the yen. CYB remains a BUY.
P.S. Gain the knowledge and insights you need to make smart investment decisions at the most important investor gathering in 2009. Join me for this year’s Money Show Las Vegas, May 11-14, 2009 at the Mandalay Bay Resort and learn how the experts are finding profitable opportunities during the market crisis and how to position your portfolio for safety and growth. To register FREE, call 800/970-4355 and mention priority code 012653 or register online!