March 2010 - Money Morning - Only the News You Can Profit From
Shareholder Concerns Snag Prudential's $35.5 Billion Deal For AIG's Asian Unit
Prudential PLC's (NYSE ADR: PUK) much-ballyhooed buyout of American International Group Inc.'s (NYSE: AIG) Asian insurance-unit – AIA Group Ltd. may be on the rocks as the U.K. insurer's shareholders balk at the price.
The proposed buyout calls for Prudential to hand over $35.5 billion to U.S. government-owned AIG. But Prudential's biggest investors are resisting the deal because they believe the company is paying an overly rich premium for AIA, according to sources cited by the New York Post.
Additionally, the method of financing the blockbuster deal puts too much pressure on Prudential shareholders to come up with $20 billion in cash through a rights offering.
Question of the Week: Do the Pitfalls Outweigh the Promise For the New Healthcare Reform Program?
When U.S. President Barack Obama signed the new healthcare-reform bill into law yesterday (Tuesday), it ended months of political bickering and maneuvering, and began a new chapter in the nation's healthcare saga – one in which the country will feel the effects of this sweeping, costly and controversial policy overhaul.
The fact is that many Americans will have healthcare for the first time ever. Offsetting that bright spot, however, is the reality that the program could add trillions in debt to the country's already burgeoning national debt, further complicating the matter.
Going forward, it will now be left to the pundits, analysts and the healthcare industry to decipher what these provisions really mean for the industry, for individuals, for taxpayers – and even for investors.
But here at Money Morning, we wanted to know what you think about this new law. That's why we made healthcare reform the inaugural topic in our new "Question of the Week" feature.
Money Morning Question of the Week: U.S. President Barack Obama's controversial healthcare proposal is now law. What do you think? How do you feel? Do you think it's a beneficial or harmful move for you as a consumer, as an investor, and as a taxpayer? What do you think it means for our nation's economy?
What follows is a sampling of the enthusiastic and passionate responses that we received. Make sure to also check out next week's "Question of the Week," a query that seeks your thoughts on the growing levels of U.S. debt.
How to Profit From Europe's Best-Kept Secret
Here's a bit of global-investing trivia that I'll wager most folks will have a tough time answering: One of the world's finance ministers has attacked the International Monetary Fund (IMF) for encouraging governments to engage in excessive "stimulus" in 2009, thus giving themselves horrible deficit and debt problems in 2010.
Name the country that finance minister hails from.
I'll even give you a hint: He's not from Germany, which avoided "stimulus" but tends to be polite about the IMF and had a fairly nasty recession itself.
He's from Poland.
Although it's a surprising answer, don't be too surprised. Poland is today the most capitalist country in Europe and has become one of the most capitalist economies in the world.
It's clearly Europe's best-kept secret.
The story of Poland's emergence is both interesting and instructive. And during a period of growing angst and uncertainty here at home, Poland represents an interesting place to put some investment capital.
Let me explain…
Playing 'Follow the Guru' Can Be Fun – and Profitable
If you wanted to distill all the world's best investment advice down into a single sentence, the result would actually be fairly simple:
In short: Follow the guru. That's not just a clever phrase. In fact, if you picked any of the investment world's living legends and copied what they did, odds are you'd be pretty successful over time, regardless of the general market environment during any given short-term period.
Irish Banks Get Bailout as Ireland Continues Drastic Moves to Leave PIGS Behind
Ireland's government will extend more aid to the nation's banks in an effort to salvage the economy and avoid going down the same path as struggling Greece.
The Irish government has set up a "bad bank" to help the banking sector rebound from massive losses on loans to property developers. The National Asset Management Agency (NAMA) will apply an average discount of 47% to $21.5 billion (16 billion euros) of loans in the first tranche. The bank will take over a total of $107 billion ($80 billion euros) of loans, transferring the debt from the balance sheets of Ireland's biggest banks – Allied Irish Banks, PLC (NYSE ADR: AIB) and Bank of Ireland (NYSE ADR: IRE).
"It looks like they are going to try and take all the pain now," said Stephen Taylor, strategist at Dolmen Securities. "It looks likely that at this stage the state is going to have to increase its ownership of the banks."
Historic Agreement Ends 40 Year Old Iron Ore Benchmark as Miners Get Short-Term Pricing Contracts
In a historic moment for commodities markets, two of the world's largest iron ore producers, Vale SA (NYSE ADR: VALE) and BHP Billiton Ltd. (NYSE ADR: BHP) signed short-term contracts for record prices with Asian steel mills that effectively replace a 40-year-old system of setting prices annually.
The landmark move by Vale and Anglo-Australian BHP ended the annual benchmark system when they signed new short-term deals linked to quarterly prices on the spot market, with the Brazilian company winning a 90% increase. Another large iron ore producer, Rio Tinto PLC (NYSE: RTP) has yet to sign any new contract, but is expected to soon follow.
The primary mineral used in steel, iron ore directly affects steel prices and the cost of everyday goods, including refrigerators, cars, and washing machines. That made the recent negotiations one of the most important issues for the global economy and commodity markets.
The Investing Secrets of Warren Buffett
Investing icon Warren Buffett is known for the market-beating returns that his company, Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), has returned over the past few decades. His success is due to some very simple investing strategies that he adheres to religiously. Here are 10 of his best:
"Capital Waves" Point to High-Tide Profits for Commodities, Tech and Emerging Markets
It was November 2008, and a global financial crisis that started in the U.S. credit markets had already leveled such one-time corporate stalwarts as Lehman Brothers Holdings Inc. (OTC: LEHMQ), Fannie Mae (NYSE: FNM) and American International Group Inc. (NYSE: AIG). The U.S. economy was in an apparent freefall, and stock prices wouldn't hit bottom until early the following March.
In the midst of that chaos, Money Morning's Shah Gilani made five predictions, anticipating five looming "aftershocks" he said were certain to come true.
He was correct on all five counts – every prediction came true.
This wasn't the first time Gilani has made such bold predictions – and been proven right. In July 2008, for instance, when crude oil was trading at a record high of $145 a barrel, he predicted that the "black gold" was destined for a major fall – even though many pundits were calling for prices to spike as high as $200, $250, $300 and even $500 a barrel.
Once again, Gilani was right.
Gilani, a retired hedge-fund manger, Money Morning columnist and noted expert on the global credit crisis, has been able to do this time and again for one simple reason: He understands the power and profit potential of the global financial market's "capital waves."
"Capital waves create some of the biggest trading opportunities in the markets today," Gilani said in an interview last week. "Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't."
And the profit plays that loom are shaping up as the biggest and best, yet.
Here's What a Veteran Trader Sees for Gold Prices…
Gold has made some dramatic moves in the last 18 months and we expect it will undergo some equally dramatic moves in the future.
But not right now.
While I recognize that gold is one of the few "commodity" markets that people are really passionate about, the purpose of this article is not to take sides either with the gold bugs or those who reject the argument that gold is "forever." Rather, I want to discuss my interpretation of the market's cycle.
After spot gold made an all-time high against the dollar at $1,226.37 on Dec. 2, gold has been in "retreat" mode. For the past several months, gold has been in a broad trading range, seemingly unable to move one way or another. This process has created frustration among bulls and bears alike.
Here is the dirty little secret about the gold market: It can be a horrible investment and here's why…
Treasury to Sell $7.7 Billion Stake in Citigroup in "Orderly and Measured Fashion"
The U.S. Treasury Department said yesterday (Monday) that it plans to sell the government's $7.7 billion stake in Citigroup Inc. (NYSE: C) this year, bringing the bank one step closer to leaving the bailout program.
"Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion," the Treasury said in a statement. "The manner, amount and timing of the sales under the plan is dependent upon a number of factors."
The Treasury said it would use a "pre-arranged written trading plan," but did not elaborate further.