Is the rescue in Europe going to work

The success of European 1 trillion dollar rescue depends on two things: The first is whether Germany is willing to subsidize its southern neighbours. The government may not have other options but the voters may revolt. The second question is whether PIIGS countries willing to accept the deficit cutting measures. They are going to be painful.

The UK new coalition government is not stable. Cameron can not compromise too much.

Chinese economy will slow down (but not crash down). The property market has shown signs of cracking. The stock market in China has corrected more than 20% which is a good indicator.

European ease

Just as I expected, EU is doing QE big time. It starts to buy governments' bonds and transfer the risk of PIIGS to whole Europe. Germany, over long term, is a victim. It seems the governments all around world will not tolerate any pains necessary to control the deficits. The market, whether it is bond market or stock market, is being distorted by the government actions. In short term, it is going to pop up the market. But over long run, it is going to create lots of problems. If printing money can solve all problems, then, life is so much easier.

the target for the stocks I bought last week (INTC and HSE) are: 23.5 for INTC and 29.50 for HSE.

The market is panicking

The uncertainty in Europe is reaching climax today. The day of EU central bank intervene in the market is approaching. My expectation is early next week. The market was overvalued as I suggested many times. However, some stocks presented opportunities today. I bought back 200 INTC @ 20.50 (sold @22.50 a month ago) and 200 HSE @ 26.75 (sold @30.50 3 weeks ago). I also closed my HXD @ 12.45.

I will be interested in buying POT @ 95 (U$) and TCK.B @32 (C$).

The positives of Greek problem

I have wrote many pieces of the negatives of Greek and Equropean problems. The market is start to reflect these problems. But there are some positives for North American market:
1. keep interest rate low.
2. keep commodity price low
3. capital inflow to safe heaven

I will put an order in for buying HSE @27 (C$) and 200 INTC @21.75

European's options are limited.

The bailout of Greece did not prevent the speculation on other PIIGS. The risks are spreading. As I discussed last week. The only option will be QE (quantitative easing). Central banks will start to buy governments' bond. This will sure anger Germany and induce high inflation.

the profit margin is peaking

The profit margin expansion story is over. PPI is going up quickly but CPI is not which means the profit is being squeezed. Labour cost is at the bottom and start to pick up as well. Interest rate will move up regardless fed's action. All these suggest the P/E expansion is over. If the market wants to go up, the earning has to go up another 10% next year. It is possible but unlikely.

The ompact of oil spill could be bigger

The impact of oil spill is devastating to the environment but people are underestimating the economic impact. The cost to clean up could add up to 5 billion dollars.The impact on travel and fishing industries could be another 5 billion dollars. The shut down on several nearby off shore drills and the impact on oil shipping route will increase crude price by 2-5 dollars which will cost economy in U.S. another 50 billion dollars/year. If BP can not handle it or its insurance is not adequate, then it will have huge impact on U.K economy. BP has over 8 billion dollars in cash and 34 billion in debt. Its ability to generate 27 billion dollar cash flow is in jeopardy right now. I will not be surprised that its bond rating will be cut. Some hedge funds and banks will be hurt by all these.