My first car was a Chrysler.

My dad, a mechanic for over 40 years, hated my choice.

He told me “You’re just going to throw good money after bad on that piece of junk! Sell it now, while you have a chance”. Three months later, the transmission was completely shot. My dad looked at it and told me that the engine would be next.

He was right. This $800 car suddenly morphed into a $3,800 proposition.

Why do I bring up this story? Because it speaks volumes for what’s happening all over the world right now.

Governments everywhere are throwing good money after bad by bailing out their very own “Chryslers”. (Hell, the US even bought Chrysler.)

And the EU has a whole slew of “Chryslers” to deal with. Portugal, Italy, Ireland, Greece, and Spain. Iceland didn’t help, either.

If you think Greece’s $146 billion bailout was a lot, consider the following…

• A similar bailout of Portugal would cost $171 billion
• A similar bailout of Spain would cost $660 billion
• A similar bailout of Italy would cost $840 billion

We have to be honest with the situation at hand. The EU is struggling to bailout Greece. Maybe it has enough money to bailout Portugal. But gathering the $1.5 trillion necessary to bailout both Italy and Spain will prove to be too much for the fragile union.

Will the US bailout the EU? Or will the EU simply collapse? Those are big questions we simply don’t know the answer to. I’d be shocked to see the US bailout the EU. But stranger things have happened.

The EU is in quite the predicament. And there’s no easy answer in sight.

My biggest concern about what’s happening overseas is how it will affect our Strategic Investment recommendations.

So far, it’s had little effect. Most of that is due to how we’ve positioned our portfolio.

Throughout the past few months, James and I have done a lot of hard research, trying to determine where the economy will go and how we can best profit from it.
We’ve talked about many outcomes. And we’ve hedged our portfolio perfectly to capitalize on each of them.

First is China. This past August, James wrote the following about China…

Far from contributing a solution, China’s stimulus program is aggravating the underlying problem. It is adding supply to a world plagued by excess capacity and collapsing demand.

At that time, he recommended the “spread of the decade”, shorting China and going long Brazil.

Since then, it has worked nearly perfect. We are down about 3% on our short on the iShares China FTSE/XINHUA 25 ETF (FXI) and up 25% on the iShares MCSI Brazil ETF (EWZ).

Even today, economists raised Brazil’s GDP growth expectation for the year from 6% to 6.06%. This will naturally boost all of our Brazilian positions. So far, these positions have done remarkably well. Itau Unibanco (ITUB) is up 35.5%, Petroleo Brasileiro (PBR) is up 40%, Brasil Foods (BRFS) is up 0.8%, and CCR Rodovias (CCR03.SA) is up 26.9%.

The only company James and I aren’t too happy with in the portfolio is Money4Gold. Despite announcing phenomenal results, the position is down about 50%.
At this point, the company is either a tremendous buying opportunity or a dead end. I’ll be contacting the company this week to try and find out. We’ll keep you updated.

Until next week,

Charles Delvalle
Associate Editor
Strategic Investment

To download the issue go to: http://strategicinvestment.com/issues/si_april_2010_issue.pdf

Before I go on with this week’s briefing, there are some trades we need to get out of the way first…

Sell your 11/2010 Motorola bond (CUSIP: 620076AR0) to lock in a 20% gain and Sell your 10/2011 Citigroup Bond (CUSIP: 173034GV5) to lock in an 18% gain.

The reason we are selling these bonds is because there is a big risk that bond prices will drop further as the market stagnates. Prices have already gone down since early-January.

After the market gets its mojo back, we should be able to find attractive short-term investment-grade bonds trading under par ($1,000 or less).

Now that that’s out of the way…

Greece has been on my mind a lot lately.

It has always been my thought that Greece would eventually get bailed out. And now rumors from the Wall Street Journal point to a potential 30 billion euro bailout package for Greece.

My feeling is that the leaders of Germany and France are betting that if they save Greece, the market might not attack Portugal, Italy and Spain.

But this is a dangerous gamble.

Let’s think back to what happened in the US in 2008. Did the bailout of Bear Stearns help prevent the bailout of any other company?

Not at all. Freddie and Fannie were bailed out. And so was AIG, GM, and even Chrylser. Congress even dedicated $700 billion to the mother of all bailout funds, the TARP.

So it’s clear that a bailout, no matter how punitive it is, will not stop another bailout from happening.

Now here’s the problem in regards the Greeks and the European Union bailing them out.

Spain is three and a half times larger than Greece. And Italy is nearly six times larger.

If the European Union is forced to bail these two countries out, it would have to come up with another 70 billion euro for Spain and 120 billion for Italy. Let’s not forget Portgual, another potential 20 billion hit.

And these amounts are only IF these countries finances are “fixed” by the end of it…

I have to wonder who is going to pay for this 240 billion euro tab. Will it be Germany, or France? Combined, the GDP of these two countries only make up about 4.5 billion euros.

I seriously doubt they can do this.

And, over the long-term, that could easily destroy the euro.

But over the short-term, this bailout symbolizes to the markets that Germany and France will not let the euro… or the European Union… turn into history just that easily.

My prediction is that the euro will soar from here, possibly hitting 1.40 – 1.50 to the dollar. Soon enough, though, the problems of the other PIGS will come to the forefront, and the Euro will be threatened again.

For that reason, I don’t believe the euro will hit new highs. And I also doubt that this rally in the euro will last for too much longer.

It seems the closer we get to Spring, the more snowstorms fall over the Northeast.

This unusually cold weather has certainly helped our Little Ice Age Portfolio substantially. The Market Vectors Coal ETF (KOL) is up 17%, the PowerShares Global Coal Portfolio (PKOL) is up 14%, the Market Vectors Agribusiness (MOO) is up 14%, and the First Trust ISE Nat Gas Fund (FCG) is up 11%.

This cold weather won’t go on forever, though. At least not in the Northern Hemisphere. So there’s reason to believe that expectations will help lead prices south for a few months before picking up as winter hits the Southern Hemisphere later this year.

At this point we should be presented with an opportunity to snatch discounted shares.

While we are up substantially in our Brazilian shares, I am seeing some weakness in the emerging markets lately.

It’s possible that all of this will clear out now that a bailout of Greece is all but assured. But again, more sovereign debt pressures in Europe should surface later this year and keep the emerging markets from easily pushing higher.

Of course, this will give you a few opportunities to snatch up strong Brazilian companies at attractive prices.

In the meantime, let’s hold tight.

It’s going to be a bumpy ride.

Sincerely,

Charles Delvalle
Co-editor
Strategic Investor

They move trillions of dollars a day. And that makes them very powerful.

When bond traders see that Obama and the Federal Reserve are really serious about bringing about inflation, they will dump hundreds of billions of dollars in US bonds.

This will deal a deathblow to the dollar. The price of US Treasuries will plummet. Who in their right mind wants to be left holding a currency that’s plunging in value?

The only way to lure lenders back will be to raise yields on US government bonds.

Rising yields means higher mortgage rates… and higher borrowing costs at the consumer level… This will lead to the complete collapse of the highly leveraged U.S. economy.

It’s a nightmare scenario for the already seriously wounded US economy. But the government will have little choice. It will have saddled itself – and you – with an unbearably high burden of debt.

So what will Obama try to do to bail himself out of this seemingly impossible situation?

The Plan to Take Half of Your Money

Obama will have to raise taxes eventually.

And with the help of a super majority in the Democratic Congress, there’s nothing to stop him!

Larry Summers and other top advisors will be there with the academic mumbo-jumbo to justify it all.

In 2009 or the year after, Obama will go on nationwide TV. He’ll look us right in the eyes. And he’ll tell us that his program to raise the tax brackets to 39.6% for people earning over $250,000 has been so successful that he’s raising the rate to 42.9% and lowering the income level to $95,000!

 But That’s Not All!

Besides raising the tax brackets, Obama will raise a host of other new taxes, great and small.

• After 2010, the death tax will be resurrected – with a chip on its shoulder. And it will hit estates that haven’t been taxed since 2001.
• Medical benefits from your employer will be taxed.
• Capital gains rates will jump to suck what little life remains from the economy.

(These are just a few of the tax hikes that have been publicly acknowledged.  You should never doubt the creative new ways the government can come up with to steal your hard earned money.)

Remember, Obama will be slashing Social Security, Medicare and every other type of government spending. The victims of these cuts are going to be in a rage. They’re going to be baying for blood.

And Obama’s going to give them somebody’s blood: yours.

Ladies and gentlemen, this is not news. We’ve already seen Clinton’s strategy was to blame the rich.

When cornered, Obama will attack with the easiest tax target – estate taxes. You can count on it. Why should anyone inherit wealth? Obama is going to ask.

Maybe the parents have earned it, but the kids didn’t. Tax it away! Fairness!

In 2010, there is no estate tax. But like Jesus calling Lazarus forth from his grave, Obama “the Chosen One,” will say “Rise up!” And in 2011 the estate tax will hit anything over a million dollars with a top rate of 55%.

A million bucks… Sounds like a lot of money, right? But it’s not. Throw together your house, your car and a small stock portfolio and you get there pretty darn quick.

Anything over that, the feds are going to be taking over half! And they are closing a noose around your ability to give gifts while you’re still alive.

If you’re worth $1.5 million – once again, something that’s quite easy when you look at all your worldly possessions – your heirs will be paying $275,000 in new taxes. Just to the feds.

Throw in probate costs, state taxes, lawyers’ fees… and easily you could see a third of your wealth vanish into thin air.

Disinherit the IRS

Is there any salvation from these outrageous new taxes?

You bet! There are specific steps you can take right now to disinherit Mr. Obama’s IRS. But if you procrastinate a few months, you could lose big.

The newspapers will tell you that there’s not much you can do to hold onto your money. They are wrong.

You can rearrange your assets to avoid the new confiscatory income and estate taxes. Using trusts and other devices over the next two years can keep your money where it belongs – with your family and loved ones.

Put simply, it’s time to bury your wealth.

This will see you through the coming bad years. It will also be the foundation of our country to rebuild after Barack Obama is gone in 2012.

It’s now clear that most assets are going to go down in value. Our whole reason for publishing Strategic Investment is to tell you what’s going up – and what to avoid!