Weekly Update
Charles Del Valle on Mar 09 2010 at 9:55 am | Filed under: Economics
Strategic Investment
Monday, March 9, 2010
By Charles Delvalle
Dear Strategic Investor,
It’s funny how short-sighed the market can really be. But that never means that you should lose focus of the big picture. Your stash of cash depends on it.
Throughout the month of January and February, the fear of a blowup in Greece weighed heavily on the global markets.
But today the outlook has changed. Even though Germany is acting tough regarding a bailout, France has already promised “help”. That was after Greece managed to sell $6.8 billion in bonds.
You see the real problem with debt isn’t really the interest a country has to pay on it. Sure, the interest can become quite painful, but rolling the debt over after previous debt expires is the type of problem that can destroy a country.
Greece has about $20 billion worth of roll-overs it has to worry about in April and May. If it can’t figure out a way to finance that debt, the whole scheme falls apart and Greece turns into a modern day banana republic.
The fact that Greece was easily able to finance $6.8 billion gives the market hope that it will also easily finance the $20 billion coming due over the next two months.
And so investors are pushing markets higher across the globe. I wouldn’t be shocked if the market moved up a few more percent this week.
It’s as if Greece’s problems have been solved.
Except they haven’t. Much bigger problems are right around the corner.
It’s at times like these that you have to ask yourself, what has really changed?
Are politicians in Japan and Europe any closer to solving their debt issues? Is the US unwinding its huge government borrowing? Has a bubble stopped forming in China?
The answer to all of these questions is a resounding “no”.
And so our long-term outlook is the same it was yesterday…and the week before that…and the month before that.
Issuing new debt to solve a debt-related problem is like giving a heroin addict more heroin to help him get clean.
Greece is a debt addict.
The fact that it got financing so easily last week will only encourage Greece to keep accumulating more debt.
Let Greece get clean and go through a good old fashioned detox…like Iceland.
Let the deflation come.
The recent developments bode well for our returns.
As the market begins to take its focus off a blowup in Europe, we should see investors move back into stocks…especially from emerging markets.
Considering nearly a third of our portfolio is made up of emerging market stocks, this is a good thing.
At a recent press conference, Brasil Foods (BRFS) said that growing demand in Brazil should help its margins keep growing. This was after it announced a profit in the fourth quarter of 1 centavo per share, a big improvement over its 10 centavo per share loss a year ago.
The companies in our Little Ice Age Portfolio (KOL, PKOL, MOO, FCG, DBA, GRU) continue to do extremely well. Be aware that our coal holdings (KOL and PKOL) are also being supported by increased electricity demand from countries like China and India. It’s only a matter of time before the natural gas fund (FCG) moves up for the same reason.
Combine more electricity demand with a potentially colder globe and you have a nice recipe for share appreciation.
As for the rest of the portfolio, there are no major changes or news to report.
Have a great week,
Charles Delvalle
Co-Editor
Strategic Investment