Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Your Global Stock Investor portfolio was largely flat this week, as your currency bets stayed within a trading range. Meanwhile, most of Europe officially fell into recession last quarter. The recession is the first for the euro zone — the 15 countries that now use the euro currency — since the euro was launched in late 1999. With the United Kingdom also on the verge of recession, look for both the euro and the British pound sterling to continue to weaken.

That said, you may see the British pound and the euro rally over the short term before they resume their downward trend against the U.S. dollar. Use any of these opportunities to add to your positions in the Direxion Funds Dollar Bull 2.5x Fund (DXDBX) and the Market Vectors Double Short Euro ETN (DRR).

The bullish trend for the U.S. dollar remains firmly intact as foreign investors flock to long-maturity U.S. securities. More than $52.7 billion flowed into these instruments in September — up from only $8.1 billion in August. By a broader measure, net foreign capital inflow was $143.4 billion in September versus $21.4 billion in August. Despite the pressures on the economy, U.S. dollar-denominated assets became much more attractive to foreigners as the financial crisis intensified.

The strength of the U.S. dollar has caught many economic forecasters by surprise. They underestimated the Greenback’s continued status as the world’s safe haven and reserve currency. Churchill said that “democracy is the worst form of government — except for all the others that have been tried.” The same can be said of the U.S. dollar during times of uncertainty. As long as global markets remain in their current state, your bullish dollar plays will remain your safest bets and all remain BUYs.

Portfolio Update

The WisdomTree Dreyfus Chinese Yuan Fund (CYB) was flat this week even as China’s stocks plunged yesterday, dragging the benchmark index to its biggest decline since June, as slumping commodity prices heightened concern the global recession will hurt the world’s fastest-growing major economy. But as a managed currency, the downside in the yuan is limited. CYB is a safe haven BUY.

The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) pulled back from its record highs last Wednesday even as the British pound sterling tumbled down to $1.46 last week before correcting to the $1.50 level. Nevertheless, thanks to large interest rate differentials between the U.S. dollar and foreign currencies, combined with the relative weakness of foreign economies, the bullish trend for the dollar against this basket of six currencies remains firmly in place. DXDBX remains a BUY.

The Market Vectors Double Short Euro ETN (DRR) rose yesterday as the U.S. dollar edged higher against the euro after U.S. capital inflows in October surged to their highest levels in nearly three years. The next point of resistance for the euro is 1.23 to the dollar. At that point, you can expect DRR to trade up around the $62.00 level. DRR is a BUY.

The CurrencyShares Japanese Yen Trust (FXY) broke through the $105 level last Wednesday before closing just above the $103 level yesterday. The yen continues to be a solid bet on the de-leveraging of the global economy through the unwinding of the “carry trade”. FXY is a BUY.

The Rydex Managed Futures Strategy Fund (RYMFX) was flat in its first week in the Global Stock Investor portfolio as the major trends in the managed futures sector — energy and currencies — were locked in a relatively tight trading range this week. This strategy is one of the very few that has made money this year, and has a very low correlation with the stock market. It remains a defensive BUY.

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There was little relief in global markets last week as they seemed to have little confidence that the G20 meeting over the weekend would offer major solutions to the current financial crisis. The Dow Jones Industrial Average ended down 5% for the week. The S&P lost 6.2%, while the Nasdaq fell 7.9%. European and Asian markets both fell about 8%. Latin America declined about 7.4%. Russia was down a whopping 25%.


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