Steadying Markets, Historically a Bullish Week Ahead

Nicholas Vardy

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

*** The following post has been amended. iShares Singapore Index ETF (EWS) was inadvertently included in the portfolio update after being stopped out of the position on November 16, 2012 when the email was first distributed.***

Global stock markets appear to have regained their footing, following last week’s dismal sell-off. Bargain buyers have stepped in and major stock indexes are holding above key support levels. The S&P 500 rose 0.97% over the past five days and the MSCI Emerging Markets Index ended the week 0.64% higher.

Your Alpha Investor Letter portfolio continued to outperform. Housing builder Lennar (LEN) led the way with a gain of 5.22%, as investors were happy to see better-than-expected existing home sales. Visa (V) hit yet another 52-week high, and is up a whopping 51.76% since my initial recommendation. Lennar (LEN), iShares JPMorgan USD Emerging Markets Bond (EMB), iShares Nasdaq Biotechnology (IBB) and Berkshire Hathaway (BRK-B) all boast double-digit percentage gains.

If we look at recent history, the markets should continue to recover. According to sentimentrader.com, the day prior to the Thanksgiving holiday has been positive 77% of the time since 1950 — largely thanks to a perfect record from 1965-1986. More recently, the market has been positive eight of the last 10 years. Over the past 20 years, the stretch from the day prior to Thanksgiving through the third day in December has been positive 17 out of 20 times (with one of those losses being negligible). It would be a welcome respite from what has so far been a tough November.

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Overall, I am still hopeful that the so-far-elusive Q4 seasonal effect will kick in for the remainder of the year and that we will end on a high note.

I also wanted to wish you and yours a Happy Thanksgiving. I’ll be celebrating it here in London with a group a friends. As befits a global city like London, I’ll be the only American present, alongside a Frenchman, a Brit, a Pole, a Dutchman, a Hungarian and a Romanian.

Portfolio Update

MSCI Malaysia Index (EWM) lost 0.34% this past week. Malaysia’s economy grew a better-than-expected 5.2% in the third quarter as domestic demand continued to compensate for a slowdown in exports, the government said Friday. Trading below its 50-day moving average, EWM is a HOLD.

iShares JPMorgan USD Emerg Markets Bond (EMB)
rose 0.05%. This ETF continues to be remarkably popular, attracting $144.7 million dollar inflow just last week. EMB is a BUY.

Berkshire Hathaway (BRK-B) rose 1.07% for the week. Berkshire Hathaway purchased new stakes in Deere & Company (DE), Precision Castparts (PCP) and Wabco (WBC), according to Securities and Exchange Commission filings released Wednesday afternoon. Deere is the well-known maker of tractors and other farm equipment. Precision Castparts makes the nuts and bolts used in aircrafts, trucks and heavy machinery. Wabco builds brakes and internal systems for cars and trucks. BRK-B is a HOLD.

Visa Inc. (V) jumped 2.07%. Visa’s stock hit a new 52-week high yesterday and it remains a BUY.

iShares Nasdaq Biotechnology (IBB) rose 2.96%. This ETF has started to bounce, after attracting $59.5 million dollar inflow just last week. IBB is a HOLD.

WisdomTree Japan SmallCap Dividend ETF (DFJ) rose 2.38% over the past week. The Japanese market climbed to a two-month high, with exporters gaining after the yen hit a seven-month low against the dollar on expectations that a new government will aggressively push the Bank of Japan to expand monetary stimulus. DFJ is now a BUY.

Market Vectors Indonesia Index ETF (IDX)
fell 0.72%. Cement sales in Indonesia, an indicator of economic growth, rose 10.7% on an annual basis in October. IDX is a BUY.

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PowerShares Global Listed Private Equity Portfolio ETF (PSP) gained 1.18%. Bouncing off of its lows, PSP is a HOLD.

Statoil ASA (STO) rose 2.33%. It has significantly enhanced oil recovery at its Peregrino field through the use of new technology. The company currently estimates augmented production volumes from the field to be in the range of 300 million to 600 million barrels. STO remains a HOLD.

Lennar Corp. (LEN) jumped 5.22% last week. Housing starts rose to an annualized rate of 894,000 last month, up 3.6% from September and the best since July 2008. Lennar also topped analysts’ estimates, despite the late-month ravages of “Superstorm Sandy.” Your bet on the U.S. housing recovery is a BUY.

iShares MSCI South Korea Index Fund ETF (EWY) jumped 2.12%. EWY crossed back above its 200-day moving average. Bouncing off of this critical level, EWY is a BUY.

iShares MSCI Mexico Investable Market Index (EWW)
jumped 2.08%. This ETF offers a sampling of global stocks such as CEMEX, the cement company, and Grupo Modelo, the beer producer. Slightly below its 50-day moving average, EWW is a BUY.

Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) jumped 3.52%. The company reported earnings for the first nine months of 2012 of $507.4 million (US$1.93 per ADR), an increase of 31.2% with respect to the same period of 2011. Gross margin reached US$794.3 million (43.4% of revenues), 24.3% higher than the US$638.9 million (39.8% of revenues) recorded during the first nine months of 2011. Revenues totaled US$1,828.2 million for the first nine months, representing an increase of 13.8% over the US$1,606.4 million reported in the same period of 2011. SQM remains a HOLD.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI)
rose another 1.09%. Many foreign real estate companies are growing faster than their typical U.S. counterparts. In addition, global stocks pay relatively rich dividends. At a time when the FTSE NAREIT index of U.S. real estate investment trusts yields 3.4%, yields of 6% are common in Australia and other countries. VNQI is a BUY.

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Stratasys (SSYS) rose 2.01%. With 3D printing the biggest industry disrupter we’ve seen since the personal computer, this is a sector you want to keep an eye on. Trading above its 50-day MA, SSYS remains a BUY.

iShares MSCI Turkey Invest Mkt Index (TUR) traded broadly flat in the first week in the portfolio. With a second investment-grade upgrade around the corner, you want to be in this ETF before that happens. TUR remains a BUY.

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