Over the past several months, the System has been fairly consistent with its recommendations. This week is no different with REITS, Latin America and Emerging Europe as the top three sectors in our Taiwanese fund universe. In our ETF universe, three of the four components of the BRICs theme (Brazil, Russia and India) still feature in the top five of that model portfolio.

The System shows us that non-US dollar investments are favored. According to the FED, the supply of US dollars will continue to rise. The demand for new US dollars is low. So, the money flows to the financial markets. The result? The price of the dollar has fallen and the non-US dollar assets have risen.

The question for investors is how long will this supply/demand situation continue? A potential change could come with an expected, albeit small rally in the US dollar at year end.

What will change if the US dollar reverses course?

  1. It may cause changes in the rankings. We may see emerging markets profit taking as the year draws to a close.
  2. It may mean a short term peak for gold. The price of gold crossed US$1,100 last week with the Indian Central Bank placing a large order for 200 metric tons of the yellow metal. A strengthening US dollar may change gold’s direction in the short term.

From our point of view, the question isn’t “Is gold a good investment?”
The question should be: “Is gold a better investment than the other choices you could make?”
Answer: Not yet.

The top 5 sectors this week:

  1. REITs
  2. Latin America
  3. Emerging Europe
  4. Emerging Markets
  5. Asia ex-Japan

The top 5 ETF’s this week:

  1. TUR US – MSCI Turkey
  2. EWZ US – MSCI Brazil
  3. EWP US – MSCI Spain
  4. EPI US – India
  5. RSX US – Russia