Profit in Treasuries, Iran & N. Korea
Research for Online Investors

by John Dalt

6/23/09

The U.S. Treasury is auctioning $104 billion in bonds this week, $40 billion in 2-year notes today, $37 billion in 5-year bonds on Wednesday, and $27 billion in 7-year notes on Thursday. Treasury is on track to sell over $2 trillion this year, with the Fed buying $300 billion with money from under Bernanke’s desk.

It looks more and more like the Treasury is trying to avoid selling 20 and 30-year bonds.  Are they afraid of what the market will tell them?  We will get some 10’s and 30’ on July 8-9.  The prospect of a failed auction in U.S. debt should cause sleepless nights at the White House.

The Europeans are at it too. France, Belgium and Ireland will sell their bonds through banks, thus reducing the chances of a failed auction. Germany and Britain both had failed auctions this year, and syndication is one way for countries to avoid the bad publicity of a failed auction. The banks will underwrite approximately 10 billion euros worth of bonds this week.

The U.S. and European Union each filed an unfair trade complaint against China today with the WTO (World Trade Organization).  The case involves the export of raw materials for production outside of China.  By restricting exports, China gives its producers an advantage in price and availability.  The raw materials include bauxite, coke, magnesium, and silicon metal.  It is against WTO rules to restrict exports.  China exported 336 million metric tons of coke in 2008; annual exports this year are only 12 million metric tons.  Read more about China trade practices.

Watch this case as it develops; it may be bullish for steel producers.  Of interest would be U.S. Steel (X), and Posco Steel (PKX) of South Korea.  An additional consideration for U.S. Steel is the cost of importing cheap steel.  As energy costs increase, shipping cost rise.  Domestic production of many items should become more competitive domestically as the transportation costs of imports increase.

North Korea is ratcheting up their language and calling the bluff of the U.N. Security Council. N. Korea has declared enforcing the sanctions would be an "act of war".  Maybe not, the U.N. Security Council is a joke.  China lives in a different world.  They are afraid to cause any reason for N. Korea to implode, as they fear it would mean a rush of refugees flooding over their border.

The latest Security Council sanctions allow inspections of ships, if a member state has “reasonable grounds” to believe that its cargo contains banned weapons or materials. First, you have to get permission from the country whose flag the ship is flying. Will N. Korea allow us to inspect their ship? If permission to inspect is refused, the ship is directed to a port. Member states have been ordered not to provide services.

China is N. Korea’s enabler.  The best scenario is if China is involved and pushes N. Korea to the brink.  N. Korea will not go against China, as the Chi-coms are the only benefactors the little dictator has left.

SwingTrader has a position in oil right now.  One mistake in Iran or N. Korea could shoot oil to $100.  There is no terror premium in oil, which could change in a moment.  Crude oil moved higher 3% after Oh! Bama seemed to take a harder stance on Iran during his news conference this morning.

The Mullah's are too busy killing their own people to export their hate!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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