Fiscal Cliff Averted — And Big Gains for Global Stocks Continue

Nicholas Vardy

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

Overall, it was a flat market in the United States with the S&P 500 down 0.03% and the Dow Jones Industrial Average ending the week 0.27% lower. Global markets, however, continued their steady rise with the MCSI Emerging Markets Index jumping 2.71%.

Asian stock markets started the year in positive territory, hitting a five-month high overnight amid optimism surrounding the late-night vote in the House of Representatives to avert the $600 billion in tax rises and spending cuts set to kick in and potentially tip the United States back into recession.

While financial markets will breathe a collective sigh of relief over the short term, the deal has done little to alter the course of the U.S. government’s spending spree. While taxes have gone up, there were next to no cuts in spending. Overall, I agree with the assessment of Alan Simpson and Erskine Bowles of the Simpson-Bowles commission — whose bi-partisan budget cutting recommendations President Obama studiously ignored: “Washington missed this magic moment to do something big to reduce the deficit, reform our tax code and fix our entitlement programs.”

But then again, what else is new?

While U.S. markets were held hostage to the fiscal cliff last week, the news was better in your Alpha Investor Letter portfolio. The biggest gainer of the week was the Turkey Invest Mkt Index MSCI Ishares (TUR), which rose 3.04%. iShares MSCI South Korea Index Fund ETF (EWY) wasn’t far behind gaining 2.96%. Both hit new 52-week highs. Other big gainers include MSCI Malaysia Index (EWM), up 1.96%, Market Vectors Indonesia Index ETF (IDX), up 1.92%, Vanguard Global ex-U.S. Real Estate Index Fund (VNQI), up 1.78%, iShares MSCI Mexico Investable Market Index (EWW), up 1.75%, and PowerShares Global Listed Private Equity Portfolio ETF (PSP), up 1.71%.

You already have some big winners in your Alpha Investor Letter portfolio. Visa Inc. (V) is up 57.19% and Lennar Corp (LEN) is up 28.7%. Six of your other positions also boast at least double-digit percentage gains. All of your positions in the Alpha Investor Letter are showing profits except for Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM). And even that position has moved to a BUY this week, after crossing back above its 50-day moving average.

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On a personal note, I just returned from Turkey last night after spending New Year’s Eve in its bustling capital, Istanbul. You can read about my impressions about Turkey in yesterday’s Global Guru. As a sign of Turkey’s growing popularity among investors, EGShares is launching a small cap equities exchange traded fund (ETF) for companies domiciled in Turkey and that have a market capitalization between $100 million and $2 billion — arguably the most dynamic sector of this fast-growing economy.

I flew Turkish Airlines, which — to my surprise — has won “European Airline of the Year” for the past two years running. I also learned that a Turkish Airlines’ commercial featuring U.S. basketball star Kobe Bryant and Argentine soccer star Lionel Messi has become one of the most popular commercials in the world, with over 100 million views on YouTube.

In terms of my outlook for 2013, I expect that the period of relatively strong performance of the U.S. stock market, compared to global stock markets, is now over. As you see on the chart below, the U.S. S&P 500 has underperformed substantially the MSCI Emerging Markets Index over the past three months.

S&P500 Versus MSCI Emerging Markets Index

Yes, there will be pockets of strong performance in the United States in certain sectors like housing in 2013. But in general, I expect that your current high weighting in global markets, including the Turkeys, Mexicos and South Koreas of the world, are likely to be your better-performing investments in the year ahead.

Portfolio Update

MSCI Malaysia Index (EWM) rose 1.96% over the holiday-shortened four-day trading week. EWM has closed eight of the past 10 years in the black, and 2012 was no exception. The Southeast Asian region continues to hold some of the best global investment prospects for growth, and the outlook for 2013 remains positive. EWM is a BUY.

iShares JPMorgan USD Emerging Markets Bond (EMB) ended the week flat. A review of the monthly inflows to this exchange-traded fund (ETF), as well other ETFs in the same investment class, shows 2012 as the year of the emerging markets bond ETF. EMB has been a stable growth story in your portfolio and should perform well as global markets continue to recover. EMB is a BUY.

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Berkshire Hathaway (BRK-B) ended flat last week. Warren Buffett watchers have noticed the record $48 billion in cash that Berkshire Hathaway has on the books at present. This kind of ammunition likely means Buffett is preparing for some large acquisitions in 2013 — setting the stage for even more value-powered appreciation in the months ahead. BRK-B is a BUY.

Visa Inc. (V) ended the week flat, rising 0.26%. As reports surface reflecting the success of the holiday sales season, investors may feel compelled to buy up shares like Visa in an effort to capitalize on the massive holiday shopping spree. Visa will report earnings in a little over one month and show us the results of its holiday season. V is a BUY.

Market Vectors Indonesia Index ETF (IDX) added 1.92% for the week. IDX recently completed a positive test of the 200-day moving average — a level it has been toying with over recent months. The quick recovery is a bullish sign that investors may be “buying on the dips.” IDX is a HOLD.

WisdomTree Japan SmallCap Dividend ETF (DFJ) lost 0.59% over the past week. DFJ is on the rebound from a healthy pullback to the 20-day moving average after spiking higher over the past month. Recent volume levels are two to three times normal, showing rising interest in this exchange-traded fund. DFJ is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) rose 1.71%. Recent positive news surrounding the U.S. fiscal cliff deal finally may give the bulls a reason to run back to private equity. PSP is a BUY.

Lennar Corp (LEN) added 1.02% last week. UBS homebuilding analyst David Goldberg recently stated that he sees the housing recovery continuing into 2013. Zack’s also ranks LEN as a “2 – Short-term Buy.” LEN will report earnings on Jan. 15. LEN is a BUY.

iShares MSCI South Korea Index Fund ETF (EWY) gained 2.96%. After dipping slightly, investors rushed back into EWY on record volume of three million shares last Thursday and Friday, pushing EWY to a new 52-week high. Look for EWY to head higher into 2013. EWY is a BUY.

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iShares MSCI Mexico Investable Market Index (EWW) rose 1.75% over the past four trading days. Zack’s Investment Research released a recent report highlighting EWW as an excellent way to capitalize on the Mexican recovery. Zack’s also expects EWW to remain strong for the first part of 2013 and gives the fund its highest “1 – Strong Buy” rating. EWW is a BUY.

Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) was flat for the week. Although SQM suffered a recent miss on a large lithium contract, SQM is also a large producer of iodine and potassium nitrate — both important components in the production of fertilizer. SQM finally broke through its 50-day moving average and is now a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 1.78% last week. VNQI continued to gain steam last week after a recent drop from its 52-week high. Expect VNQI to continue its rise and test the $56 level once again within the next few weeks. VNQI is a BUY.

Stratasys (SSYS) dipped 0.74%. Piper Jaffray reiterated its “Overweight” rating on SSYS early last week as investors pushed the stock back up to within striking distance of its recent 52-week high. SSYS is a BUY.

iShares MSCI Turkey Index Fund (TUR) rose 3.02% last week. As I ring in the New Year from Turkey, I see investment prospects continuing to look positive for TUR going into 2013. Read my recent update about Turkey in yesterday’s Global Guru, for more perspective on this star performer. TUR is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) gained 0.80%. A recent CNBC year-end report listed lumber as the top commodity performer in 2012, rising a stellar 49.8%. The report also cited the housing recovery as a primary driving force for this rise and predicted the bullishness to continue through 2013. WOOD is a BUY.

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