Euro vs USD... $USD$ wins in first round knockout

Portfolio Breakdown:
APP - 3.3%
BAC - 13.9%
TBT - 5.5%
ITUB - 12.5%
AOB - 15.3%
COINU - 2.1%
TAMB - 32.0%
HOGS - 35.5%
SDX - 5.8%
OCNF - 3.6%
MBI - 19.0%
TRLG - 8.7%
CAD Cash - 3.1%
USD Cash - (60.3%)

Portfolio Performance:
Return Since Last Update - 5.61%
Return Since Inception (June 30, 2009) - 169.72%
S&P 500 - 1075.51
S&P 500 Return (June 30, 2009) - 17.04%

The Prior Week of Trading:
Greece and China seem to be a sore spot for the market, albeit for different reasons. It looks as though Greece may have used swap arrangements to hide its poor fiscal position to help it join the EU initially; Greece's deficit of 12.7% to GDP last year is well above the 3% limit for Euro zone member countries. As the government debates various measures to bring down the budget gap, public union workers are protesting in the streets and threatening to close facilities such as schools and hospitals. Greece may have to drop out or the Euro zone because of an unsustainable fiscal deficit and unions are refusing to take concessions... sound familiar UAW? The EU treaties do not allow for an ECB bailout of the country through sovereign debt purchases which means that if a bailout comes it would have to be in the form of loans from other member countries. Either option is undesirable and would most certainly continue to pressure the EURO; the only way to remedy this problem is for the Greek government and it's people to do what is necessary to institute fiscal responsibility... necessary, but unlikely.

China has the opposite problem of having too hot an economy and is in the midst of a self described real estate bubble. By continuing to increase the reserve requirements for the nations banks, less money is available in the system for loans; the government is hoping to cap excessive loan creation and money supply expansion before it becomes too much of an issue. The concern here for the global economy is that if growth in China moderates it wont be enough to help propel global demand and spending. I think a better move for the Chinese and the global economy would be to allow their currency, the renminbi, to float freely; this would help stabilize trade imbalances and foster an environment for domestic growth and a better standard of living.

With continuing problems in the EU, the USD should be a beneficiary in the short-medium term. I would expect both the USD and treasuries to perform well as the stock market moves more or less sideways. As economic growth improves, money should shift out of treasuries and into stocks, providing the catalyst for an extension of the current bull market. Jobs seem to be the only missing piece to the economic puzzle; capacity utilization and employment hours worked are moving up, setting the stage job growth and the next inventory restocking cycle. The one concern I have is where sustained job growth will come from; the pending bubble in the housing industry provided jobs after the 2001 recession, but where will the jobs come from this time?

As for my portfolio, the biggest event that happened last week was the earnings release by TAMB; much to my dismay, they reported a loss of 7.37 for the quarter (ouch). The full report is still pending, but I was able to discern a few things from the press release. In a nutshell, it appears as though provisions for loan losses were only increased slightly while their portfolio of loans was reduced by about 15% and assets by about 10%; by selling off OREO and their nonperforming loans the bank has shrunk the balance sheet significantly. I have calculated the majority of the firm's book value to be erased and now there exists little upside for them to capitalize on a turn in real estate values or loan defaults. The only good news I see here is if after these moves they are in a position to report positive earnings growth in future quarters. I am hoping the full earnings report provides more clarity. The only significant change I made this week was to shift funds from TBT to improve my margin and buy more AOB.