Global Markets Rally as Putin Blinks

Nicholas Vardy

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

Global financial markets ended on a strong note with the Dow Jones rising 1.34% and the S&P 500 up 1.56%. Even the MCSI Emerging Markets Index ended the week 1.18% higher, after bouncing strongly yesterday.

Big gainers in your Alpha Investor Letter portfolio included Las Vegas Sands Corp (LVS), up 4.59%; Berkshire Hathaway Class B Shares (BRK-B), jumping 4.06%; and The Blackstone Group L.P. (BX), up 2.22%. The Powershares Buyback Achievers (PKW) also gained 2.19%.

Thanks to its big jump this week, Berkshire Hathaway Class B Shares (BRK-B) moved back above its 50-day moving average and is once again a BUY.

Several of your positions hit new 52-week highs. These include iShares MSCI Ireland Capped Investable Market Index (EIRL), Google, Inc. (GOOG), First Trust US IPO Index (FPX), iShares S&P Global Timber & Forestry ETF (WOOD), The Blackstone Group L.P. (BX), Las Vegas Sands Corp (LVS) and the Powershares Buyback ACH (PKW).

All of your positions are now “Buys,” except for your Japanese bets, WisdomTree Japan Hedged Equity (DXJ) and WisdomTree Japan SmallCap Dividend (DFJ), which both are just pennies under their 50-day moving averages.

Yesterday, all three major U.S. indexes burst out to new 52-week highs in one of the strongest days in the last year. From a technical standpoint, such breakouts are often followed by short-term consolidation but are very bullish over the next three to 12 months.

The Ukraine is fading from the news as suddenly as it emerged, as armchair diplomats are putting away their “Ukraine for Dummies” books. Whether it was because Putin blinked or international diplomatic efforts prevailed, Russia has pulled back from its threat to invade the Ukraine. That confirms that the world is a very different place compared to 1956 in Hungary or 1968 in Czechoslovakia, when Russian tanks rolled in. (My parents tell me I was actually in Prague at the time of the latter invasion — although I was too young to remember.)

For all of Russia’s posturing, Putin is unable to exert the kind of military might in today’s world as was wielded in the days of the Soviet Union. Over 50% of its consumer goods come from the European Union (EU), as do 60% of its (natural gas related) revenues. Sanctions from the West would bite extremely hard. I can also see how Moscow’s hard-partying middle class would quickly turn on Putin himself if Russia were shut out of the global economy thanks to travel bans, frozen bank accounts and other economic sanctions discussed in the West.

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In my view, the whole episode was just another opportunity for Putin to try to gain domestic and international respect. The Ukraine is also a complicated place. The western part wants to join “Europe,” while the Eastern part feels it should be part of Russia. While you can always make a case for the domino effect of events leading to global war — that’s the way the first World War started exactly 100 years ago — I am hopeful that it is much less likely today than it was then.

Portfolio Update

Berkshire Hathaway Class B Shares (BRK-B) jumped 4.06% last week. Warren Buffett’s annual letter to shareholders is not only a highly anticipated informational update to his investors, but also an educational one as well. In his recent letter, released last week, Buffett advised against entering markets “at times of extreme exuberance” due to the high probability of a short-term letdown. Rather colorfully, as Buffett put it: “A bull market is like sex. It feels best just before it ends.” BRK-B is above its 50-day moving average (MA) and is now a BUY.

The First Trust US IPO Index (FPX) rose 1.01% last week to hit a new 52-week high. This “Smart Beta” play in your Alpha Investor Letter portfolio has been rising steadily for the past month, ever since its late January dip back to the 50-day MA. FPX is a BUY.

The iShares S&P Global Timber & Forestry ETF (WOOD) added 1.19% over the previous trading week to hit a new 52-week high in a sector that has made a substantial comeback in recent weeks. Investors are keen to bet on the pent-up demand for housing lumber as things thaw out from the polar vortex and homebuilders start their spring construction cycle. WOOD is a BUY.

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The Blackstone Group L.P. (BX) rose 2.22% as it hit a new 52-week high last week. The CEOs of the top private equity firms personally pocketed more than $2.6 billion last year as their firms cashed out some of their huge 2013 winnings. Many marked average annual gains of $160 million. The top winner was Apollo Global Management LLC’s CEO Leon Black, who chalked up a whopping gain of $546.3 million, with Blackstone’s Stephen Schwarzman coming in second place with a cool $465.4 million. BX is a BUY.

Las Vegas Sands Corp. (LVS) jumped 4.59% over the previous week, also hitting a new 52-week high. News broke early this morning that Macau gambling receipts ended the month with an unexpected 40% gain for February 2014. This should super-charge the gambling sector momentarily. LVS is a BUY.

Powershares Buyback Achievers (PKW) gained 2.19% last week. You recently re-entered this corporate buy-back index on strength. Hold this “Smart Beta” play, as it has had strong price action recently and just hit a new 52-week high yesterday. PKW is a BUY.

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Russian President Vladimir Putin made comments today indicating that the current crisis in the Ukraine will not immediately escalate, leading investors to push stocks from yesterday's loss to yet another record high.

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