March 2010 Archives - 3/11 - Money Morning - Only the News You Can Profit From
Dubai World Plans Debt Restructuring With $9.5 Billion Government Infusion
The Dubai government today (Thursday) announced plans to inject about $9.5 billion into state-owned holding company Dubai World to restructure its debt.
The additional funds double to $20 billion the amount the government will pay to the emirate's holding company. Dubai World is seeking to renegotiate $23.5 billion in debt with creditors. The company said it owed $14.2 billion to lenders other than the government at the end of 2009. The government asked creditors to wait eight years to get all their money back.
Dubai World, and its real-estate development arms, in November shocked investors when it announced it would seek to delay repaying its debt until May. The announcement sent developing-nation stocks plummeting and doubled the cost of buying insurance against a default.
Dubai, the second largest of seven states that make up the United Arab Emirates, and its state-owned companies ran up $80 billion in debt through 2008 to transform the sheikhdom into a tourism, trade and financial hub.
- We Want to Hear From You: What Do You Think About the New Healthcare Law?
Despite the Near-Record Run in U.S. Stocks, Oil, Commodities and China Will be the Long-Term Winners
Although U.S. stocks have made a fairly smooth transition into Year Two of what's so far been a near-record bull market, there are still many traps that can quickly ensnare a less-than-cautious investor.
Moving forward, investors need to focus on quality, take the time to understand what's really happening in Washington, and turn to such once-unconventional investments as oil, commodities and China stocks, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
"I expect the markets to remain very fragmented. Volatility will almost certainly increase, leaving investors both psychologically scarred and totally confused," Fitz-Gerald said, underscoring the need for investors to embrace a truly global view. "Fully 75% of the economic activity on the planet now takes place outside U.S. borders. So it only makes sense that investors embrace new ways of thinking in order to avoid getting left behind. At the same time, energy and commodities still have a long way to run – meaning there's substantial profit potential available."
In a wide-ranging interview, the former professional trade advisor, best-selling author and noted Asia-investing expert:
- Predicted that oil and commodity prices are headed higher, making them "must-invest" asset classes for investors who don't want to be left behind.
- Stated that ongoing miscues in Washington coupled with higher growth abroad make it imperative that U.S. investors embrace a truly global view when planning their investing strategies.
- And predicted that many blue-chip U.S. companies will go for dual-listings, listing their shares on China's Shanghai Stock Exchange (SSE), providing those U.S.-based firms with access to the plentiful capital and robust growth available in that Asian giant's marketplace.
Money Morning Mailbag: The Capital Wave That Could Blunt the U.S. Recovery
Question: How can banks justify not giving out mortgage money in light of the fact that they can now qualify their applicants to a level not previously seen? I am talking about literally millions of people applying for loans with 800-plus FICO scores and Loan-to-Value (LTV) Ratios that are better than ever before.
How can banks and lending institutions take our money and then turn around and shut nearly everyone out – which simply prolongs this recession? Can anyone explain why the present administration and regulatory bodies are not forcing the banks to loan monies to qualified applicants?
At this rate, we will be dead soon. Without borrowing, we will die.
• (Signed) Living in Costa Rica
Portugal's Credit Rating Downgrade Fuels Concern That Debt Contagion Will Spread
Fitch Ratings Inc. yesterday (Wednesday) cut Portugal's sovereign credit rating for the first time, fueling concern that the problems plaguing debt-laden Greece will spread to other Eurozone countries.
The credit ratings agency cut Portugal's credit grade by one notch to AA-, citing budgetary underperformance in 2009. Fitch warned that if the country doesn't enforce stricter fiscal discipline this year, another downgrade is possible.
"A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal's creditworthiness," said Douglas Renwick, associate director at Fitch.
The news punished the euro, as traders placed bets that a European Union summit later this week won't be able to reach consensus on how or whether to help troubled Greece. The currency hit a 10-month low against the dollar.
Stock markets around the world have struggled in recent months as investors worried whether the trouble in Portugal, Greece, and other Eurozone countries would hamper the global economic recovery.
JPMorgan Close to $1.4 Billion Tax Refund Deal, Joining Long List of Companies Cashing In
JPMorgan Chase & Co. (NYSE: JMP) is close to a deal that gives the financial giant a $1.4 billion tax refund, even though it received a $25 billion bailout in 2008. JPMorgan is the latest company to take advantage of the tax refund, which is giving billions to everyone from retailers and airlines to energy companies and homebuilders.
A little-known provision in a November addition to the 2009 stimulus bill allows companies to apply losses from 2008 and 2009 to taxes paid up to five years ago, expanding the usual two-year limit. The " net operating loss carryback" extends the timeframe into years when companies were profiting and had to pay in each tax season.
Although companies that received Troubled Asset Relief Program (TARP) aid are not eligible for the tax break – and JPMorgan nabbed a hefty $25 million of those funds – JPMorgan is gunning for part of Washington Mutual Bank's $2.6 billion refund. JPMorgan bought the financial institution's banking operations for $1.9 billion in September 2008, after WaMu became the biggest bank failure in U.S. history and was seized by the Federal Deposit Insurance Corporation (FDIC).
Drug Companies and Hospitals Get a Boost from Healthcare Reform
After months of trying to predict how the healthcare reform proposals would affect the respective futures of their industries, drug companies and hospitals are optimistic about the prospective long-term profits the final version of the health care reform bill could bring them.
President Barack Obama yesterday (Tuesday) signed the $940 billion health care reform bill with support from pharmaceutical companies and the hospital industry. Both will benefit from a sharp increase in the number of insured customers, as the bill expands healthcare to up to 32 million more people.
While the bill will cost tens of billions of dollars over the next 10 years, the planned reforms create something drug companies and hospitals can't live without: paying consumers.
Money Morning Mailbag: Capital Wave Investing Strategies Spotlight the World's Top Profit Plays
Question: Shah, your article on capital-wave investing was outstanding. In fact, I would love to see a follow-up piece for those of us who are not traders and who are not out and about following the current short-term market trends.
For example, when you talk about the Obama administration's determination to keep interest rates low – this has consequences. What will those rates be in, say, a three-year to five-year time frame? What if the European countries keep having implosions like Greece – meaning that countries like Portugal, Spain and Italy follow suit?
In your opinion, will that eventually sink the euro, or does the Eurozone have to bail out those countries with a plan that's similar to the one that it is developing for Greece? What happens to other currencies in either of these scenarios?
Finally, is it your opinion that China is trying to curtail its growth to keep itself from overheating? Can Beijing successfully continue to do this – or will this blow up in China's face? If you look down the road, say, three to five years, what do you believe the consequences, if any, will be?
Again, Shah, this was a really informative article. I would love to hear your views on what you actually see playing out in each of these areas during the next few years.
Answer: Thank you for your kind words about the article and for taking the time to pose your questions – which are excellent ones, by the way. Let's take a look at them, one at a time…
High Gas Prices Got You Down? Beat the Oil Industry at its Own Game…
As the price of crude oil moves above $80 a barrel, consumers are wondering just how high gas prices can go.
Now is the time for such questions.
It's during the month of March that the market begins to readjust inventory and production in advance of the summer driving season. This usually means that production shifts from heating oil to gasoline.
Actually, the real issue is what refined products will be emphasized in the production process. To put it bluntly, U.S. refineries have insufficient capacity to handle all needs.
And that could make you some serious money.
Guilty Plea by Rio Tinto Execs Shines Light on Complexity of China's Iron Ore Market
When four Rio Tinto PLC (NYSE ADR: RTP) executives stunned observers by pleading guilty to bribery charges in a Shanghai courtroom, it brought to light the unorthodox and complicated nature of doing business in China's iron ore industry.
Unlike corrupt transactions in other resource-rich countries where customers often receive bribes or kickbacks in exchange for arranging lucrative contracts, in China just the opposite is often the case.
The Rio Tinto executives, for instance, were accused of receiving bribes in return for delivering supplies of highly-desirable iron ore – the key commodity in China's burgeoning steel-making industry.
The four executives admitted receiving $13.5 million (92.18 million yuan) between them in bribes, China's state news agency Xinhua reported, citing court documents. They could face up to 20 years in prison.
But the gist of the story revolves around China's chaotic iron-ore trading system.