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

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

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