May 2010 - Money Morning - Only the News You Can Profit From
Shell Grabs Crucial Shale Gas Deposits With $4.7 Billion Deal
Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) announced Friday it would pay $4.7 billion in cash for U.S.-based East Resources, Inc. to obtain a sizeable stake of "high-potential" North American shale gas acreage.
Shell, Europe's largest energy producer, gets 1.05 million acres of gas properties in the northeastern United States and Texas. About 650,000 acres gained in the acquisition are part of the crucial Marcellus Shale, a tight gas property with shale formations estimated to hold up to 262 trillion cubic feet of recoverable gas.
The remaining acres are part of the Eagle Ford Shale area in South Texas. The deal brings Shell's total U.S. tight gas acreage up to 3.6 million acres.
"The opportunity now is to consolidate our tight gas portfolio, divest from non-core positions across North America, and to invest for profitable growth," Peter Voser, chief executive of Shell, told The New York Times.
Hot Stocks: Can Apple Be a Gentle Giant?
Apple Inc. (Nasdaq: AAPL) yesterday (Thursday) supplanted Microsoft Corp. (Nasdaq: MSFT) as the largest technology company in the United States. Apple now trails only Exxon Mobil Corp. (NYSE: XOM) in size, but that size will only make the company a bigger target if it fails to use its newfound market position prudently.
Just last month, Microsoft's market capitalization exceeded Apples by some $25 billion. But Apple has finally overtaken one its great archrivals. But being the new standard bearer for the technology sector brings with it more than bragging rights. It also will make Apple a bigger target for its competitors and government scrutiny.
As far as competition is concerned, there's no question that Apple has outdone Microsoft.
Money Morning Mailbag: Wall Street Expects Money to Arbitrate Financial Reform
Financial regulation overhaul cleared another hurdle last week when the Senate approved its financial reform bill. However, the inclusion of a derivatives trading restriction left Wall Street wondering why its political contributions weren't doing the talking.
The financial industry was surprised when a provision created by Sen. Blanche Lincoln, D-AR, requiring banks to spin off their derivatives trading arms remained in the Senate's proposal. Wall Street lobbyists are now reaching out to the members of the Senate and House conference committee who will reconcile the two bills. The Senate named its committee appointees Tuesday, which included Lincoln.
The Financial Services Roundtable, a lobbying group representing financial companies, has already started meeting with House members who it believes will be involved in the final process and could help cut the provision.
The Shift Toward De-globalization is Bullish for Gold
You can see signs of de-globalization everywhere. Just look at the intense shareholder opposition to Prudential PLC's proposed takeover of the Asian operations of American International Group Inc. (NYSE: AIG).
And that's just one example.
The market scare on news that North Korea had, indeed, sunk a South Korean Naval vessel was another. The "flight to safety" in U.S. Treasuries – sparked by the increasing concern about the future of the euro and the viability of Greek government finances – is a third.
All over the world, little by little, the apparently inexorable tide of "globalization" – making the world "flat" in the words of Thomas L. Friedman – is retreating. If a full-scale financial crisis breaks out in the next few months, that retreat will become a rout. And the world will become de-globalized.
Global Recovery Gaining Momentum, but Obstacles Remain
The Organization for Economic Cooperation and Development (OECD) announced yesterday (Wednesday) that it has lifted its economic growth outlook, but warned that governments must enforce strict fiscal policies to sustain the global recovery and balance global expansion.
The OECD reported that the combined economy of its 31 members would grow 2.7% this year and 2.8% in 2011. Troubles of debt-plagued developed economies will be offset by the rapid economic growth of emerging markets. The numbers have been revised upward from November predictions of 1.9% growth in 2010 and 2.5% growth in 2011.
The OECD estimated global gross domestic product (GDP) would rise 4.6% this year and 4.5% in 2011, up from the previous expectation of 3.4% and 3.7%, respectively.
The Tobin Tax: The Fix-It Plan Wall Street Hates … But Can't Seem to Kill
German Chancellor Angela Merkel recently came out in favor of a "Tobin tax" – a small tax on financial transactions, proportionate to the size of the transaction. The Tobin tax idea also has been proposed by Britain's former prime minister, Gordon Brown, and was proposed in Congress by U.S. Rep. Peter DeFazio, D-OR.
Every time a Tobin tax is proposed, it has failed to gain traction – which isn't surprising: Wall Street, with its international affiliates and legion of lobbyists, hates the idea.
Even so, the Tobin tax idea just refuses to die – which is a good thing, since it is probably the best way of curing some of Wall Street's pathologies.
Is Europe on the Verge of a Liquidity Crisis?
The euro's recent struggles have done more than bring the currency's viability into question. They've put the European Central Bank (ECB) on a collision course with a liquidity crisis.
The ECB is running low on dollars, and that problem could escalate when the U.S. Federal Reserve closes swap lines that were temporarily reinstated as the Greek debt crisis escalated. Additionally, more deposits are being yanked from the central bank as holders question whether or not the ECB has enough juice to stop a classic bank panic.
The euro yesterday (Wednesday) remained at a near four-year low against the dollar, tumbling 0.5% to $1.2306. The beleaguered currency dropped against the yen and British pound, as well.
U.S. Treasury Bonds: The Not-So-Safe "Safe Haven"
In the last few weeks, international investors spooked by the budget crisis in Greece and the turmoil in southern Europe have been flocking into the U.S. Treasury bond market as a "safe haven."
The huge resulting funds flows have pushed the 10-year Treasury bond yield down to 3.16%, very little above its level during the crisis of October 2008. To a rational investor, this is extremely peculiar: After all, what on earth is safe about the "haven" of long-term U.S. Treasury bonds?
Question of the Week: Readers Respond to Money Morning's U.S. Consumers Query
Recent reports show U.S. consumers are spending again; some are even ditching the whole discount mentality in favor of luxury brands and making long-delayed big-ticket purchases.
The shift from buying cheaper necessities to comfortably splurging is shown in strong quarterly numbers from Whole Foods Market, Inc. (Nasdaq: WFMI) and Saks Inc. (NYSE: SKS). Whole Foods' quarterly profits doubled from the same period a year ago, while Saks reported a profit of 12 cents per share – higher than the predicted 5 cents per share.
Whole Foods products offer consumers a break from pinching pennies while not viewed as an out-to-dinner splurge. Consumers are putting themselves out there a little more and feel more comfortable buying some higher-end foods – and now the company's stock has gone up 83% since May 2009.
Businesses such as jewelers and travel agents are benefiting from this growing willingness to spend.
But don't misunderstand: Although U.S. consumers are venturing back from their spending hiatuses, they remain cautious buyers.