Global Markets

Jim Rogers Says New Greece Deal Can't Save Europe

Investing legend Jim Rogers said that although the latest Eurozone deal for Greece is more generous than he expected, it's not enough to solve Europe's problems.

"Politicians have delayed addressing the problem yet again," Rogers told Investment Week. "It will come back in a few weeks or a few months and the world will still have the same problem, but this time only worse because the European Central Bank and other countries will be deeper in debt."

The deal European leaders hammered out on Thursday includes boosting the region's rescue fund to $1.4 trillion (1 trillion euros) and asking bondholders to take a voluntary 50% haircut on Greek debt.

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Unfair Chinese Business Practices Threaten Profits of U.S. Businesses

U.S. companies have become increasingly worried that unfair Chinese business practices are hurting their ability to compete and will start eating into the juicy profits they've been extracting from the Asian giant.

Problems with how China treats foreign businesses have been simmering for several years, but a recent incident with Wal-Mart Stores Inc. (NYSE: WMT) has pulled those issues back into the spotlight.

Earlier this month the Chinese city of Chongqing forced Wal-Mart to close 13 of its stores for two weeks because officials said the retailer had mislabeled less expensive pork as a better organic type. The officials also fined Wal-Mart $423,000 and even arrested two employees.

This unusually severe response isn't the first. Chinese authorities in May fined Unilever PLC (NYSE ADR: UL) more than $300,000 for announcing that it planned to raise prices – a move officials said undermined the government's attempts to control inflation. French-based Carrefour (PINK: CRRFY) was fined for posting erroneous prices.

Google Inc. (Nasdaq: GOOG) had a protracted battle with Chinese authorities last year over censorship of its search service. Google moved its search engine overseas in protest. Many analysts saw the incident as a way for the government to shepherd users toward domestic search giant Baidu Inc. (NYSE ADR: BIDU).

These penalties top years of unfair Chinese business practices that give advantages to state-owned businesses, including regulations that compel foreign companies to transfer their technology to Chinese firms and laws that weigh more heavily on foreign companies than domestic ones.

"If I were a foreign company, I'd be pretty scared right now," Corbett Wall, a retail expert who heads Shanghai consulting firm +CW Associates, told USA Today. "I absolutely think that [what happened to Wal-Mart] has to do with tensions building up between China and foreign companies."

Hurting Profits

Big U.S. companies have relied on expansion into China's growing economy to prop up earnings during a period in which Western economies have sagged. They're concerned that if the trend of unfair Chinese business practices worsens, it'll threaten their profits.

According to the 2011 annual survey of U.S. companies conducted by the American Chamber of Commerce in China (Amcham), a majority of U.S. businesses – 71% – said China's licensing process discriminates against foreign companies.

And 40% said they thought the "indigenous innovation" policy – in which the Chinese government favors domestic companies over foreign ones in matters of official procurement – would hurt their business. More than one in four – 26% – said that policy already had hurt them.

A similar number, 24%, said that economic reforms in China had not improved the business climate for U.S. companies, a steep increase from the 9% who said so a year earlier.

At the same time, 78% of U.S. companies said that their operations in China were "profitable" or "very profitable."

"There are two themes to the data," Amcham China Chairman Ted Dean told Bloomberg News. "American companies are doing well and American companies are concerned about in some cases the current regulatory environment and in others the trend line for the regulatory environment."

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Four Moves to Make Before Greece Defaults

The very austerity measures that Greece implemented to remedy its sovereign debt crisis have crippled its economy so badly the country is actually sinking deeper into the red, making default all but inevitable.

Already suffering from a four-year-old recession, the Greek economy has been dragged down further by the series of austerity measures – tax increases combined with cuts in pensions and wages. As a result, the Greek economy is expected to contract 5.5% this year and 2.5% in 2012.

The Greek government announced this week that unemployment soared to 16.5% in July, up from 12% a year earlier. It's expected to rise to 17.5% before the end of this year.

With its gross domestic product (GDP) shrinking, Greece has less money to repay its debts, and worse, it must continue borrowing at higher interest rates.

Greece's debt-to-GDP ratio is expected to rise to 162% this year and 181% in 2012.

"Without drastic action, [Greece's] debt-to-GDP ratio will rise to even more alarming levels," a Milken Institute report on the Greek debt crisis said earlier this month. "The ratio is reaching levels at which it becomes extremely difficult, if not impossible, for a country to avoid default on its debt."

Even the "troika" of Greek lenders – the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) – concluded in a report released yesterday (Thursday) that the troubled country's "debt dynamics remain extremely worrying."

"When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatization plan," the report said.

The report also expressed concern that Greece's budget deficit for 2011 will fall between 8.5% and 9% of GDP, which exceeds the target of 7.75% of GDP set by the troika as a condition for granting the most recent batch of bailout loans.

What's Next

To continue to meet the troika's criteria for still more bailout loans – which Greece must have to avoid default – even more austerity measures will be needed.

But the Greek public, as well as many politicians, has displayed more resistance with each new set of austerity measures.

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Despite Global Slowdown, This Chile Fund Will Prosper

Chile's central bank is worried about the global economy. Although it decided to keep its interest rate at 5.25% for now, the bank's board said slowing growth prompted it to consider a rate cut as early as December instead of early next year. But even though Chile sees a slowdown ahead, its gross domestic product […]

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A Guide to Getting Rich in a Bear Market

To most investors, just surviving a bear market is more important than finding the next jet-fueled growth stock.

But I want to let you in on a secret: Rather than just trying to survive, investors can actually thrive in bear markets.

In fact, I make a lot more money a lot faster in bear markets than I do in bull markets.

After all, stocks and most other asset classes typically fall faster than they rise, because fear is a much stronger motivator than greed.

So if you're not making money in a market like this one – where prices are falling, even plummeting – you're missing out.

It's time to change that. And I'm going to show you how.

Bear Market Funds

The best way to profit from a bear market is to use exchange-traded funds (ETFs) in conjunction with options.

Let's first look at the ETF component.

There are plenty of inverse ETFs that go up in price when markets go down. And for even more oomph, there are "leveraged" inverse ETFs.

You can use these funds to "short" stocks and commodities, without having to open an options account, or rely on a broker.

But remember to do your homework. Make sure you understand exactly what each ETF you're interested in actually represents. Don't just go by the name. Read each prospectus to learn how the fund's investments are allocated and how it's supposed to perform under various market conditions.

Also be sure to check the bid -and -ask spread to make sure it isn't too wide, and the average daily volume to make sure it isn't too thin. I don't trade any ETFs that trade less than 1 million shares a day, on average.

Another thing to keep in mind is that many ETFs make good short-term trading vehicles, but are bad long-term investments. That's because many ETFs don't track their benchmarks precisely. And if they are leveraged, the tracking error widens considerably over time.

Still, these are very versatile instruments. You can buy them in retirement accounts, they are margined the same way stocks are, they are liquid and tradable all day, and you can put in stop-loss and profit -target orders.

Exploring Your Options

The second way to profit from a bear market is through short selling.

I say that all the time and I'm surprised how many people think it's wrong to short stocks.

Trading to make money in a bear market has nothing to do with what's good for the U.S. economy or for America. It's simply a matter of what's good for your net worth.

The old notion that it's un-American to short stocks comes from Wall Street's institutional elite. They don't want the public shorting stocks. In fact, they don't want the public even selling stocks. Why? Because Wall Street wants buyers lined up to pay for the stocks that it is selling short.

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In Today's Crazy Markets, Here's the One Global Region to Invest in Now

Money Morning global investing guru Martin Hutchinson has identified the one global region that he's focusing on as the world's next big profit play.

You'll be stunned to see what he's discovered.

But you'll also be wise to listen.

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IMF Growth Forecast: U.S. and Europe Will Ignore Warnings, Despite Slashed Estimates

In lowering its growth forecast for the United States and Europe, the International Monetary Fund (IMF) warned of "severe repercussions" unless drastic measures are taken soon.

But don't expect the warning to spawn any real action.

"The global economy has entered a dangerous new phase," Olivier Blanchard, the IMF's chief economist said in the report released yesterday (Tuesday). "The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks."

The IMF slashed its 2011 growth forecast for the U.S. economy from the 2.5% estimate it offered in June all the way down to 1.5%. Next year won't be any better: The 2.7% 2012 projection the IMF offered in June was cut all the way to 1.8%.

"Bold political commitment to put in place a medium-term debt reduction plan is imperative to avoid a sudden collapse in market confidence that could seriously disrupt global stability," the IMF said.

But with governments in Europe moving slowly to contain the sovereign debt crisis afflicting the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the United States suffering from political gridlock, the IMF's call to action will likely go unheeded.

In recent weeks, U.S. President Barack Obama has proposed a jobs plan, as well as a deficit reduction plan. But with congressional Republicans opposed to elements of those plans – primarily increases in spending and taxes – the swift policy action the IMF sees as critical will likely be stillborn .

In Europe, the IMF is calling for bold action to contain the debt crisis. It is particularly worried that a Greek default could cause many large banks – which own much of the Greek debt – to take large losses.

That U.S. banks are intertwined with European banks heightens the risk.

According to Money Morning C apital W ave S trategist Shah Gilani, "U.S. banks are widely believed to have $41 billion of direct exposure to Greece" and have loaned heavily to their European counterparts.

More sobering, Gilani says, is that "U.S. money-market funds have a hefty European exposure, too." He noted that 12% of the loans made by our biggest money-market funds were made to three big European banks – two of which, Societe Generale SA (PINK ADR: SCGLY) and Credit Agricole SA, were downgraded by Moody's Corp. (NYSE: MCO) just last week.

The third, BNP Paribas SA, remains under review.

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How Greece's Debt Issues Are Becoming a Global "Black Hole"

The extremely volatile markets of late stem in part from news suggesting Greece's debt issues have made a default imminent – creating a global black hole that's sucking in a growing number of other economies with it.

Default fears intensified last Friday when European finance ministers announced they would delay a decision on whether or not Greece was eligible for its sixth tranche of bailout funds. Greece was scheduled to get the next $11 billion (8 billion euros) installment of its $152.6 billion (110 billion euros) aid package by the end of September, but now must wait at least until October.

European Union (EU) and International Monetary Fund (IMF) inspectors met with Greek Finance Minister Evangelos Venizelos last night to evaluate the country's progress with austerity measures. Greece agreed to reduce its deficit to 7.5% of gross domestic product (GDP) this year, and below 3% by 2014 in order to receive bailouts from the IMF and other euro nations.

But investors are afraid the country will run out of cash before a bailout decision is reached.

Greece may not be going down to a Trojan-level defeat in the next few days, or even weeks, but there is little doubt that the country cannot afford to remain harnessed to the euro. It faces almost certain default at this point, sad to say, which means that some big banks, shareholders and bondholders are going to suffer.

Perhaps those Eurozone critics who said that a currency union not backed by taxation or bond-issuing authority was a bad idea should have been heeded. Then countries like Greece would not have been encouraged into a currency union that's an ill-suited match for its unique economy, history and ambition.

Now the critics are being proven largely right, unfortunately.

The most dangerous thing is new evidence that the debt crisis continues to spread.

Looks like France is headed down the same path as Italy and Spain. According to a Bloomberg News story last week, France may need new austerity measures to avoid a bond sell-off and credit rating downgrade.

It seems that Nicolas Sarkozy is the new Silvio Berlusconi.

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As Greek Debt Default Nears, Investors Need to Take Cover

At this point a Greek debt default is virtually unavoidable, and it could happen in a matter of weeks.

The ensuing chain reaction will upend markets around the world and will almost surely lead to more defaults among the European Union's (EU) other debt-plagued nations, collectively known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

The bond markets have already passed sentence, with the yield on two-year Greek bonds spiking to an astronomical 76% yesterday (Tuesday). Yields on 10-year Greek bonds rose to 24%.

By comparison, the 10-year bond yields of another PIIGS nation, Italy, rose to 5.74%. Meanwhile, bond yields for the EU's strongest economy, Germany, have dropped below 2%.

The credit default swap (CDS) markets, where investors can insure their bond purchases against default, agree with the bond markets' verdict. As of Monday it cost $5.8 million and $100,000 annually to insure $10 million worth of Greek debt for five years, which means the CDS market now considers default a 98% probability.

Most European stock markets have been hammered over the past several weeks, with some dropping as much as 25%.

"Default is inevitable," said Money Morning Global Investment Strategist Martin Hutchinson. "Greeks are paid about twice as much as they should be, and that gap can't be solved by austerity."

How Soon is Now

In recent weeks Germany has shown more reluctance to dig deeper into its own pockets to bail out Greece and the other PIIGS. At the same time, Greece has struggled to implement the austerity measures that are required if it is to continue receiving aid from the European Central Bank (ECB) and the International Monetary Fund (IMF).

Greece's budget deficit has increased 22% this year, while its economy is projected to shrink more than 5%.

Every new development appears to bring Greece closer to the brink of default – and some see that happening in the very near future.

"My guess is there will be a Greek debt default by the end of this fiscal quarter – yeah, that means very soon," said Money Morning Capital Waves Strategist Shah Gilani.

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