August 2010 Archives - 2/10 - Money Morning - Only the News You Can Profit From
Déjà vu All Over Again: Boeing Delays Dreamliner for Sixth Time
In what seems like a never ending saga, The Boeing Co. (NYSE: BA) postponed delivery of its 787 Dreamliner for the sixth time, promising now to finally hand over the first plane to customers in the middle of the first quarter of 2011.
The latest delay came after Rolls-Royce Group PLC told the world's largest aircraft maker it would be unable to supply an engine needed to complete flight testing, Boeing said in a statement Friday. Rolls said the delay wasn't related to a 787 engine blowout on a test bed in Derby, England, which this month forced it to shut the site for repairs.
The composite-plastic plane is already more than 2 1/2 years late following delays caused by working with new materials, parts delays from suppliers and redesign work involving an Italian sub-contractor.
U.S. Vacationers Deliver a Profitable Boost to Travel Stocks
The number of U.S. travelers hitting the road – and the air and sea – is on the rise, bringing profit-making momentum to travel stocks that will continue into 2011.
While the U.S. economic recovery is slowing down, travel has picked up since 2009's fourth quarter. Consumers are facing less debt and an increase in household net worth, and those who have weathered the worst of the storm have saved enough to treat themselves to a trip.
While 2009 was the year of the "staycation," travelers in 2010 have opted for more traditional vacations.
AAA projected the number of Americans traveling over this Labor Day weekend will be up 9.9% from 2009.
Two Ways to Tell if the U.S. Economy is Ready to Get Back on its Feet
The U.S. economy has been crippled by the financial crisis. And regardless of what policymakers try to do to spur growth, it will hobble along lamely until two major economic pillars are rectified.
Simply put, there's no chance that stock investors will see a healthy, long-term bull market until credit again begins to flow freely and home prices start rising.
Unfortunately, neither the credit market nor the housing market is yet ready to lead a sustainable economic rebound. But knowing that these are the two legs on which our economy stands, we can effectively gauge their condition, and thus be better able to predict a stock market rally.
Let me explain.
Money Morning Mailbag: There's No Way Around the Dangers of Municipal Bonds
Money Morning Contributing Editor Martin Hutchinson last month introduced readers to the dangers of municipal bonds. While many investors assumed munis offered a safe haven in turbulent times, the battered condition of state and local finances has left many munis running the risk of default.
"Brokers will tell you that particular state and municipal bond issues are 'safe,' meaning that they are rated highly by the rating agencies," said Hutchinson. "However, the rating agencies got it wrong on subprime mortgage instruments, and it seems pretty clear that they are getting it wrong on states and municipalities."
On the municipal level, local property taxes are the primary revenue source. Declining home prices and increased mortgage delinquencies are creating a housing market that offers little local revenue. Municipalities are then left struggling to make ends meet.
Hutchinson said the vicious cycle could send municipal-bond defaults soaring past 2009's $6.4 billion.
Plunge in Capital Spending Could Slow Hiring & Economic Recovery
Although initial claims for jobless benefits fell more than expected last week, a slowdown in U.S. business investment indicates hiring will continue to stall.
Applications for unemployment benefits dropped by 31,000 last week to 473,000, the Labor Department said yesterday (Thursday), providing some relief that the job market isn't deteriorating rapidly as the economy slows. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 10,000.
But claims still remain elevated and aren't likely to boost confidence in the economic recovery. The four-week moving average, which smoothes volatility in the data, rose by 3,250 to 486,750, the highest level since Nov. 28, 2009. And new claims for the previous week were revised upward to 504,000 from 500,000.
Russia: Is it Time to Invest in One of the Coldest Countries on Earth?
Of all the unpleasant societies in which to live, Vladimir Putin's Russia is among the nastiest. Journalists and businessmen disappear, a knock on the door at 3:00am can prove fatal, and nothing gets done without endless side-payments to obscure fixers.
Still, Goldman Sachs Group Inc. (NYSE: GS) in 2001 identified Russia as one of the four great "BRIC" growth economies. And while much of its gilt has been worn off, Russia still has many supporters in the investment world. So the question is: Provided you don't have to live there, is it worth devoting a few of your investment dollars to the country?
China Traffic Jam Just a Brief Bottleneck on the Road to Growth
Besides recently being crowned the world's second-largest economy, China now has the dubious distinction of spawning the world's longest traffic jam. And it's all directly attributable to China's voracious appetite for energy and automobiles.
The bumper-to-bumper gridlock, which finally began to ease yesterday (Wednesday), was created by a surge in trucks carrying coal from the province of Inner Mongolia to the suburbs of Beijing, where power plants continue to suck up and incinerate millions of tons of the black rock.
The Tobin Tax: The Deficit-Busting Levy Wall Street Hates
After the Nov. 2 midterm elections, the Obama administration and Congress are going to have to scramble to fill a trillion-dollar hole in the U.S budget, and tax increases may be the only option.
A tax increase won't be good news for an already wheezing economic recovery that seems to get weaker with each new report or indicator that's issued. But the type of tax that's chosen will go a long way in determining just how much damage the U.S. economy will have to endure.
With a deficit in excess of $1 trillion, there aren't a lot of options. One possibility would be to allow the 2001 and 2003 Bush tax cuts to expire, which would have a depressing effect on the economy and most people's pocketbooks.
But a better option would be to devise some new taxes that may prove less damaging. Indeed, there's even one possibility that might even do some economic good if it's implemented correctly.
It's called a "Tobin tax."
Is the Bond Bubble About to Burst?
Bonds have provided a welcome safe-haven for investors seeking shelter from the financial maelstrom of the past two years. But now many analysts fear bonds have entered bubble territory and pose a rising threat to their holders.
The amount of money flowing into bonds is "probably not sustainable on a consistent basis" Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc., told Bloomberg News. "Eventually it won't be sustainable. Whether that means five years from now or five weeks is a little difficult to tell."
Bond funds have attracted more investment than stock funds for 31 straight months, which matches the record streak that ran from 1984 – 1987. Bond funds attracted $559 billion in the 30 months through June, according to the Investment Company Institute (ICI). Meanwhile, investors withdrew $209.4 billion from U.S. stock funds and $24.4 billion from funds that buy foreign stocks.