Archives for December 2009

December 2009 - Page 8 of 10 - Money Morning - Only the News You Can Profit From

Was Friday's Trading the First Sign of a Carry Trade Reversal?

Although it's too early to know for sure, Friday's action suggests we could be seeing the earliest stages of a carry trade reversal. Remember that hedge funds and other highly leveraged institutional investors have been borrowing here in the United States at ultra-low interest rates, selling the dollar short, and using the proceeds to snap up stocks, bonds, and gold.

Stocks rocked and rolled on Friday as traders reacted to a better-than-expected jobs report for November. Payrolls dropped just 11,000 and the unemployment rate fell to 10%. The consensus was expecting a payroll drop of 100,000 and the unemployment to remain at 10.2%. Sure, employers still made cuts. But by all indications were on the cusp of a job market turnaround.

An initial early morning blast took small cap stocks up as much as 3% before sellers emerged. The main concern was that a strong economy will force the U.S. Federal Reserve to drop its easy money policy that has it purchasing some $3 billion in mortgage-backed securities (MBS) per day while keeping short-term interest rates pegged near zero. The futures market now pegs the probability of an interest rate increase by August 2010 at 100%.

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Hot Stocks: Is Markel Corp. a Berkshire Hathaway in the Making?

Ask any 10 U.S. investors to name the most-admired American financial figure and it’s a pretty good bet at least nine of them will answer Warren Buffett.

Thus, it should come as no surprise that other firms would want to emulate the business strategies of Buffett’s company, Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) – which is exactly how Markel Corp. (NYSE: MKL) is making its name on Wall Street.

Like Berkshire, Markel Corp. lists its primary business as insurance – but it’s no State Farm Insurance or Allstate Corp. (NYSE: ALL). Rather than selling auto or homeowners policies directly to consumers, Markel and its subsidiaries (listed below) sell specialty insurance products and programs in an assortment of niche markets.

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Buy, Sell or Hold: Johnson & Johnson (NYSE: JNJ) Brings a Strong Business Model and 100 Years of Experience Into 2010

I know Johnson & Johnson (NYSE: JNJ) very well. I live in the heart of big pharma country: Princeton, N.J. And I have been interacting regularly with many people in this industry, including all levels of the Johnson & Johnson management for years.

Johnson & Johnson is a company that my peer analysts and I have admired for decades. And this well-deserved admiration goes well beyond the financial community.

Let me tell you why.

JNJ has a sound business model that emphasizes the development and marketing of top quality drugs and benchmark consumer products. Its strong and stable profit margins – with gross profit north of 70% – and its consistent growth over more than a century are matched by only a handful of companies.

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Lawmakers Looking to Use Excess TARP Funds for a Second Stimulus

With the unemployment rate still lingering above 10%, House Democrats are suggesting some of the excess funds from the government's Troubled Asset Relief Program (TARP) be used to promote job creation in what would essentially be a second stimulus.

The Obama administration said in August that TARP – which Congress funded with $700 billion of taxpayer money – would only cost the $341 billion once banks repay government loans, injections and other investments. Now, the U.S. Treasury can take another $200 billion off of that, Reuters reported, citing an anonymous Treasury official.

"We're going to explain that we're going to have substantial savings, that we're going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges," Treasury Secretary Timothy Geithner said in an interview with Bloomberg.

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Copenhagen Climate Summit Could Reshape the Investment Landscape

Leaders and policymakers from nearly 200 nations yesterday (Monday) commenced an 11-day summit in which they will attempt to hammer out some details of a carbon treaty that could have significant impact on businesses and investment.

The Copenhagen summit aims to put finer points on what, up to this point, have been dull notions about how to respond to global climate change. World leaders from both wealthy and developing countries will attempt to set new carbon emissions goals, outline a timetable for achieving those goals, and detail on how they will be financed.

Some analysts are skeptical that such an immense undertaking will be met with success. Emerging and developed nations have clashed in the past, as poorer nations contend that climate change is a problem wrought by industrialized countries. Industrialized nations, they argue, should therefore be held to higher standards and offer financing to emerging markets that are ill equipped to deal with reform.

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Healthcare Reform May Not Cut Spending or the Federal Deficit

Senate Democrats last week took a critical first step for U.S. President Barack Obama's sweeping healthcare overhaul when they successfully held off Republican efforts to reverse $460 billion in cuts to Medicare – money needed to expand coverage to tens of millions of uninsured Americans.

But as the political battle wears on this week, experts say the debate should turn its focus to one critical question: Will the legislation will put a damper on soaring healthcare costs or simply pile millions of people onto a system that already is threatening to drive the United States into bankruptcy?

Despite contentions by the White House that the bill is a necessary first step in efforts to reform an out-of-control medical system, most analysts are deeply divided over the long term implications of both the Senate and House bills for medical spending and federal deficits.

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Low November Job Losses Shock, but The Jobless Recovery Continues

November payrolls fell by much less than expected – declining by just 11,000 – and the unemployment rate fell to 10.0%, the U.S. Department of Labor said Friday. But while it's becoming more apparent that the U.S. job market is closer to growth, caution is still the buzzword as the jobless recovery continues.

When growth does return the consensus is that getting back the roughly 7.2 million jobs lost since the recession began in December 2007 won't be an overnight phenomenon.

"I think it's a little bit premature for champagne, but after enduring two years of really bad news, let's enjoy this one," Jay Bryson, an economist with Wells Fargo Securities (NYSE: WFC) told CNNMoney.com. "You've got to walk before you start running. I don't think we're walking yet, but we're starting to get back up on our feet."

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Preparing For the Next Asia

[Editor's Note: This interview was adapted from a recent issue of the McKinsey Quarterly, the business Journal of McKinsey & Co. It is reprinted with McKinsey's permission.]

Asia has proven comparatively resilient against the current downturn, but hurdles still lie ahead. In order to maintain robust growth rates in the face of weak U.S. demand, the region's dynamic economies must stoke domestic consumption and embrace environmentally sustainable development policies, says Stephen Roach, chairman of Morgan Stanley Asia (NYSE: MS) and author of "The Next Asia: Opportunities and Challenges for a New Globalization."

Clay Chandler, Asia editor with McKinsey & Co.'s publishing group, spoke with Roach in Hong Kong recently. During the interview, Roach analyzed the prospects for increased integration and cooperation between the region's economies; explored the pitfalls and potential for countries like India and Japan; and considered whether the "Asian Century" has finally arrived.

Here is the text of that interview.

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With NBC Deal Done, Comcast Becomes the New Cable Juggernaut

Comcast Corp. (Nasdaq: CMCSA) will acquire a 51% stake in General Electric Co.’s (NYSE: GE) NBC Universal Inc. for $13.75 billion in cash and assets, giving the cable giant lucrative cable channels including SyFy, Bravo and the USA Network, as well as Universal Pictures and its related theme parks in California, Florida and Japan.

But for GE, the deal is a precursor to and eventual exit from the media business.

"This isn’t just one of the biggest media deals, this is arguably one of the biggest M&A deals in years," Wunderlich Securities Inc. analyst Matthew Harrigan, who recommends buying Comcast shares, told Bloomberg News.

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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.

Bernanke Defends Record Before Senate; Service Sector Slumps in November; Retailers Hit by Bargain Hunters; New Rules May Grant Relief to Banks; Mortgage Rates Hit Record Lows; ECB Keeps Rates at 1%; American Outbids Delta for JAL Partnership

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