Betting on the Japanese Bull Market

Nicholas Vardy

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

The S&P 500 was up 2.17% this past week, as the Dow Jones Industrial Average (DJIA) hit new record nominal highs. The MCSI Emerging Markets Index also recovered and was up 1.89%.

Big gainers in your Bull Market Alert portfolio included Bank of Ireland (IRE), soaring 17.32%, Northern Tier Energy Trust LP (NTI), rising 6.47%, and Banco Santander, S.A. (SAN), jumping 3.87%. As a result, Bank of Ireland (IRE) moved back to a BUY.

Bank of Ireland (IRE) has soared 37.54% this year, while the National Bank of Greece (NBG) has fallen 35.20%. I continue to believe that Bank of Ireland (IRE) will be a big winner, as the Irish economy recovers. The same argument applies to your current position in Banco Santander (SAN). But I’m throwing in the towel on National Bank of Greece and recommending that you sell out your position at a loss after Friday’s 10.48% pop in the stock.

This week’s Bull Market Alert recommendation, which revisits an earlier, leveraged bet on Japan through the ProShares Ultra MSCI Japan (EZJ), is inspired by a note I received late last night from one of my contacts in Japan who spent many years as a senior official at Bank of Japan, Japan’s notoriously secretive central bank. He was commenting on what I had written in last week’s The Global Guru, entitled “How to Make 40% in 2013 on the Japanese Market Rally.”

Here is what he wrote:

“We should be able to aim at least quadruple-digit growth (i.e. 1,000% or a 10 bagger) rather than triple-digit growth.

“Please remember, ABE-nomics is a.k.a. ‘Asset Bubble Economy’ will help Japan to emerge from deflationary spiral and sub-zero growth for the last two decades.

“Inflating the equity market… (by the force of BoJ’s indiscriminate purchases of any assets –- e.g. equities, ETFs, REITs and even foreign bonds) is the only way to help Japan’s elderly population fund their post-retirement/pensions.

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“(New BoJ head) Haruhiko Kuroda was the second best choice, while Iwata (Kazu) as a deputy should work… to stimulate… a massive reflationary drive.”

Sure enough, this morning, declaring that “speed is important,” Kuroda said he would do “whatever it takes” to hit the Bank of Japan’s inflation target of 2% — even though the economy has rarely seen that level of inflation since the early 1990s.

As my contact summed up, “2013 (the year of snake) is a wonderful year!”

So buy ProShares Ultra MSCI Japan (EZJ) at market today, and place your stop at $61.50. If you want to play this investment with leverage, I recommend the August $45 call options on WisdomTree Japan Hedged Equity (DXJ) DXJ130817C00045000.

You also can buy the WisdomTree Japan Hedged Equity Fund (DXJ) directly, which is a current recommendation in my Alpha Investor Letter investment service.

Portfolio Update

Bank of Ireland (IRE) shot up 17.32% last week after reporting less-than-expected losses for 2012. Bank of Ireland also cited lower loan impairment charges and expected this trend to continue into 2013. IRE further reported seeing “green shoots” in the Irish economic recovery, and noticed consumers starting to look into financing for home purchases as the real estate market stabilizes. Ending its brief dip below the 50-day moving average, IRE is now back to a BUY.

Qihoo 360 Technology (QIHU) closed the week flat despite a very positive earnings report. QIHU reported figures last Wednesday of $0.22 earnings-per-share (EPS) vs. an estimated $0.17 EPS. This performance is a 10% jump from the same quarter year-over-year. Revenue was $103 million vs. an estimated $93.68 million. The earnings beat prompted analysts at Stifel Nicolaus and Bank of America to raise their price targets to $41.00 and $41.40, respectively, a 28% jump from Friday’s close. QIHU is a BUY.

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Fomento Economico Mexicano SAB (FMX) closed the week flat. The bullish case for FMX remains intact, as growth forecasts look strong. FMX’s retail outlets, named OXXO, experienced a 16% jump in revenue growth last quarter, with the company opening nearly three new stores every day. Population studies indicate that FMX could double the number of locations in central Mexico, and triple its locations in the southeast part of the country, and still maintain individual location profitability. FMX is a BUY.

Banco Santander, S.A. (SAN) gained 3.87% during the past five trading days. After a difficult start in your portfolio, SAN appears to be making an upwards turn. SAN is another position that is benefitting from the recent European Central Bank’s decision to hold rates steady. Friday’s improved U.S. unemployment numbers also had a positive effect on European markets and on banking stocks in particular, helping push SAN higher last week. SAN is a HOLD.

Market Vectors Vietnam ETF (VNM) closed flat, spending most of the week below the 50-day moving average, but managing to close Friday just above that mark. Foreign buyers also continued to pour money into Vietnam markets, ending the week as net buyers on both the Hanoi and Hochiminh stock exchanges. VNM is a BUY.

Northern Tier Energy Trust LP (NTI) jumped on Monday and held on to close the week with an impressive 6.47% gain. Monday’s pop allowed you to sell half of your stock position for a quick 10.21% gain and half of your option position for a profit of 72.97%. Credit Suisse also reinstated coverage on NTI, issuing an “Outperform” rating and a price target of $34 per share — more than 8% above Friday’s close. NTI will report earnings on March 14 before markets open. NTI is a BUY.

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Novo Nordisk A/S (NVO) ended flat for its first week in your portfolio. Novo Nordisk announced an interesting partnership last week with popular Food Network cooking star Paula Deen. After suffering a diabetes diagnosis last year, Ms. Deen is bringing a healthy new approach to her considerable audience and including NVO as a donating sponsor to several large diabetes organizations. This outreach should translate into significant new awareness of NVO’s diabetes-related product lines. NVO is a BUY.

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