No Sign of ‘Sell in May and Go Away’

It was yet another strong week in U.S. markets. The S&P 500 jumped 1.14% to match exactly the gains in the Nasdaq. Global markets were more subdued, as the MCSI Emerging Markets Index rose a mere 0.16%.

The biggest gainer in your Alpha Investor Letter portfolio was the Wisdom Tree Japan Hedged Equity (DXJ), soaring 3.64%. You see the impact of currency as the WisdomTree Japan SmallCap Dividend ETF (DFJ) actually fell 1.25% over the same period thanks to a devaluing yen.

Your bet on the Irish recovery — the iShares MSCI Ireland Capped Investable Market Index (EIRL) — hit a new 52-week high as well, ending the week 2.03% higher.

Your bets on U.S. real estate, however, are having a tougher time. You were stopped out of Silver Bay Realty Trust Corp. (SBY). Note that this wasn’t really “a loss,” since you were issued the stock as dividend from Two Harbors Investment Corp. (TWO), which itself also dropped 2.78%.

This morning, I heard two interesting talks on the closing day of the CFA Institute conference here in Singapore.

First, there was J. Kyle Bass, who is making his name in the media as a prominent Japan bear. He regaled the audience with endless statistics to convince us that the Japanese bull run and so-called “Abenomics” are but a mirage.

Bass is certainly a man of his convictions. He is one of very few hedge fund managers who is not long on Japan. And it must not be easy missing out on the kind of big gains in Japan you have seen in your Alpha Investor Letter recommendations.

I did find it curious that for all his vociferous arguments, Bass admitted that he would only lose 100 basis points (1%) in his fund if he is wrong about Japan’s coming collapse.

That suggests to me that Bass has purchased very cheap, out of the money put options on the Japanese market.

If I’m cynical, his shtick is all about clever marketing for his fund.

If Bass is right, he’ll be hailed a “genius” — and investors will throw money at him, as they did with John Paulson.

If Bass is wrong… well, he never really risked that much in the first place.

Next up was George Friedman, the head of Strategic consultancy Stratfor, who provided a much more historical, geopolitical context on the state of the world. To summarize:

The United States will be fine, thanks to the coming North American energy independence.

The future of Europe and the European Union are in Germany’s hands, even as it cozies to Russia.

After a debt-fueled economic expansion, China will end up much like Japan has over the past 20 years. What happens afterward in Asia is still unclear.

Finally, I did a short interview on CNBC Asia here yesterday. I spoke about Mexico as “the China Next Door” for the United States — a theme we explored last summer here at the Alpha Investor Letter. I’ll post the interview at some point if I can gain access to it.

You also can read about some of my impressions of Singapore in yesterday’s issue of The Global Guru entitled “Singapore: Asia’s Politically Incorrect Success Story”.

But for now, I am readying myself for a long 13-hour direct flight to London, even as storm clouds gather over Singapore.

Portfolio Update

Berkshire Hathaway (BRK-B) closed the week flat but still managed to hit yet another new 52-week high. Berkshire Hathaway is currently valued at 1.39 times its book value. Several months ago, Mr. Buffett himself stated that he felt 1.2 times book value was a good “stock buyback threshold.” Therefore, based on Buffett’s own numbers, BRK-B could still be classified as relatively inexpensive and have more room to run upwards. BRK-B is a BUY.

Visa Inc. (V) rose 0.68%. V hit yet another new 52-week high last week. Analysts at Nomura maintained their “Buy” rating on Visa late last week and increased their price target from $187.00 to $220.00. This represents a 21% increase from yesterday’s closing price. Already up 90% since my initial recommendation, this is on its way to becoming a triple-digit percentage winner in your portfolio. V is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) added 0.85% over the past five trading days. Mitt Romney, whose name became synonymous with private equity, recently accepted positions at his son’s private equity firm, Solamere Capital, as chairman of its executive committee and a member of its investment committee. Mitt’s son, Tagg Romney, commented that Mitt’s insights would be a “large benefit” to Solamere’s investors. Having met both of them in London this past summer, I would tend to agree. PSP is a BUY.

WisdomTree Japan SmallCap Dividend ETF (DFJ) dipped 1.25%. Although DFJ is coming off of a slight pullback, fund inflows have been on a tear lately as investors continue to pile into the Japanese bull market. Fund inflows jumped nearly 20% week-over-week earlier this month, signaling that the rally is likely to continue. DFJ is a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) ended the week flat. With many of the domestic real estate exchange-traded funds (ETFs) trading at five-year highs, VNQI still has much to offer investors from a global standpoint. VNQI offers exposure to a wide range of global real estate markets and presents a lower valuation, a higher dividend and much more room for growth. VNQI is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) rose 0.58% last week. WOOD continued its sideways trading again last week, even while managing to hit a new 52-week high. WOOD appears to be readying for a move higher. WOOD is a BUY.

WisdomTree Japan Hedged Equity (DXJ) climbed 3.64% last week. This star performer in your Alpha Investor Letter portfolio continued to deliver terrific gains again last week, hitting yet another 52-week high. DXJ is up 31% since you first acquired your position back in mid-February. DXJ is a BUY.

WisdomTree Emerging Markets SmallCap Dividend Index (DGS) traded sideways last week, ending the week flat, as it continued to try to find direction. DGS puts you in a good position to capture gains once emerging markets do take off. DGS has consistently delivered both lower volatility and higher returns compared to the large cap MSCI Emerging Markets Index (EEM). DGS is a BUY.

Two Harbors (TWO) lost 2.78%. Despite its recent positive earnings report, TWO dipped again last week to its well-tested $11.50 support level. TWO’s dividend is a great insurance policy against downside, as it already has paid out $1.33 per share this year. TWO could easily deliver 2013 dividends totaling over $2.00 per share. This would represent a yield of 17%. TWO is a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) popped early this week, adding 2.03% and hitting a new 52-week high. Ireland continues to see “green shoots” in its recovering economy, and the strong performance of the Irish stock market underscores this trend. Remember, stock markets tend to recover far faster and well ahead of the underlying “real” economy, as is evidenced by our own bull market run here in the United States. Your bet on the Irish recovery remains a BUY.

MSCI Singapore Small Cap Fund (EWSS) dipped 1.35% over the past five trading days. Singapore remains as a “sweet spot” in the Asian economic landscape, as I’m finding out first hand during my stay here this week. EWSS is a BUY.

Latest Special Reports

As a courtesy, I want to bring to your attention three of my latest special reports, 3 Ways to Double Your Money While El Toro Slays the Dragon, The “Other China”: Let 60 Million Overseas Chinese Make You Rich and Ivy League Moneymakers: How to Play the Hottest “Megatrends” of 2013 and Beyond. Each of these FREE reports gives excellent investment information on a key segment of the market.

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