Archives for August 2010

August 2010 - Page 5 of 10 - Money Morning - Only the News You Can Profit From

Three Ways to Brace for a Double-Dip Recession: Going Global

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The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.

That 1981-82 double-dip downturn – the result of an economic "shock treatment" aimed at curing those ills – consisted of two recessions that were separated by a single quarter of growth.

The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real.

The world's No. 1 economy lost 8.4 million jobs during the recession that got its start in December 2007, making it the worst national downturn since the Great Depression and the biggest loss of employment since the end of World War II.

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Germany's Export Reliance Edges Out European Neighbors

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By relying on exports and not promoting domestic demand, Germany is creating a lopsided recovery that is hurting retailers and foreign exporters.

While Germany's exports continue to surge, its consumers are refusing to spend. The government has failed to raise wages or encourage consumption and says it has few plans to do so.

"By cutting its budget deficit and resisting a rise in wages to compensate for a decline in the purchasing power of the euro, Germany is actually making it more difficult for other countries to regain competitiveness," billionaire investor and cofounder of the Quantum Fund George Soros said in a speech on June 23 in Berlin. Germany is "the main protagonist" for Europe's debt crisis, he added.

Germany's economy – four times more reliant on exports than is the United States – posted the highest second-quarter growth in the Eurozone, growing by 2.2% in the second quarter from the first. The country is headed for about 9% growth this year.

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Are Bonds a Bubble? Don't Bet on It

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With the stock market unsteady, don't overlook the value of adding bonds to your portfolio. They provide income and are more reliable than equities.

Indeed, bonds have had a strong run up in the past decade – so strong, in fact, that many investors are afraid they've entered bubble territory. But not Albert Edwards, chief strategist at the old-school French bank Societe Generale SA (PINK: SCGLY).

Edwards isn't your typical white-shoe analyst. Guys in his position tend to have a perpetually optimistic worldview. Since they are in the business of selling the dream, they need to talk up assets. But Edwards is an iconoclast who is known as one of the dourer professional forecasters.

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Three Ways to Brace for a Double-Dip Recession: Going for the Gold

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The last time the U.S. economy suffered through a double-dip recession, this country was struggling to overcome the fallout from an Arab oil embargo, Vietnam War-era deficits, and an inflationary spiral that just wouldn't let go.

That 1981-82 double-dip downturn – the result of an economic "shock treatment" aimed at curing those ills – consisted of two recessions that were separated by a single quarter of growth.

The current backdrop is very different from the one that was in place back then, but the threat of a double-dip recession is no less real. Indeed, with each passing week, and with every new economic report that comes out, the possibility that the U.S. economy will backslide into a double-dip recession seems to become more of a probability – or even a likelihood.

"For me a 'double-dip' is another recession before we've healed from this recession [and] the probability of that kind of double-dip is more than 50%," Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller home price indexes, told Reuters. "I actually expect it."

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This China Province Will Become a Global Oil-and-Gas Market Powerhouse

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Like everything else, the balance of power in the global energy market is shifting toward China, where a little-known province is perfectly situated to become a global oil-and-gas market powerhouse.

Nestled in the far northwest of China, Xinjiang is the country's largest province and the primary domestic source for oil and gas. It is sparsely populated and as big as Western Europe. The name, Xinjiang, literally means "New Frontier." And recent decisions in Beijing are going to give that translation even more meaning – transforming this province into a "new frontier" for the global energy sector.

To understand how to profit from this development, please read on...

BHP Billiton's Bid for Potash Could Spark Surge of M&A Activity in Agribusiness Sector

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BHP Billiton's (NYSE ADR: BHP) $38.56 billion bid for Potash Corp. of Saskatchewan Inc. (NYSE: POT) is just the latest episode in what's likely to be a continuing surge of merger-and-acquisition (M&A) activity in the agribusiness sector.

Canada-based Potash, the world's largest producer of potash, yesterday (Tuesday) rejected an unsolicited takeover bid from the Australia mining giant, calling the offer "grossly inadequate."

The fertilizer company also quickly adopted a so-called poison-pill defense to fend off would-be suitors, though it said it would be open to a transaction if the price were right.

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Ramp Up Your Portfolio's Growth with Dividend Reinvestment Plans

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With interest rates near all-time lows and equity markets in flux for much of the past decade, dividends have become an increasingly attractive feature for stock investors. But, while it's always nice to receive those quarterly checks, dividends do little to help you grow your wealth if all you do is spend the money as it comes in.

If that's your approach, it's regrettable because an array of financial and academic studies have shown that dividends have accounted for more than 60% of total U.S. stock market returns since 1870. In fact, research reported in the book "Triumph of the Optimists: 101 Years of Global Investment Returns" found that over the course of the 20th century, a portfolio with dividends reinvested would have generated nearly 85-times the wealth of the same portfolio relying solely on capital gains for growth.

Fortunately, it's now quite easy to take advantage of the growth potential offered by regular corporate payouts to shareholders, thanks to the proliferation of so-called DRIPs – or dividend-reinvestment plans.

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Three Ways to Profit as China Causes Gold Prices to Spike

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When recently gold sold off and fell as much as 8% below its record high level of $1,260 an ounce, investors had to be more than a little concerned.

With the huge debt loads top world economies have taken on to rebound from the worst financial crisis since the Great Depression, investors have grabbed onto gold as the best way to hedge against the inflation and other financial calamities they felt were certain to come. So far, those calamities haven't materialized.

But those investors shouldn't be worried. There's another catalyst on the horizon. It's headed directly for us. And, at least as far as gold prices are concerned, it figures to be an almost ideal catalyst: Even if it doesn't spawn the near-term price spikes some gold bugs predict, it's a near-certainty to send the yellow metal skyward in the long run.

I'm talking, of course, about China.

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To see just how powerful a gold-price catalyst China figures to be, please read on

A Helpless Housing Market Keeps Fannie and Freddie in Limbo

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Mortgage-industry industry leaders will attend a summit with government officials today (Tuesday) to discuss how to reform Fannie Mae (NYSE: FNMA) and Freddie Mac (OTC: FMCC), the two mortgage giants that so far have devoured close to $150 billion in taxpayer bailout funds.

However, that meeting is likely to be derailed by a far greater problem: After making modest progress, the housing market again appears on the verge of collapse.

"There's been a feeling in government, which seems to be more pervasive than it was six months ago, that says, 'We've solved this housing problem; let's move on to Fannie and Freddie,'" Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York told The Wall Street Journal. "But you haven't solved this housing problem. We have another round of home prices going down a little more."

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Emerging Stock Markets Thrive as U.S. Shares Tumble

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As the U.S. stock markets struggle in the midst of slowing economic growth, emerging stock markets are thriving as their surging economies provide cover for savvy investors.

Stocks tripped over the past week after a weak jobless claims report and a lukewarm revenue outlook from Cisco Systems Inc. (NASDAQ: CSCO) on Thursday put an exclamation point on worries about a muddled Federal Reserve Bank policy. U.S. markets lost more than 4% in one of their weakest five-day spans of the year, including a 90% Downside Day on Wednesday that featured a rare event: All 30 stocks in the Dow Jones Industrials Average closed lower.

Small stocks had their throat slit, as the Russell 2000 plummeted below its 50-day and 200-day averages. It was the largest one-week loss for the index since early June when a Hungarian official compared his nation's debt woes to those of Greece. The index is back to early July, wiping out a month of gains. I'm not one to say "I told you so" but let me just note that we have strenuously recommended avoidance of the smalls in an effort to de-risk your portfolios.

Read on to find which markets are outshining the U.S....