Sunday, April 11, 2010

Update 4/11

Today the EU, in combination with the IMF, have decided on a plan to bail out Greece; the IMF will cough up $15 billion; the EU another $40 billion this year {there are more loans to come as it's a three year plan}; the EU loans are at roughly 5%. My own thinking here is that this is enough to get Greece thru, so long as the "austerity package" that comes along with this does'nt result in riots & strikes that bring down the government. Ambrose just came out with his analysis, which says it does'nt go nearly far enough; he quotes Simon Johnson (former IMF Cheif) as saying that Greece needs north of $140 billion, and even that might not do it. Ambrose suggests that Greece should default on 2/3rds of their debt and leave the EU. If Greece turns out to need anywhere near the extra $50 billion this year as Simon suggests, I would have a hard time believing that Germany would agree. We shall see; at the very least it buys Greece a few months to make some drastic cuts in spending to prove it's worthiness. It can be done; Ireland was in worse shape than Greece was, yet today is on the rebound after some drastic budget cuts. But Greeks are not the type to take belt tightening lightly.

As for trades, not too sure where to go from here; equities are still going north and at this rate 12,000 this year is a distinct possibility. Strong earnings (not sales, mind you, but employee cuts) and low Fed rates are fueling this rally. Copper is holding it's ground thanks to the rally in equities. Jim Chanos, a hedge fund manager who called the Enron and Lehman blowouts and is someone who's opinion matters, came out this week and called for a bubble bursting in China, saying that 60% of their GDP is domestic construction, much of it financed by Chinese banks, and that property prices are in the stratosphere; a "treadmill to hell" was his term. Harvard Economics Professor Ken Rogoff, another one who warned of the US meltdown, is also calling for a China housing market blowout. Ultimately China has more than $2 trillion cash sitting around in banks & US Bonds and so this is not a systemically dangerous event. But this would be a serious blow to copper; I'm still looking at $2.50, but it's going to have to wait until China's economy blows a tire.

From here, I'm going to go with MedhedgeFund's suggestion of ETF:IDX, Indonesia's ETF. Indonesia is a large country with vast quantities of untapped natural resources and a young and increasingly well educated population. Stability has been a problem in the past.. it's at $72.04 today; I'm going to set my "buy" at $71.75 since it looks like it might open a tad lower. I'm going to buy one hundred of them; I'll put a trailing $4.00 stop on it.

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