Little Fear of Falling off ‘The Fiscal Cliff’

Nicholas Vardy

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

The past week was a solid one in global stock markets, as a year-end Santa Claus rally continues to take hold. The S&P 500 ended the week 1.33% higher, the NASDAQ was up 1.07%, while the MSCI Emerging Market Index rose 0.65%.

Asian stocks rose overnight and the euro hit multi-month highs, as signs of progress in resolving the U.S. “fiscal cliff” budget crisis combined with expectations of more aggressive monetary stimulus from the Bank of Japan to lift riskier assets across the globe. Overall, global stock markets are ending the year on a traditionally strong note, as they show little fear of falling off the U.S. fiscal cliff.

The top performer in your Alpha Investor Letter portfolio this week was Lennar Corp (LEN), which jumped 9.06% on improving news from the U.S. housing market. Your bet on the U.S. housing recovery is now up 31.93% since my initial recommendation on July 23. Other big gainers included Stratasys (SSYS), up 4.54%, Berkshire Hathaway (BRK-B), rising 3.55% and PowerShares Global Listed Private Equity Portfolio ETF (PSP), climbing 2.42%. Market Vectors Indonesia Index ETF (IDX) crossed above its 50-day moving average and moved to a BUY. All of your positions are a BUY with the exception of Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM), which is just pennies from rising above its 50-day moving average.

The top performer in your Alpha Investor Letter portfolio is Visa Inc. (V), which is now up 56.30% since my initial recommendation. All but one of your positions is profitable. You have a bevy of other double-digit percentage gainers  in your Alpha Investor Letter portfolio, including MSCI Malaysia Index (EWM), iShares JPMorgan USD Emerg Markets Bond (EMB), iShares MSCI Mexico Investable Market Index (EWW), Berkshire Hathaway (BRK-B), Stratasys (SSYS), PowerShares Global Listed Private Equity Portfolio ETF (PSP) and iShares MSCI South Korea Index Fund ETF (EWY).

Overall, I expect your emerging markets positions, particularly iShares MSCI Turkey Index Fund (TUR) and iShares MSCI Mexico Investable Market Index (EWW), to continue to perform particularly strongly in the coming months. I also expect your two big “asset class” bets on Vanguard Global ex-U.S. Real Estate Index Fund (VNQI)) and the S&P Global Timber & Forestry Index Fund (WOOD) to do very well as we move into 2013.

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After my current stint in Budapest, Hungary, I’ll be traveling to Turkey at the end of December where I  will be spending New Year’s Eve. I am looking forward to catching up with my business contacts there from the days when I covered Turkey as a mutual fund manager. As you may recall from my recommendation of iShares MSCI Turkey Index Fund (TUR) two months ago in The Alpha Investor Letter, Turkey has been than fastest-growing economy in the developed world over the past decade or so. And my friends tell me that in contrast to most of Europe, Istanbul has a boom-town feel to it. One hedge fund manager who lived in Shanghai for many year described it to me as having a similar feel as China.

I also want to wish you and yours Happy Holidays and a Happy New Year. I’ll be taking the next week off but I look forward to reconnecting with you with my next update on Jan. 2.

Portfolio Update

MSCI Malaysia Index (EWM) dipped 0.47% over the past five trading days. Europe continues to struggle with its financial woes as U.S. investors are sweating over the “fiscal cliff.” However, China and the broader Asia-Pacific region have been coming on strong lately and Malaysia continues to be a sweet spot for investment capital. EWM is a BUY.

iShares JPMorgan USD Emerg Markets Bond (EMB) ended the week flat. The boom in emerging market funds over the past few weeks has gently slowed the “fear trade” into emerging bonds. However, the prospects of good, stable yield never get old and I expect investors will continue to seek this “golden goose” in an effort to balance equity risk within their portfolios. EMB is a BUY.

Berkshire Hathaway (BRK-B) jumped 3.55%. Berkshire Hathaway had a fantastic week last week as it purchased $1.2 billion worth of its favorite stock — Berkshire Hathaway itself. Stock buybacks are always good news, and are even better news when Warren Buffett is buying back his own own stock. BRK-B is a BUY.

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Visa Inc. (V) rose 1.22%. As if massive holiday transaction volume wasn’t already good news for V, a recent Visa survey found that a whopping 73% of gift buyers still have more purchases to make before Christmas arrives. Visa not only hit another 52-week high last week, but also managed to breach its previous short-term $150 support level. V is a BUY.

Market Vectors Indonesia Index ETF (IDX) added 1.18% for the week. Although emerging markets are enjoying broad-based bullishness, IDX has stubbornly continued to trade sideways. But Indonesia should pick up as other popular emerging markets become overbought. IDX is a BUY.

WisdomTree Japan SmallCap Dividend ETF (DFJ) gained 1.44% over the past week. Japan has become the big news in recent days as the Nikkei finally breached the 10,000 level — and this is beginning to reflect in DFJ’s stock price as well. DFJ leapt above the incredibly stubborn $43 price level for the first time since early June — something it has failed to do nearly a dozen times since that time. DFJ is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) rose 2.42%. As global economies continue to creep slowly back toward prosperity, one driving force always will be present — private equity. PSP is benefiting handsomely as private equity investors pounce on depressed investments worldwide in an effort to capture the upside from the previous year’s rebound. PSP is a BUY.

Lennar Corp (LEN) jumped 9.06% last week. LEN was the big winner in your portfolio this week as investors piled back into the oversold homebuilder sector. Lennar also announced a new and exciting iPad app called “myLennar” last week in an effort to leverage the mobile technology boom and coax new homebuyers to buy their own Lennar home. LEN is a BUY.

iShares MSCI South Korea Index Fund ETF (EWY) gained 0.84%. EWY hit a new 52-week high last Thursday after closing its fifth winning week in a row. EWY’s rise did slow somewhat so this could very well be a good time to add to your position. EWY is a BUY.

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iShares MSCI Mexico Investable Market Index (EWW) rose 1.79% over the past five trading days. As EWW closed its sixth winning week in a row, Mohamed El-Erian, the CEO of bond behemoth Pacific Investment Management Co. (PIMCO) pointed out that investment in foreign countries such as Brazil and Mexico is still going strong. He cited strong balance sheets and rapid economic expansion as positive reasons to invest. “The China Next Door” is a BUY.

Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) added 1.60% for the week. After a healthy jump-start two weeks ago, SQM traded sideways last week — bumping up against not only the 50-day moving average, but the weighty 200-day moving average as well. A break above this forceful line indicates a strong upside bias. SQM is just pennies short of the 50-day moving average and remains a HOLD.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 1.50% last week. In addition to the resurgence of domestic real estate, demand for foreign real estate also is strong and shows no signs of letting up for years to come. VNQI has gained, and posted new 52-week highs, for the past four consecutive weeks in your portfolio. VNQI is a BUY.

Stratasys (SSYS) added 4.54%. Scott Crump, Stratasys’s founder and chairman, was inducted into IndustryWeek magazine’s Hall of Fame last week for the amazing strides his company has made in the 3D-printing field. SSYS is a BUY.

iShares MSCI Turkey Index Fund (TUR) rose 1.31%. Turkey’s gains should continue well into next year as investors continue to discover this booming economic gem. I’ll be spending New Year’s Eve in Turkey’s capital, Istanbul, and I will report back to you in early January about what I learn. TUR is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) gained 1.77% for its first week in your portfolio. With homebuilders like Lennar (LEN) making a fierce economic comeback, your bet on increasing demand for timber will follow as well. WOOD is a BUY.

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