Keep Calm and Carry on

Nicholas Vardy

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

Markets finally cracked yesterday with the Dow Jones falling 2.73% and the S&P 500 tumbling 2.33% for the week. Reflecting the newfound strength in global markets, the MCSI Emerging Markets Index ended the week down only 0.53%.

As a result, many of your Alpha Investor Letter portfolio positions dropped below their 50-day moving averages and moved to a HOLD.

The list of new HOLDs is long, and includes Visa Inc. (V), iShares MSCI Singapore Small Cap Fund (EWSS), Google Inc. (GOOG), Wisdom Tree Japan Hedged Equity (DXJ), PowerShares Buyback Achievers (PKW), WisdomTree Japan SmallCap Dividend (DFJ) and Market Vectors Biotech ETF (BBH).

Yesterday’s market action seems to have broken down the market’s last bit of resistance to accepting the reality of the current government shutdown, as the markets tumbled sharply.

Expect to see a lot of “chicken little” coverage in the financial media today.

That said, it is worth keeping the current market shutdown in perspective. It is now long forgotten that government shutdowns used to be much more a part of partisan brinkmanship in the past. Tip O’Neill, who happened to be my college graduation speaker, oversaw 12 such government shutdowns during his tenure as Democratic Speaker of the House.

With that in mind, it is worth recalling Warren Buffett’s dictum to “Be fearful when others are greedy, and be greedy when others are fearful.”

The last time markets were approaching the brink of default in August of 2011, Buffett was out there buying stocks with both hands.

His “biggest day of the year” as he put it in the Wall Street Journal? Aug. 8 — it was literally the day stocks bottomed.

While the resolution to the current stand-off remains unclear, with the hard deadline of Oct. 17 for government default looming, I believe the equivalent day for the current crisis is near.

In addition, all of my favorite technical indicators are also showing that the market is approaching the oversold levels which will offer the third big buying opportunity of the year. That also means that I’ll be buying selected stocks for my own personal portfolio in the coming days.

My best advice is precisely the opposite of that which President Obama gave in his recent speech — and best summed up by this motivational poster produced by the British government in 1939, several months before the beginning of the Second World War —

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Keep Calm and Carry On

Portfolio Update

Berkshire Hathaway (BRK-B) lost 2.43% last week. While the markets were falling apart back in 2009, Warren Buffett was out bargain hunting. The Wall Street Journal article recently reported that Buffett’s profits on his 2009 acquisitions stand at around $10 billion dollars. As he put it, “You make your best buys when people are overwhelmingly fearful.” BRK-B is below its 50-day moving average (MA) and remains a HOLD.

Visa Inc. (V) fell 5.53% over the past five trading days. Visa announced a partnership last Thursday with cloudBuy. This large United Kingdom-based eCommerce firm is extending a government and enterprise e-procurement system designed to simplify the sales and billing processes between buyers and sellers. Visa will serve as the primary payment solution for the system. Visa will report earnings on Oct. 30, after markets close. V is now a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) dipped 1.73%. EIRL fell slightly last week, but remained mostly sheltered from the extended market pullback the U.S. markets are currently suffering. The current dip may be a good buying opportunity, as gains will likely continue after the smoke clears in the U.S. markets. EIRL is a BUY.

iShares MSCI Singapore Small Cap Fund (EWSS) fell 8.84% last week. Singapore small cap funds also fell victim last week to the pullback in U.S. markets, popping a local small cap “mini-bubble.” Volatility is one of the hallmarks of small cap investing.  Movements like this are, unfortunately, to be expected. EWSS is now a HOLD.

Google Inc. (GOOG) ended the week 3.76% lower. Several weeks ago, I told you about Google’s new Chromecast product — a small $35 device that seamlessly “beams” content from nearly any mobile device (including Apple products) to a living room TV. Online television-streaming behemoth Hulu released an updated “Hulu Plus” mobile app last Wednesday that included support for the Chromecast device. Getting major players like Hulu onboard, as well as the already-available Netflix app, advances Google’s “Internet Television” effort by another major step. Industry experts expect several other major content providers to integrate support in the months ahead. The simple, seamless and inexpensive nature of the Chromecast device gives Google massive potential to compete against the previous-generation AppleTV and Roku devices. GOOG will report earnings on Oct. 17, after markets close. GOOG is just below its 50-day MA and is a HOLD.

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Wisdom Tree Japan Hedged Equity (DXJ) gave back 4.47% last week. The power of currency hedging is an extremely effective tool when applied to investment in a region that is purposefully weakening its currency. DXJ is up nearly 25% year-to-date, while its non-hedged sister fund, iShares MSCI Japan Index ETF (EWJ), notched a lower gain of 20%. DXJ is now a HOLD.

Guggenheim Spin-Off (CSD) gave back 3.17% over the previous week. When the president of the United States goes on television, looks into the camera and tells markets to “be afraid” — it can put a temporary damper on corporate dealings such as spin-off activities. As irresponsible as that is, it creates a buying opportunity for you, as corporations will resume their normal activities quite soon after Republicans and Democrats end their game of “chicken.” CSD remains a BUY.

PowerShares Buyback Achievers (PKW) dipped 2.91%. PKW traded in tandem with CSD last week. Ironically, the current market dip will also allow corporations to execute a portion of their stock buyback programs at lower prices, which will lead to bigger gains in the future. PKW is now a HOLD.

First Trust US IPO Index (FPX) gave back 3.68%. FPX will likely benefit from the coming Twitter initial public offering (IPO) — and markets received a little preview of coming attractions recently. Twitter announced that its proposed stock symbol would be “TWTR.” The next day, trading had to be halted for the small company named TWTR, Inc. (TWTRQ) after its stock price rose by 14 times its opening value. If this is any kind of a relevant indicator, the Twitter IPO will likely move the needle quote a bit when it opens for trading. FPX is a BUY.

WisdomTree Japan SmallCap Dividend (DFJ) fell 3.58%, coming to rest just pennies below its 50-day MA. The Bank of Japan’s monetary policy board released meeting minutes recently, showing agreement that the Japanese recovery is “proceeding well,” and at a “moderate pace.” The board also upgraded its economic stance from its previous assessment. DFJ is a HOLD.

Vanguard Global ex-US Real Estate ETF (VNQI) dipped 1.74% last week. VNQI is now resting on its 200-day MA. The Jones Lang LaSalle Capital Markets research team published a report recently showing that global real estate markets are exceeding 2013 expectations. Figures collected from 130 cities based in 60 countries revealed that first-quarter 2013 through third-quarter 2013 transaction volumes were up 16% year-over-year. VNQI is a BUY.

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iShares S&P Global Timber & Forestry Index (WOOD) fell 3.29% over the past five trading days, coming to rest just above its 50-day MA. Timber investing became more popular in the early 1990s when the Yale University endowment fund had great success investing in forestland. Fast-forward to today, and investing in lumber is as mainstream as  investing in any other commodity. WOOD is a BUY.

PowerShares Global Listed Private Equity (PSP) fell 1.73%. PSP has been trading sideways for three weeks now as shares consolidate from a recent pullback in the stock price. This consolidation, coupled with a rising 200-day MA directly below, equals a bullish stance for PSP going forward. PSP is just under its 50-day MA and is a HOLD.

Market Vectors Biotech ETF (BBH) fell 7.51%. Biotech has been holding up quite well in the face of the recent market correction. However, yesterday proved to be too much for the bulls and BBH pulled back sharply. In reality, the biotech sector is relatively immune to the government shutdown worries, and recovery should be brisk once the political fallout abates. BBH is now a HOLD.

ProShares Ultra-Short 20+ Year Treasury (TBT) ended the week flat. TBT is your single-best hedge against the current market maelstrom. If fears of a U.S. credit default manage to get a grip on investors, and the U.S. dollar falls, long-term interest rates may jump, pushing TBT higher. TBT is a HOLD.

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U.S. President Barack Obama is expected to nominate Fed Vice Chairman Janet Yellen today to become the U.S. central bank's next chairman to place Ben Bernanke, providing a bit of relief to investors who expect her to tread carefully in winding down economic stimulus.

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