$10 Billion Bailout Just Beginning of Dubai's Debt Problems
When Abu Dhabi agreed on Monday to provide Dubai with $10 billion to settle some of its debt obligations, it may have temporarily soothed the concerns of major creditors. But the bailout, and a separate move to set out a legal framework for further debt restructuring, won't do much to relieve Dubai's long-term debt problems.
Plenty of questions remain as Dubai works to repair its reputation and tries to renegotiate the rest of its debts. The full extent of its liabilities is uncertain, but Dubai's known debts are roughly equal to its total economic output last year, with some analysts estimating its total obligations at $100 billion or more, Bloomberg News reported.
"It's not going to stop and go away," John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh, Saudi Arabia told Bloomberg. "There's still debt that needs to be settled in 2010 and 2011."
China May be Great, But Don't Ignore Brazil
Hundreds of millions of Chinese citizens are on a collision course with the middle class – but this doesn't mean it's the first market you should consider.
A study from The McKinsey Quarterly supports this well-documented phenomenon, and estimates that it will take two decades before the Chinese nouveau riche reaches its full spending potential.
I'm not about to refute that claim here. But instead, I want to caution you: Don't be blinded by the euphoria over Chinese consumers and overlook an equally compelling opportunity in another emerging market.
Let's head down to Brazil and I'll explain why – along with the best way to profit, of course.
How Washington Will Mess with Your Money in 2010
In this era of growing government involvement, it's no surprise that Washington is poised to be the biggest economic wild card of the new year.
Indeed, investors who are trying to estimate the impact that politics will have on their portfolios in 2010 are likely finding this attempt at analysis to be an exercise in futility.
If that's been the case, read on: Political pundits – even those who claim to be impartial – spend a lot of time trying to score points for their side. But they aren't really that interested in the economic aspects of the endless battle. I certainly don't claim to be any more unbiased than the next person. However, I thought it worth trying to take an educated guess at what will actually happen, and what it will mean for our money.
Markman on the Markets: Historic Bull Run in Bonds Points to Higher Prices for U.S. Stocks
A sluggish month in the stock market has equity investors worrying about what's next.
But those equity investors would feel so much better if they'd just spend a little time studying the credit markets. And with good reason: The bull market in credit that continues to rage in the face of this stock-market lethargy leads us to one simple conclusion.
Stock prices have to head higher.
Indeed, independent analyst Brian Reynolds tells us that if stocks were trading at the same level as credit, the Standard & Poor's 500 Index would already be at 1,350 – 22% above where it closed on Friday.
For those who argue that the market has already rallied a great deal, or too much, let me just note that the S&P 500 would have to rise by another 41% just to get back to the level of three years ago. The key thing that bulls have in their back pocket is that investors are still trying to get used to the idea that the sky hasn't fallen – and have not yet priced in the prospects for a 25% increase in S&P 500 profits that we are likely to see in 2010.
Investment News Briefs
With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.
Dubai Gets $10 Billion Bailout; Citi Unveils First TARP Payback Plan; Cadbury Formally Rejects Kraft Offer; British Airways Cabin Crews to Stage Holiday Strike; Obama to Banks: Help the Economy Recover; Online Shopping Grows 3% Over 2008; Chinese Automaker Buys Saab Platform Technology; Toyota to Release Plug-In Hybrid in 2011
- Debt-laden Dubai got a $10 billion bailout from neighboring Abu Dhabi, boosting global markets but raising questions about the undisclosed terms of the deal, Reuters reported. The fund will enable state-owned investment vehicle Dubai World to repay a $4.1 billion bond its real estate developer Nakheel PJSC was due to honor yesterday (Monday). Despite the bailout, credit ratings agency Fitch Ratings Inc. called Abu Dhabi's support only " a tactical step to permit an orderly restructuring of obligations within Dubai to continue."
- Citigroup Inc. (NYSE: C) formally laid out its plans to repay $20 billion in Troubled Asset Relief Program (TARP) loans, which includes selling about $17 billion in common stock and about $3.5 billion of securities that turn into common shares. The TARP payback leaves Citi with a balance of roughly $15 billion, meaning it is still under the U.S. government's thumb. "They're still in the government's embrace. It's just not a bear hug now," Anton Schutz, president of Mendon Capital Advisors Corp., which owns Citi shares, told Reuters .
- Cadbury PLC's (NYSE ADR: CBY) board of directors unanimously rejected Kraft Foods Inc.'s (NYSE: KFT) $16.2 billion bid, calling it "wholly inadequate." While no competing offers have materialized yet, Cadbury has "had indications of interest from third parties on possible business combinations," Chief Executive Officer Todd Stitzer said in a conference call, declining to name any companies. The Hershey Co. (NYSE: HSY) as well as Nestle SA (PINK ADR: NSRGY) have been reported as potential competing suitors, but unless a company comes forward with a bid, Cadbury's shareholders – which have until Feb. 2 to approve or reject Kraft's bid – may green light Kraft's offer. "We're not overwhelmed by Cadbury's defense…This is not enough to squeeze a massively higher offer from Kraft in our view," James Edwardes Jones, an analyst at British broker Execution Ltd.told Reuters. "It is difficult to see why Kraft needs to pay up much more than 800 [pence]." Kraft's bid is about 727 pence per Cadbury share, and most analysts believe it needs to pay 820-850 pence to buy Cadbury.
Exxon Deal For XTO Energy May Set Off Wave of Energy Mergers and Acquisitions
In a deal that may set off a wave of mergers and acquisition (M&A) activity in the energy sector, Exxon Mobil Corp. (NYSE: XOM), the biggest U.S. oil company, agreed to buy XTO Energy Inc. (NYSE: XTO), the largest U.S. natural gas producer, in an all-stock deal valued at $31 billion.
Exxon, which hasn't made a major acquisition since it bought Mobil ten years ago, is taking advantage of the low gas prices pressuring smaller, debt-laden gas exploration companies. The economic downturn and discoveries of vast pools of North American natural gas have kept a lid on gas prices, leaving companies in the industry strapped for operating cash.
The deal announced yesterday (Monday) values XTO at $51.69 a share, 25% higher than Friday's closing price. XTO holders will get 0.7098 share of Exxon for each share of XTO. The Texas-based oil giant will also assume $10 billion in debt.
By Collecting $533 Million in Fees, Lawyers Become Big Winners in Lehman Bros. Bankruptcy Case
Shareholders were the big losers when investment-banking giant Lehman Brothers Holdings Inc. (OTC: LEHMQ) collapsed in 2008.
Now, the bankruptcy lawyers are positioned to be the big winners. Lehman has already paid its bankruptcy advisers $533.5 million since September 2008, topping the half-a-billion-dollar mark in just 14 months, the investment-banking firm has revealed to the U.S. Bankruptcy Court in New York.
In mid-September 2008 – in one of its wildest and weirdest stretches ever – Wall Street entered a weekend awaiting a government bailout of Lehman Brothers and exited with Merrill Lynch & Co. Inc. agreeing to sell itself to Bank of America Corp. (NYSE: BAC) for nearly $50 billion, Money Morning reported. Lehman stunned investors by announcing it would seek bankruptcy in a bid to avoid a total liquidation after it was unable to find a buyer.
How to Profit From the "Evil Genius" of Goldman Sachs
When references are made to the world's "oldest profession," I sometimes wonder if we're not exactly referring to market manipulation. In this country alone, market operators have been employing all sorts of market manipulations for more than 100 years.
What may surprise you is that most of it isn't illegal or even improper; in institutional circles, it's actually viewed as shrewd business.
One such manipulation was put on display this week – a news development that had me howling in disbelief and left me in awe of the evil genius of Goldman Sachs Group Inc. (NYSE: GS).
But if we step back, there's a lesson here – a lesson that points to real potential profits if we stop to understand what's about to happen before our very eyes. It's a lesson that I preach to investors – that the institutions that operate the market and maintain its very framework, also "influence" that market's movements. In fact, this real-market "case study" confirms the profit strategy that I've set out in this special report.
These machinations are completely legal. But they do happen and those who understand that also have the opportunity to profit from that knowledge. And you don't even have to be part of the institutional elite to do so if you know what to look for.
Let me explain…
Two Sentiment Indicators Investors Should Watch
Want to get an edge on the market? Sentiment might be a good place to look. Sentiment tells you how the majority of investors are positioned in a particular market, giving you clues about the next short-term move. Most of the time, it's an exercise in futility. The bulls and bears are about equally balanced, [...]
Buy, Sell or Hold: Government's HeavyHanded Plans Spawn Profits With These Three Top Stocks for 2010
When government boosts its involvement in the economy, there's a predictable impact on interest rates, taxes, inflation, the country's currency and even its stock market. As a veteran global investor, I've seen this play out time and again in emerging-market economies, where it's commonplace for government to play an active and heavy-handed role.
I know from my years of experience just what to expect each and every time this story plays out. And that's not all.
I also know how to turn this special knowledge into beat-the-market profits.
Here in the United States, the Obama administration and the U.S. Federal Reserve are like two elephants that have been put to work brutishly reshaping the U.S. economy. We're already experiencing the effects of big government involving itself in the private sector. Expect the dollar to fall even more – after year-end profit-taking ends. Also expect a further deployment of government-stimulus money to industries where the United States has a large competitive advantage and can generate domestic jobs.
We'll be only too happy to ride the resulting economic shifts for profit.
In fact, as part of this installment of "Buy, Sell or Hold" – I've identified three of the best profit opportunities for the New Year. The three "must-own" companies – each poised to benefit from these shifts – are: Corning Inc. (NYSE: GLW), The Boeing Co. (NYSE: BA) and Cypress Semiconductor Corp. (NYSE: CY). We offer them to you here as part of a Money Morning "Outlook 2010" Special Report.