Markets Continue their Relentless Rise

Nicholas Vardy

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

Last week was another solid one for stock markets across the globe, with the S&P 500 rising 1.19% and hitting a new record high. The MCSI Emerging Markets Index, however, was the star of the week, ending 2.97% higher.

Big gainers in your Alpha Investor Letter portfolio included your bet on private equity, PowerShares Global Listed Private Equity Portfolio ETF (PSP), up 3.16%. Japan continued its winning ways, with WisdomTree Japan SmallCap Dividend ETF (DFJ) up 2.92%. Two real estate bets — Two Harbors (TWO) and Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) — each ended the week in the plus column, up 2.13% and 2.00%, respectively.

Despite my own skepticism, and some bearish indicators, the incessant buying pressure in markets still shows no signs of ebbing. And this past week, the S&P 500 looks like it has broken out to the upside through resistance at the far right edge of a massive “triple top,” stretching all the way back to March 2000 and October 2007.

Yet, with weak seasonality in the market approaching — remember the old adage “sell in May and go away” — I am still reluctant to throw my hat into the bull ring. Earnings in the U.S. market are slowing. The euro zone’s problems could flare up at any moment. And there is always the danger of a “Black Swan” event that could throw markets off kilter.

At the same time, it is hard to argue with the markets’ momentum. Thanks to a recovery in emerging markets, a number of the positions on your watch list — which includes positions in Indonesia, Hong Kong, Singapore and Turkey — are now trading above their 50-day moving averages and are technically “buys.”

In fact, emerging markets — as measured by WisdomTree Emerging Markets SmallCap Dividend Index (DGS) and MCSI Emerging Markets Index (EEM) — had their best month of 2013 in April. This indicates that risk appetite is increasing. Nevertheless, with all but one of your current watch positions still in a trading range, I am holding off recommending that you re-enter these positions for now.

I’ll have a better feel for Asian markets after I return from traveling to Singapore for the annual CFA Society conference later this month. (The Chartered Financial Analyst designation, or CFA charter, is the world’s premier investment management qualification, which I earned in 1997.)

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In a sign of Asia’s rise, this is the first time in its 66-year history that the CFA Society is holding its annual conference outside of the United States. Ironically, the conference will be held in a hotel and casino built by former Alpha Investor Letter recommendation Las Vegas Sands (LVS).

While in Singapore, I’ll also be appearing on CNBC Asia on Monday, May 20.

Portfolio Update

Berkshire Hathaway (BRK-B) hit its 52-week high once again last week and then dipped 0.34%. Over the years, the occasional news report has surfaced recounting the McDonald’s lunch outings of Warren Buffett and pal Bill Gates, to share their love of burgers. (Warren normally had a coupon, too.) In a news report released just yesterday, Mr. Buffett was referred to as the “Master of Ketchup,” as Berkshire Hathaway’s recent acquisition of H. J. Heinz (HNZ) just became official by a shareholders’ vote. BRK-B is a BUY.

Visa Inc. (V) gained 1.69% last week. Visa, Inc. will report earnings today after markets close. Visa has beaten Wall Street’s expectations every single quarter since 2008, by an average margin of 7.2%. There’s been only a single exception. V is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) jumped 3.16% last week after breaching the twice-tested $11.50 resistance level. Having just closed the April books on the “Ivy Plus” Investment Program at Global Guru Capital, I can’t help but notice the hefty 16.2% year-to-date gain you share with my clients via this global private equity exchange-traded fund. Your position in PSP is now up a whopping 30.67% since its purchase. PSP is a BUY.

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WisdomTree Japan SmallCap Dividend ETF (DFJ) rose 2.92%. Japan’s small cap sector continued higher last week, hitting yet another 52-week high. Although news reports have dwindled over recent weeks regarding the aggressive Japanese stimulus efforts, Japan’s economic recovery is alive and well, as reflected in the positive performance of your Japanese holdings. DFJ is a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) rose 2.00% over the past five trading days to hit yet another 52-week high. The bullish turn in emerging markets is reflected in the recovery of the real estate across many of these diverse markets. Couple this resurgence with the stellar gains in the U.S. housing markets, and I expect VNQI to continue its vigorous move higher. VNQI is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) rose 1.38% last week. WOOD is participating well in the commodities recovery. Adding to your position at the 100-day moving average (MA) as I recommended has been a profitable move thus far. I expect timber to continue higher as both the commodity and housing recoveries push this position upwards. WOOD is a BUY.

WisdomTree Japan Hedged Equity (DXJ) rose early in the week and briefly hit a new 52-week high, only to dip and end the week perfectly flat. The devaluation of the yen has slowed of late, due to uncertainty surrounding the recent U.S. Federal Reserve meeting, and new policies that may affect the dollar. DXJ is a BUY.

WisdomTree Emerging Markets SmallCap Dividend Index (DGS) gained 1.80% and is moving up through the $52.00 resistance level. The positive developments in emerging markets are also reflected similarly in the iShares MSCI Emerging Markets (EEM) fund, which recently made a definitive move above its 50-day MA and $42.75 resistance level as well. As I expected when I recommended DGS two months ago, emerging markets have begun to firm up quite a bit over the past week. DGS is a BUY.

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Silver Bay Realty Trust (SBY) lost 2.90%. SBY ended the week by coming to rest at the $19.00 resistance level. SBY has rallied back to $22.00 each of the past two times it has touched the $19.00 level. This represents a 16% move. SBY will report earnings on May 6 after markets close. SBY is a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) ended the week flat, after hitting a new 52-week high last week. Several of the major European exchange-traded funds are now above both their 50-day and 200-day MAs, painting a bullish picture for recovering European markets. EIRL is a BUY.

Two Harbors (TWO) gained 2.13% last week. TWO is rebounding towards its 50-day MA and may move back to a “Buy” next week. TWO published a press release Monday outlining the specifics of tax basis information on the distribution of your SBY common stock as a special dividend, which you can read here. TWO will report this as receipt of a “dividend distribution,” for U.S. federal income tax purposes, equal to the SBY fair market value/closing price on April 24 of $19.40 per share. TWO will also report earnings on May 7, after markets close. TWO is under its 50-day MA and is a HOLD.

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