Mixed Week in Markets in Face of Government Shutdown

Nicholas Vardy

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

It was a mixed week in U.S. markets with the Dow Jones down 0.93%, S&P 500 dropping 0.14% and the NASDAQ jumping 1.32%. The MCSI Emerging Markets Index fell 0.72%.

Big gainers in your Alpha Investor Letter portfolio were the Market Vectors Biotech ETF (BBH), which added 2.63%, the Guggenheim Spin-Off (CSD), which rose 1.26%, and the ProShares Ultra-Short 20+ Year Treasury (TBT), which jumped 1.12%.

Despite the market sell-off in the past two weeks, 13 out of your current 15 Alpha Investor Letter positions are profitable, once you take into account dividend payments from PowerShares Global Listed Private Equity (PSP).

I also want to highlight, in particular, the strong performance of your three specialist “Buffett Beating” strategies — the Guggenheim Spin-Off (CSD), PowerShares Buyback Achievers (PKW) and the First Trust US IPO Index (FPX). Their performance continues to trounce the Oracle of Omaha.

The big news in U.S. stock markets this week is Tuesday’s government shutdown. Whatever your views about the politics on the issue, the impact of government shutdowns on stock markets is more ambiguous than you would think.

Most recently, the market went through this in 2011. On a day-to-day basis, the market was buffeted by the latest news from the latest behind-the-scenes negotiations.

During the relatively few days when the government shut down in the past, stocks traded a bit weaker than average.

That said, the situation was hardly dire.

After the government opened back up, there was (surprisingly) heavier selling pressure. Only in 35% of the cases did stocks actually rise.

The good news is that a month later, stocks had mostly rebounded.

Overall, the market seems to view the shenanigans in Washington as a sideshow to what happens in financial markets. All of this puts us on track for traditional Q4 rally in the markets.

As I noted in a recent issue of The Global Guru, I expect global and emerging markets to lead the charge.

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Portfolio Update

Berkshire Hathaway (BRK-B) dipped 0.79% last week. Goldman Sachs is the most iconic name in investment banking, and Warren Buffett owns a piece of the pie. Buffett exercised a warrant agreement on Monday, bringing his ownership stake to 2.9%. That equates to 13.1 million shares, totaling $2.15 billion, making him the sixth-largest stakeholder in Goldman Sachs. BRK-B is just below its 50-day moving average (MA) and remains a HOLD.

Visa Inc. (V) closed the week flat. Visa, along with MasterCard and American Express, are working together to create a new global standard in the world of digital payments. This move will simplify online payments, and increase security, in a purchasing landscape that currently supports a full 6% of all global retail sales. V is a BUY.

iShares MSCI Ireland Capped Investable Market Index (EIRL) added 0.63% last week. Ireland’s high birthrate is but one more arrow in Ireland’s economic quiver of recovery. In fact, Ireland has the highest birthrate in the entire European Union. This ensures that the Irish economy will have a healthy consumer base in the coming decades, with a diverse spread of economic needs and a large workforce to produce all of these goods. EIRL is a BUY.

iShares MSCI Singapore Small Cap Fund (EWSS) gained 0.49%. EWSS is taking a breather from its recent run, trading sideways last week directly along its 200-day MA. EWSS appears likely to move higher above this substantial line-in-the-sand, and this will form a very solid support level for a rise in EWSS. EWSS is a BUY.

Google Inc. (GOOG) ended the week flat, coming to rest just above its 50-day MA. Google recently captured the second-place spot in Interbrand’s annual list of the “most valuable brands of the year.” Not surprisingly, Apple took the number-one spot. Together, these two masters of the digital age managed to push the iconic Coca-Cola brand from its long-held number-one spot, down to third place. Google will report earnings on Oct. 17 after markets close. GOOG is a BUY.

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WisdomTree Japan Hedged Equity (DXJ) gave back 2.02% last week. Japanese Prime Minister Shinzo Abe recently announced a new $50 billion stimulus package — a move that should further weaken the Japanese currency and create a tailwind for DXJ. This past week, the Japanese yen drifted further below its recent one-month low. DXJ is a BUY.

Guggenheim Spin-Off (CSD) gained 1.26% over the previous week. CSD has been trading since 2006, attempting to capture gains from the lucrative practice of spinning-off portions of corporations. CSD has managed to beat the S&P 500 index every year, with the exception of 2008, and is on track to make 2013 another winning year, as it is up 35% year-to-date. CSD is a BUY.

PowerShares Buyback Achievers (PKW) rose 0.74%. PKW holds positions in nearly 200 corporations at any given time, making this the most diversified of my “Buffett Beating” strategies. You can see my recent MarketWatch.com column about this buyback investment powerhouse and your other “Buffett Beating” strategies by clicking here. PKW is a BUY.

First Trust US IPO Index (FPX) rose 0.94%. FPX took a healthy bounce yesterday, on above average volume, as it moved up to re-test its recent 52-week high. A break above $42 spells bullish days ahead. FPX is a BUY.

WisdomTree Japan SmallCap Dividend (DFJ) traded flat over the previous five trading days. Japanese Prime Minister Shinzo Abe made recent comments about plans to cut Japan’s corporate tax rate — a move that would further bolster Japanese small-cap corporations. DFJ is a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) closed the week flat. VNQI recently jumped above its 200-day MA in a convincing show of strength. VNQI then spent the past week slowly drifting back, only to turn higher once again. VNQI’s 200-day MA may just be the floor this exchange-traded fund has been looking for to support a rise in its share price. VNQI is a BUY.

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iShares S&P Global Timber & Forestry Index (WOOD) continued a sideways trading pattern last week, managing a 0.21% gain. Investing in timber was once an esoteric investment class reserved only for large institutional investors. However, WOOD allows even the smallest of investors to profit from “money growing on trees.” WOOD is a BUY.

PowerShares Global Listed Private Equity (PSP) gained 0.96%. The Fed’s recent decision to put off its “tapering” plan is good news for PSP investors, as lower interest rates support private equity ventures. Private equity funds have already raised a staggering $304 billion in 2013. PSP is just under its 50-day MA and is a HOLD.

Market Vectors Biotech ETF (BBH) added 2.63% last week. The recent pullback in BBH proved to be an excellent buy point as biotech investors rushed back in last week to buy the dip. BBH is moving upwards and back to its recent 52-week high, and remains a BUY.

ProShares Ultra-Short 20+ Year Treasury (TBT) gained 1.12%. TBT recovered some ground last week after the recent Fed decision not to taper hit this bet on rising interest rates hard. However, TBT appears to be stabilizing, as the inevitable rise in interest rates will sustain this fund for many years to come. TBT is a HOLD.

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