Archives for February 2010

February 2010 - Page 7 of 8 - Money Morning - Only the News You Can Profit From

Hot Stocks: With its Timely Switch at CEO, Novartis Seems to be Making All the Right Moves

The list of former CEOs is a long one, and has grown substantially as a result of the global financial crisis. Investors find it easy to remember such names as John Thain, G. Kennedy Thompson, Charles O. "Chuck" Prince III, James E. "Jimmy" Cayne and E. Stanley "Stan" O'Neal.

Needless to say, the memories aren't always pleasant.

During the past several years, the departure of a company's chief executive was almost always a sign of a company in the midst of a shakeup – and an admission that there was a long list of deeply ingrained problems to solve.

Few of the departures were truly voluntary, and the financial-crisis-induced ousters usually stoked the turmoil: They almost always came at a surprising time, and there was almost never a successor in place who could step in and quell the uncertainty by immediately taking over.

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Obama Deficit Brings Us Closer to the Brink of National Bankruptcy

U.S. President Barack Obama's budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.

Granted, we're getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!

All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).

The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice – and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.

The disparity in deficit projections between the CBO and the Obama administration weren't limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion – a difference of $2.485 trillion.

The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.

And a troublesome half it is.

To find out how these numbers may forecast a U.S. bankruptcy, read on…

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Why the Shipping Industry is Finally Ready to Reverse Course

"Rock bottom" is one of the gloomy cliches recently associated with the shipping industry. The industry's profitable boom from 2006-2008 was followed by 2009's dramatic fall in shipping rates and billions of dollars in company losses. Shipping line operators bled money due to decreased trade, shipyards were flooded with order cancellations, banks tightened up lending […]

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History Says Lost Decade For Stocks Should Lead to a New Bull Market ... But Will It?

In its 1969 song "Spinning Wheel," the rock group Blood, Sweat & Tears immortalized the phrase "what goes up, must come down."

I cite this bit of music trivia in an investment story for two reasons: First, the name of the band fairly well describes the conditions attached to the stock market's historically sad performance over the just-completed decade. Specifically, a lot of blood, sweat and tears – thankfully followed by a tiny bit of healing in the final eight months of 2009.

Second, for those more attuned to mathematical theory than music, the market results for the 10 years from 2000 to 2009 provide the basis for a prediction for the coming decade – one essentially the inverse of the band's famous phrase. To be more precise, "what went down, must now come up."

That forecast is based on a fairly simple principle: Things that move in wave patterns – such as the stock market – have an overwhelming tendency to "revert to the mean." In other words, when stocks perform well above their long-term historical norm (known as the "arithmetic mean") for an extended stretch, they usually have to underperform for an extended period to get back in line with that long-term mean.

Conversely, when stock-market performance is well below the norm for a long stretch, it theoretically should enjoy an extended run well above the historical mean in order to bring the market's performance back in line with the long-term norm.

And the decade we've just completed was definitely far below that norm.

The prediction is also based on historical precedent, as demonstrated by past per-decade performances of the major stock market indexes.

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Obama Aims to Spur Small Business Hiring With $30 Billion Lending Program

In the latest in a series of efforts to spur American businesses to hire more workers, President Barack Obama today (Tuesday) issued a proposal to provide community banks with $30 billion to increase lending to small businesses.

The new lending program aims to invest $30 billion in 8,000 banks to provide loans to businesses ready to hire new workers.  Funding for the program would come from money returned by large banks to the government's Troubled Asset Relief Program (TARP), and would require Congressional approval.

"Small businesses…have created roughly 65% of all new jobs over the past decade and a half. And I think we should make it easier for them," Mr. Obama said in a statement obtained by The Wall Street Journal. "This will help small banks do even more of what our economy needs: ensure that small businesses are once again the engine of job growth in America."

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Obama's Budget Adds $1 Trillion in Taxes, Balloons Federal Deficit

President Barack Obama yesterday (Monday) unveiled a $3.8 trillion budget proposal that includes big tax increases on individuals and businesses, and expands the federal deficit by more than $5.5 trillion by the end of the decade, including a record $1.6 trillion next year.

The budget blueprint for the fiscal year that begins Oct. 1 reflects the administration's struggle to find a balance between containing the spiraling federal deficit with the need to boost the economy and create jobs – both of which figure to be political bombshells in the upcoming 2010 elections.

"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said at a press briefing.

But the budget is certain to add fuel to the debate over the size and scope of government. As expected, Republicans railed against the administration's big spending programs and tax increases.

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As Washington Turns on Wall Street, Investors Should Expect a Rough Stretch for Financial Stocks

Here in the United States, investors have been startled by the realization that Washington no longer appears to be acting as a benefactor to Wall Street, the financial markets, and the economy. Ever since the collapse of Lehman Bros. Holdings Inc. (OTC: LEHMQ) back in 2008, a Faustian deal was forged between Wall Street executives and the politicos in Washington: Ideologies would be thrown by the wayside to prevent a meltdown of the American financial system and the precipitous collapse of the economy.

First, the Bush administration swallowed its free-market credentials to take over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), while handing the largest banks and the Detroit automakers big piles of taxpayer cash to keep them afloat. Then, the Obama administration resisted populist pressure to punish the bankers getting rich thanks to rising financial markets while unemployment continued to climb.

But that's changing now, and the attack dogs have been unleashed. Policy is moving from supportive (crisis management) to restrictive (crisis prevention and the scoring of political points) at a faster pace and to a much-more-severe degree than many imagined.

It started with extra taxes on bank liabilities to fund a reserve for financial crises, then moved to include a congressional commission to review the causes of the financial crisis, and then to more onerous regulatory oversight. But now it's growing into something more. And that's one big reason stocks in general and the financial sector in particular sold off so severely.

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Warning: This is Not Another Wall Street Conspiracy Theory, These are the Facts

Just last week, the House Committee on Oversight and Government Reform held a hearing on the U.S. Federal Reserve's decision to directly pay billions of dollars to banks as part of its scheme to bail out insurance giant American International Group Inc. (NYSE: AIG).

According to committee Chairman Dennis Kucinich, D-Ohio, the testimony that congressmen heard just didn't "pass the smell test."

What really stinks about the whole mess is not only the cover-up of what really happened and why, but the inability of anybody in Congress to actually do their homework and be able to frame pointed questions and get to the truth.

It's not complicated, but it is convoluted. Here are the facts and some questions that Congress needs to ask – and that the American people deserve straight answers to.

For the inside story on AIG's collapse, read on...

Will Taiwan Arms Sale Ground Boeing?

Roughly $400 billion in revenue would be a heavy price to pay for selling 12 missiles to Taiwan, but that potentially is what The Boeing Co. (NYSE: BA) is facing as China continues to fume over U.S. arms sales to the renegade island.

The Obama administration last week approved a $6.4 billion weapons deal with Taiwan. The deal, which was brokered by the administration of George W. Bush in 2001, included UH-60 Black Hawk military helicopters and additional Patriot PAC-3 missile defenses, but not additional F-16 jets, which the government deemed "too provocative."

The sale infuriated China, which considers Taiwan its territory. Beijing has vowed to unify the region peacefully if possible and forcefully if necessary, but the 1979 Taiwan Relations Act obligates the United States to "provide Taiwan with arms of a defensive character." That makes Taiwan the most sensitive issue in bilateral relations between the two nations.

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Investing Strategies: How to Decode the New Options Trading Symbols

It sounds like it should have been a government project – "clarifying" something by changing it from just four or five letters to a lengthy combination of up to 22 letters and numbers. That is what's about to happen with the trading symbols for "put" and "call" options listed on U.S. options exchanges.

But the "government" had nothing to do with it.

The idea for a new option-quotation format was actually put forth back in 2005 by securities industry insiders whose companies were struggling to find ways to deal with the rapidly growing number of optionable stocks, index options, short-dated "serial" options, long-term issues such as LEAPs – and the expanding strike-price ranges for all of them.

With the guidance of the Options Clearing Corporation (OCC), a group was organized and tasked with creating what was subsequently dubbed the Options Symbology Initiative (OSI) – a system to "overhaul the symbology used in representing listed option contracts in data transmissions between market constituents."

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