Our friend Doug Casey is famous for saying, "The U.S. dollar is an 'IOU nothing.' But the euro is a 'who owes you nothing?'." The Greek bailout announced by the European Union and the International Monetary Fund over the weekend finally puts the question to rest.
The answer? American and German taxpayers.
Of the 111 billion-euro bailout, the EU will contribute 80 billion euros. Germany, as the largest and most stable EU member, is picking up 28% of that tab. The IMF is paying the remaining 31 billion euros. Since the U.S. is the IMF's largest contributor, at 17.09%, that puts U.S. taxpayers on the hook.
The Greek bailout (equal to US$146 billion) was meant to "shock and awe the markets and re-establish confidence," according to the IMF's Paul Thomsen. The mission failed. The euro and European stocks are both down following the announcement.
While the money will meet Greece's short-term liquidity needs, the bailout does nothing to quell fears surrounding Portugal and Spain. It also sets a dangerous precedent of endless money printing.
But don't worry... the EU doesn't think the massive debt hanging over the other PIGS – Portugal, Italy, and Spain – matters. Luxembourg Prime Minister Jean-Claude Juncker, who chaired the bailout talks, said Greece is "in no way comparable" to Portugal and Spain. French Finance Minister Christine Lagarde claims, "Greece was a special case."
As we've written time and time again, when government officials try to calm market fears, they're probably lying. The European crisis is no different. Spain and Portugal are exactly like Greece. Both countries are loaded with debt and in danger of default.
Steve Sjuggerud nailed the short-euro trade for his True Wealth readers. He recommended they hold onto their positions even if the EU devised a bailout. Steve said we'd experience "extreme uncertainty" if the EU turned on the printing press. Today's market action proves him correct. His readers are up 17%.
We wrote it, did you short it?
If the Shanghai Stock Exchange merely stops at resistance here and then declines back toward its support line, I expect FXP to rally up to $8, and for the May 7 calls to trade for up to $1.20. That's a 100% gain from yesterday's closing price.
If the SSEC breaks down from the consolidating-triangle pattern, however, FXP could run back up toward $10 per share, and the May 7 calls could pop as high as $3. – Jeff Clark, April 6, 2010, S&A Short Report
In an effort to cool inflation, the Chinese central bank hiked reserve requirements for commercial banks by 50 basis points – the third increase this year. An index of Chinese stocks traded in Hong Kong fell 1.8% on the news, the most in two weeks. The Shanghai Composite is down 12% this year, Asia's worst performer. The Shanghai and Shenzen markets are closed for holiday today.
Short Report readers are up as much as 73% on the short-China trade in less than a month. Jeff thinks readers could easily double their money... He's still waiting for the major breakdown.
Gloom, Boom & Doom editor Marc Faber and short seller Jim Chanos agree with Jeff. Faber says the market will "crash" within the next year: "The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months."
The 40% "super-tax" Australia proposed over the weekend has dominated headlines in the natural resource world. We asked our S&A Resource Report analyst, Matt Badiali, to comment...
Australia's new Resource "super-tax" eats 40% of local mining companies' profits. The Australian mining sector accounted for $94 billion in exports last year, 38% of the total. Earnings from mining and energy in Australia should grow by 19% to $154 billion in 2010... And the government wants its pound of flesh.
If this tax goes into effect, Australian mining companies will pay a 57% tax rate by 2013. Two giant miners, BHP Billiton and Rio Tinto, could see earnings cut by 19% and 30%, respectively.
Instead of "super-tax," this should be called the Giant China Tariff. The resource sector comprises 9% of Australia's economy. Australia exports 80% of its resources. And guess who the biggest buyer of those resources is? China. China bought $42.4 billion of resources from Australia in 2009. Miners will look to pass a big portion of those new taxes to China... which won't make that country happy.
While the super-tax is terrible news for Australian mining firms, it's great news for a select group of stocks in Badiali's portfolio. If you were China and your natural resource tab just spiked higher, what would you do?
Matt is betting it'll focus more energy on developing resources at home. That's why he's been recommending Chinese resource companies. Matt says investors can still make a "killing" buying these stocks, but the opportunity won't last much longer. To learn more about Matt's recommendations, click here...
New highs: Dorchester Minerals (DMLP), ConocoPhillips (COP), San Juan Basin (SJT), Silvercorp Metals (SVM), Silver Wheaton (SLW), Denbury Resources (DNR).
Raising our glasses to a fellow investor in today's mailbag... feedback@stansberryresearch.com.
"I lost my wife's brother yesterday. He and I were very close and my wife's dearest relative. He was an extremely unusual guy, with his little quirks and such, but also the most kind, and gentle person I may have ever met.
"He fell off a ladder from what I can discern, but that was so out of character for him. He was a handy man amongst many other endeavors, but was always careful. He was helping repair the roof of his 80-year-old neighbor, who he treated like his mother. An intellectual as well, to a most certain degree.
"Bob and I loved to discuss beer, wine, investing, and strategies; and until I became a reader and then eventually an Alliance member, I never really felt I added significantly to the latter discussions.
"Porter, will you raise a glass ceremoniously with me and allow me to say? 'Here's to a fallen fellow-investor, who loved and studied all forms of investing, and who enjoyed a hearty beer, and seemed to know everything about wine. Here's to a friend, who you never got the chance to meet. And here's to our families tonight.'" – Paid-up subscriber John
Regards,
Sean Goldsmith
Baltimore, Maryland
May 3, 2010