It was yet another tough week for U.S. stock markets, as the Dow dropped 3.64% and the S&P 500 tumbled 3.86%. Global stock markets continued to get hit hard, with the MSCI Emerging Markets Index plummeting 6.04%.
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You were stopped out of PowerShares Global Listed Private Eq (PSP) for a 20.44% profit. You were also stopped out of iShares S&P Global Timber & Forestry Idx (WOOD) for a smaller gain. I’ve placed both of these on our watch list and will be looking to re-enter these positions at a later date.
Certainly, it’s been a rough month as the Federal Reserve has promised to taper back quantitative easing sooner than expected.
For all of the focus on the Fed, my biggest concern is with China, as the banking system continues to teeter. Its collapse could have unsettling and serious implications for the rest of the world. Frankly, given how lopsided economic growth has been in China over the past five years, I’m surprised the banking system has lasted this long.
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And investors in China have fared very poorly. That includes some of the world’s best, as I pointed out in yesterday’s issue of The Global Guru.
I believe the sell-off in other markets is massively overdone. Bank of America (BofA) Merrill Lynch agrees. In a note to clients titled “Equity Buy Signal Triggered,” BofA notes nearly every major stock market — with the exception of those in the United States and Japan — is now oversold. In addition, 43 out of 45 global stock markets are trading below their 50-day AND 200-day moving averages. Historically, this “buy” signal was followed by 6-7% gains in the next four to six weeks. The last such buy signal on June 1, 2012, nailed the low, and stocks proceeded to rally 30%.
The exception to the oversold markets? The United States and Japan — both countries figure prominently in your Alpha Investor Letter portfolio. Your position in Ireland through iShares MSCI Ireland Capped Investable Market Index (EIRL) is also an exception, as it is trading above its 200-day moving average. But I assume Ireland must have been too small to include in the BofA study.
There are a number of other technical and sentiment measures that I track, including one that has been correct 19 of the last 20 times which indicates that the market is due for a rally.
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You now have a lot of positions on your watch list. And as the market settles, I expect that you’ll start seeing more of these picks moving back to your “Buy” list in your Alpha Investor Letter portfolio.
Portfolio Update
Berkshire Hathaway (BRK-B) lost 2.69% for the week. On this day in 2006, Warren Buffett announced his plan to give 85% of the total BRK-B shares to charity. (Although shocking news to the world, it was likely an outright heart-stopper for his beneficiaries.) At the time that Mr. Buffett made this announcement, a back-of-the-napkin calculation put his total gift amount in the neighborhood of $37 billion. Today, thanks in part to the same appreciation you’ve been enjoying since my November 2011 BRK-B recommendation, Buffett’s total gift now stands at nearly $67 billion. BRK-B is a BUY.
Visa Inc. (V) slipped 1.92% last week. When asked about Visa last week, “Mad Money” host Jim Cramer simply replied, “It’s going higher.” He is likely correct. Visa enjoys the leading position among a very short list of competitor companies in a business that has nearly insurmountable barriers to entry. From a global perspective, Visa has issued 63% of credit cards. Rival MasterCard comes in a distant second with a 31% share. V is a BUY.
iShares MSCI Ireland Capped Investable Market Index (EIRL) lost 4.79%. Although Irish investments have been among the top European performers over the recent year, EIRL could not escape last week’s brutal market-wide sell-off. However, when measured against Europe as a whole, Ireland managed to fare quite a bit better than the 8.25% drubbing the regional Vanguard FTSE Europe (VGK) exchange-traded fund suffered. EIRL dipped below the 50-day moving average and is now a HOLD.
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iShares MSCI Singapore Small Cap Fund (EWSS) fell 5.63% over the previous five trading days. Although EWSS fell in tandem with the broader markets, the fund’s whopping 19.85% yield goes a long way as a “safety net” in the event of a correction. EWSS is a BUY.
WisdomTree Japan Hedged Equity (DXJ) dipped 1.82% last week. The “third arrow” in the Bank of Japan’s economic recovery quiver is being described as “structural reform.” This includes streamlining the process of exiting failed businesses. By making it easier to wind down failures, entrepreneurs will undertake more start-ups, leading to higher business and economic activity. DXJ is a BUY.
Google Inc. (GOOG) gave back 3.82% for the week. Yet another analyst joined the “Google to $1,000” drumbeat yesterday as the Janney Montgomery Scott financial services firm initiated coverage on GOOG with a “Buy” rating. The $1,000 price target is 15.5% above yesterday’s close. GOOG 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.
In addition, take a look at the latest version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. All four of these special reports are accessible FREE on my website.
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PS: Join me for the San Francisco Money Show, Aug. 15-17, at the San Francisco Marriott Marquis. There is no charge for this conference, but you do need to register. Call 1-800/970-4355, and mention code #031736.
