Betting against the Euro Again and Booking 78% Profits in Silver

The good news for your Global Bull Market Alert portfolio continues. Seven of your positions — the MSCI Thailand Investable Market Index Fund (THD), iShares MSCI Chile Investable Mkt Idx (ECH), Global X/InterBolsa FTSE Colombia 20 ETF (GXG), Itaú Unibanco Holding S.A. (ITUB), iShares Silver Trust (SLV), the Market Vectors Indonesia ETF (IDX) and ICICI Bank Ltd. (IBN) options — again hit either 52-week or record highs over the past five trading days.

Because of the strong run up in the price of iShares Silver Trust (SLV), I am recommending that you sell your position in silver here, booking an 11% gain on the exchange-traded fund (ETF) and a 78% profit in your remaining options.

Because you already have a substantial weighting in many of the world’s top stock markets, this week’s Global Bull Market Alert revisits a bet against the euro through the ProShares UltraShort Euro (EUO). Although we were stopped out of this position relatively recently, here’s why I think its time to bet against the euro, yet again.

First, despite the euro’s sharp rally, Europe’s debt problems have been getting worse. Eurozone governments have to repay 582 billion euros ($803 billion) of debt in 2011, up from 521 billion euros this year. Spain has to roll over almost 20% of its outstanding loans, Portugal has 23 billion euros of debt coming due and Ireland has more than 10 billion euros of debt. Bond investors understand this, and the extra yield investors demand for holding 10-year Irish bonds rather than German bunds rose last week to 454 basis points. That’s the most since the introduction of the euro.

Second, the euro is technically extremely overbought and begging for a correction. And the trend may have turned today as Nobel Prize-winning economist Joseph Stiglitz publicly noted that the euro’s future is “looking bleak” and that the economic woes of Greece and Spain could trigger a break-up of the euro. The euro promptly fell from a six-month high against the dollar, and dropped against 13 of its 16 major currencies.

Finally, a bet against the euro is an implicit bet on the U.S. dollar. According to some surveys, only 5% of traders are dollar bulls right now. This contrasts with June readings that were above 90% for dollar bulls. Such extreme measures often occur at turning points and bode well for a U.S. dollar rally against the euro.

So buy the UltraShort Euro ProShares (EUO) at market today, and place your initial stop at $17.00. If you want to play the options, I recommend the February $20 call options, EUO110219C00020000.

Portfolio Update

Credicorp Ltd. (BAP) remained flat this week. With Chilean and Colombian investors showing a keen appetite for Peru’s smaller and cheaper stock market, Peru’s BAP remains a BUY.

iShares MSCI Chile Investable Mkt Idx (ECH) rose 2.38%, hitting another yearly high. With the peso near a 35-week high and forecasts for Chile’s gross domestic product to grow 6% this year, ECH remains a BUY.

iShares FTSE/Xinhua China 25 Index (FXI) rose this past week. We’re still waiting for a much-awaited pullback in emerging markets to exit this short position. FXI is a HOLD.

Global X/InterBolsa FTSE Colombia 20 ETF (GXG) hit a record high of $44.02 on Wednesday before pulling back. Colombia’s economy rose 4.5% from a year ago, and the stock market ended the week 4.7% higher. GXG remains a BUY.

ICICI Bank Ltd. (IBN) rose 3.3% during its first week in the portfolio, and your options are up 35%. With India’s biggest private bank still far off of its previous highs, IBN remains a BUY.

Market Vectors Indonesia ETF (IDX) hit another record high of $88.00, ending the week 2.96% higher. The rupiah has risen 5.3% against the dollar and the Jakarta Composite Index has gained 40% this year. The “Next BRIC” remains a BUY.

Itaú Unibanco Holding S.A. (ITUB) soared 8.1% this week, with banks in Brazil gaining as central bank data showed lending rose at its fastest pace in more than a year in August, while delinquency rates dropped. ITUB remains a BUY.

iShares MSCI Thailand Investable Market Index Fund (THD) hit a record high of $62.79, jumping 4.15%. THD remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.