Eurozone Crumbles, China Exports Fall

Greece is in flames. The Eurozone is crumbling. Greece lied about deficits to get into the Euro. The IMF estimates unemployment in Spain hits 15% next summer. France has problems as well. I think it's abouut time to buy some EOU, ultrashort Euro.

And Chinese exports went from + 20% yoy in October to -1% yo in November.

Have I been aggressive enough?

Trades from yesterday:

short PXE (oil + gas exploration) @ 13.65.
long FXC (Freeport-McMoran Copper and Gold @ 22.27
long FXP (Ultrashort FXI, Shanghai 25 index) @ 33.12

FXP is now trading at 15% UNDER net asset value. So is DUG. They are both screaming bargains here, but I am afraid to be too aggressive. First, I have been wrong before, and second, I already have large exposure to both of these.

The Shanghai 25 index has now rallied 50% and the Hang Seng 25%. This is with Chinas exports DOWN yoy in November for the first time in years and years. At the same time, there are reports of multi-billion dollar bets on the Renminbi. China may not devalue the RMB, but I think they will reverse its course of appreciation against the dollar. The price is most definitely wrong, and I sense a huge opportunity here.

I'm wondering whether or not to cut my losses on GM... It's looking more and more like the bailout won't happen or it will just be a temporary bridge to bankruptcy. I wish I knew how to value the bonds.

Next trade, PXE. This has bounced 25% off the lows. Oil exploration is leveraged to the price, as new exploration is not very feasible at $40 a barrel. There are two reasons why I think oil will go a little lower and stay there. First, in the past couple of months, 5 days' global supply of oil has been stored on tankers. How much has that propped up the price of oil? Oil has fallen during that time. If this supply overhang keeps up, that's about an 8-10% oversupply margin. Huge. Humongous. Ginormous. Whatever. OPEC can cut by 4 million barrels/day and oil could still go down over the next six months. Second reason is from Bloomberg. Trade deficit? Is this the right link? Yes. Ignore the title, it tells us nothing about oil. Go to the third to last paragraph:

Rather than helping shrink the trade gap last month, as most economists predicted, oil contributed to the deterioration. A record $15.56 drop in the price of imported crude in October was swamped by a 70.9 million-barrel
jump in purchases that was also the biggest ever, the report showed. Excluding petroleum, the trade gap was little changed at $24.5 billion.

Now we have something. Future oil prices are still much too high. That pays people to store oil. The U.S. uses 14.7 million barrels/day, and imports about 10 million/day. 71 million extra barrels in one month is pretty huge. All those extra stocks of oil are putting pressure on future prices.

Last trade: FXC. Did I buy it for the copper in the ground at $0.08/lb? No, I bought it for the gold in the ground at $185/oz. and got the copper for free. Sweet. The plunge in Treasury yields is bullish for gold. And the rate cuts around the world keep coming. Korea cut from 3% to 2%. Taiwan cut from 2.75% to 2%. Three-month U.S. Treasuries are negative. Soon money market funds will be too. GoldMoney will store your gold in a vault for 0.18%. That storage cost is looking better and better against negative yields.

And today's news: IAMGOLD is buying out Orezone's two producing mines for $140 million, or about $0.36 and spinning off the exploratory properties as New Orezone. A quick check of IAMGOLD shows no debt, $150 mil in cash, and a cost of $130/oz in the ground at $550 recovery cost (including Orezone). I will hold onto this and take the IAMGOLD offer of 0.08 shares/share of Orezone.

Maybe I'll even buy more of IAMGOLD. Now, the question is, should I cash out of NG, up 65% today to $0.80? It's a nice jump, but in the big picture of the whole portfolio, it's only worth 1% of my portfolio. Hmmmm... I could trade it in for more IAG. I think I will do that. Done. Sold NG @ 0.70 for +52%. Bought IAG @ 4.85 (5% position).