Greece�s Deadline, An American Bond Blunder, What to Buy Right Now and More!

• EU gives Greece deadline to straighten up shop… Dan Amoss on why it will hardly matter
• Bill Bonner on why a sovereign debt bailout is bad for your portfolio
• The U.S. has a quiet (but significant) bond blunder of its own… Chuck Butler offers explanation
• Chris Mayer on “where to invest now, and what to avoid”

  Bonds can be a boring business… right up until they’re not. Scanning the globe today, the theme is debt, and companies and nations desperate to deal with it.

  Let’s recap. The easy target: Greece.

“If risks to Greece’s deficit targets materialize, then Greece will announce additional steps by mid-March,” said European Monetary Affairs Commissioner Olli Rehn yesterday.

Translation: The EU is giving the Spartans 30 days to get their act together. If the appropriate steps aren’t in place by mid-March, the EU will step in and do it for them.

  The lack of a specific plan is putting Greek bonds in the hurt locker. The yield on Greek 10-year notes has risen 21 points since yesterday, to 6.45%, their highest yield in three weeks.

  Greece is putting the kibosh on corporate debt plans, too: Global companies canceled the most debt sales over the last month since the credit crisis began in 2007. According to Bloomberg data, 16 major corporate bond sales were canceled.

  “The Greek government will default soon,” our bond vigilante Dan Amoss forecasts, putting the whole mess into perspective “unless we see a combination of sharp cuts in spending and a bailout from wealthier neighbors.

“But who wants to bail out a very distant neighbor from the consequences of his foolish behavior? European politicians are debating how to sell the idea of a bailout to their taxpaying, voting populations. This is an attempt to contain the damage from the last decade’s overspending of the Greek government.

“The stronger economies of Europe — the ones not driven by government spending and tourism — are in a pickle. If they let Greece default on its debt, the consequences for financial markets could be sharp and very painful. If they extend a lifeline to the Greek government, every other irresponsible government will line up for a bailout. At that point, everything may appear to be under control, but a few years down the road after a round of bailouts, the problem will emerge once again. They will remain in place until the size of welfare states and banking systems fall in line with the productive capacities of the economies that support them.”

  Stock traders welcomed the EU’s lukewarm support with open arms. One less crisis on the horizon, they’re saying. The S&P 500 opened up 0.75% this morning, largely on the news above.

  “But doth a single bailout a real boom make?” asks Bill Bonner. “Let us rephrase that. Will bailing out the spendthrift Greeks really make American businesses more profitable?

“You know the answer. It won’t. In fact, it will make them less profitable. What it does is allow the Greeks to continue spending in the style to which they’ve become accustomed. And if the Greeks are going to do that, you can bet that the Irish aren’t going to want to cut back. Or the Portuguese. To say nothing of the Italians. And what about the English?

“Bailing out the Greeks is a big mistake. But it’s a mistake everyone seems to want to make. There’s probably a Latin dictum for this sort of thing. But since we don’t know what it is, we’ll have to coin the phrase ourselves: Imbecility begets imbecility; especially when the bankers come out ahead.”

  Amid the sturm and drang, the spot price for gold climbed to a two-week high this morning. It’s sitting at $1,115 an ounce as we write.

  Gold up… dollar down. The U.S. dollar is down across the board today as traders’ appetite for risk creeps back into global markets. The dollar index is at 80.1, about half a point below Friday’s high.

  As we noted, there was some suspicious activity in the U.S. bond market last week too. You’ll recall the U.S. government struggled to sell $16 billion worth of 30-year paper on Thursday. Investors demanded a yield of 4.72%, a bit higher than expected.

“‘Indirect buyers’ are the foreign central banks,” EverBank’s Chuck Butler explains, “and they normally take down 40% of a Treasury issue. Well, last week, they took down only 28% of the issue… Uh-oh! But then, there were the ‘direct buyers’ upping their participation in the auction to a record level of 24%!

“Now, most of the market participants don’t have a clue what these numbers are telling us. The ‘direct buyers’ are ‘unknown.’ Yes, there is no way to tell who makes up the ‘direct buyers.’ For all we know, the Fed took down the entire amount! Why, you may ask, is this a problem? Well… if not for the ‘unknown buyers,’ the auction would have failed!

“To speak of a U.S. Treasury auction and say that it failed would almost be akin to the day the earth stood still. We would see yields soar, and the dollar get deep-sixed. So until that day happens… every auction should become quite interesting, as long as the U.S. continues to drive up deficit spending and keep rates at ultra-low levels.”

Simon Property Group bid $10 billion this morning for the bankrupt carcass of commercial real estate giant General Growth Properties. If the deal goes through, Simon will end up owning around 550 American shopping malls, making it the biggest mall owner in the U.S… better them than us.

We still recommend being on the other side of this trade. For actionable advice, Dan Amoss’ Strategic Short Report portfolio has some worthy short commercial real estate plays. Details here.

  “Here’s where to invest now, and what to avoid,” Chris Mayer wrote late Friday. “As I see it, there are a few buckets that I like:

1) I still like resources where there are obvious potential bottlenecks and supply issues against a rising long-term demand curve. These would include potash, oil, iron ore, uranium and the agricultural commodities — and, of course, the most important of them all — water.

2) I like companies that put together the infrastructure where there are large investment dollars committed to these projects. This would include those long-term energy projects — things like LNG — and other projects that support water and wastewater and basic things like roads.

3) I like companies that operate in global markets and that have exposure to growing emerging markets, particularly those along the New Silk Road — from the Middle East to Asia.

“These are broad buckets. Of course, there is always room for one-off opportunities that don’t fit some grand theme but make a lot of sense on their own merits. As always, our CODE metrics — cheap, owner-operators, disclosures and excellent financial condition — guide us in all things.

“As for what I don’t like: I’m still not enthusiastic about owning banks, financials and insurers. The credit crisis has not yet finished its work and there is more trouble to come here. I’m not enthusiastic about retailers, either. Now is not a time to hang your hat on the sale of nonessentials such as housewares, rubber toys and chic sweaters. Think essentials. Real estate of all kinds is still pricey in most places. I also don’t like science projects (like biotech companies) — mostly because I don’t understand them — nor do I like companies that are in the cross hairs of ugly regulations, like health care companies.

“So that’s a broad and quick overview of what I’m thinking right now. For five stocks that fit well with the themes I’ve listed, check out the latest issue of Capital & Crisis.”

  Last today, a sad sign of the times:

The world’s worst bank robber?

That’s James Bruce, a 73-year-old from Florida. Bruce was caught last week after robbing three Tampa banks. In each instance, he strolled in unarmed and handed the teller a note saying he was robbing the bank and to give him six $100 bills. When the police caught him (maybe try a mask next time, buddy), Bruce claimed he was only taking what he needed to pay his mortgage, and that he intended to pay it back.

 “I find it utterly comical,” a reader writes, “that after 30 years of Republican deficit spending, they are now concerned about the national debt. When Reagan took office, the U.S. national debt was less than $1 trillion. When Obama took office, the national debt was $12 trillion — an $11 trillion increase in just 28 years. That figure doesn’t even address unfunded liabilities.

“Now that it is time to sober up from our 28-year drunken excess, (which, by the way, led to an economic collapse, not the promised economic nirvana), everyone wants an instantaneous miracle cure. The last time the idiots on Wall Street took the country for a ride like this, it took us a decade and a world war to climb out of the hole we had dug. Well, I just laugh. The next time some snake oil salesman comes around peddling some have-your-cake-and-eat-it-too Ponzi scheme like supply-side economics, maybe the country will have grown a brain and will realize that there is no free lunch.

“Enjoy your depression, America. You voted for it.”

The 5: For tips on enjoying the depression, we remind you this is a major theme of The Daily Reckoning. Here’s a bit on economic velociraptors pouncing on Greece and each other. 

Cheers,

Addison Wiggin

The 5. Min. Forecast

P.S. We lived in Paris from 2000-2004. We learned a great deal of our conversational Gaul by watching French news on a puny little Panasonic television. So it was with great pleasure that we accepted an interview request from France24 last week.

The camera crew will be in our offices at 808 St. Paul Street this afternoon. The question: “How far can Obama go in upsetting the Chinese when, in fact, the U.S. owes so much debt to China? Are those tensions for real or mere gesticulations, knowing that the last thing the U.S. can afford is a tightening of credit?”

What say you, dear reader? Send your thoughts to [email protected] 

P.P.S. All the voices you’ve heard in today’s 5 will be featured at this year’s Investment Symposium in Vancouver. This is the event to get their latest and greatest investment ideas, not to mention the best time to be visiting one of the most beautiful places on Earth. The smart money is committing to the Symposium now… early registration discounts still apply.