Global Markets Pause as Oil Price Plummets

Nicholas Vardy

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

U.S. markets paused for breath this past week, ending the week broadly flat. The Dow Jones rose 0.36%, S&P 500 fell 0.02% and NASDAQ fell 0.05%. The MCSI Emerging Markets Index was down 2.49%, continuing to weaken in what is often its strongest quarter.

Big gainers in your Alpha Investor Letter portfolio included the Market Vectors Biotech ETF (BBH), up 2.50%; ICICI Bank Ltd. (IBN), rising 2.22%; and the WisdomTree Japan Hedged Equity (DXJ), adding 2.17%.

The following positions also hit new 52-week highs: Berkshire Hathaway (BRK-B), WisdomTree Japan Hedged Equity (DXJ), Market Vectors Biotech ETF (BBH) and PowerShares DB US Dollar Bullish ETF (UUP).

The KraneShares CSI China Internet ETF (KWEB) fell below its 50-day moving average and moved to a HOLD.

The big news of the past week has been the drop in oil prices. Although you don’t have much direct exposure to this asset class, two of your positions, Market Vectors Gulf States ETF (MES) and the iShares MSCI Frontier 100 ETF (FM), have significant exposure to the previously booming Gulf State stock markets.

UAE, Qatar and Kuwait make up 83% of MES, though exposure to the energy sector itself is slight at 5.1%.

Although FM allocates only 14.7% to the energy sector, some of its largest country weights are OPEC members that depend on oil for a large percentage of government revenue. Kuwait is FM’s largest country weight at 25.2%, and it depends on oil to generate over 75% of government receipts.

Finally, I want to leave you with a quick overview of December’s seasonality in the U.S. stock market. As you can see from the chart below, December’s traditionally strongest days are at the end of the month.

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So if history is any guide, you can expect choppy markets until the end of next week, after which the market should turn upward to end 2014 on a high note.

Portfolio Update

Berkshire Hathaway (BRK-B) gained 1.39% over the Thanksgiving holiday-shortened trading week, hitting yet another new 52-week high. Berkshire Hathaway continued its nearly unbroken run higher since the mid-October market meltdown and is up nearly 11% since that point in time. BRK-B also stands as the biggest winner in your portfolio — just shy of a 100% gain. BRK-B is a BUY.

WisdomTree Japan Hedged Equity (DXJ) added 2.17%, also hitting a new 52-week high last week. The Japanese yen fell to a new seven-year low recently, dropping to 119 per U.S. dollar. The NIKKEI Index also hit a seven-year high last week as corporate capital expenditures rose 5.5% for the July-September period. All systems remain a “go” for the Japanese recovery, and DXJ remains a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) rose 0.57%. Although VNQI provides a diversified portfolio of global real estate exposure, a look at its geographic breakdown yields that the majority holding is a 22.7% stake in none other than Japan. This is positive news, as typically a recovering economy sees a recovering real estate market rise along with it. VNQI is a BUY.

iShares S&P Global Timber & Forestry Index (WOOD) closed out the recent shortened week nearly flat. Although commodities in general have been in a long-standing downturn, your position in timber has bucked the trend quite nicely. WOOD is currently making a second attempt at pushing above its $52.00 resistance level. WOOD is firmly above its 50-day moving average (MA) and remains a BUY.

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Market Vectors Biotech ETF (BBH) gained 2.50%. Biotech has been a big winner this year, and the gains continue, as BBH just hit a new 52-week high yesterday. Up 50% since my initial recommendation, the bull case for this basket of biotechnology stocks remains intact — especially during this typically strong final quarter of the year. BBH is a BUY.

ICICI Bank Ltd. (IBN) gained 2.22% last week. With the India market being one of the strongest movers this year, and China now looking seriously at economic stimulus, IBN benefits by being in the right place at the right time. Up nearly 35% since its recommendation, this banking play is tied for third place in the Alpha Investor Letter portfolio. IBN is a BUY.

Skyworks Solutions Inc. (SWKS) rose 0.50% last week as this play on the “Internet of Everything” managed to hit a new 52-week high. SWKS has been on a nearly unbroken run since joining your portfolio. With its recommendation falling on Oct. 16, you’ve managed to “catch the bottom” nearly perfectly to capture a 35% gain in short order. SWKS remains a BUY.

PowerShares DB US Dollar Bullish ETF (UUP) gained 0.84%. The dollar continued its bull run higher, hitting a fresh 52-week high just yesterday. Nearly all of the major global currencies were weaker against the dollar last week. This, coupled with positive recent U.S. economic data, kept the wind in the dollar’s sails. UUP remains a BUY.

Nicholas Vardy

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