Why was the S&L Crisis not a Systemic Economic Crisis?
2011 IPOs: Busts and Bargains
A volatile stock market has pushed many of this year's initial public offerings (IPOs) underwater, but some of the better-positioned companies are holding their own.
So while there have been many IPO busts, there also are some bargains out there.
Consider that 48 of the 76 companies that went public this year – 63% — are trading at a price below their initial offer, according to data from Dealogic.
Indeed, many of the IPOs that had big pops on their first day have since fallen dramatically.
Epocrates Inc. (Nasdaq: EPOC), which rose 37% on its first day of trading, is now more than 38% below its IPO price. Demand Media Inc. (NYSE: DMD) shot up 33% in its debut in January, but is now 53% below its $17 IPO price.
Recent declines in the overall market have not only dinged IPOs from earlier this year – they've given pause to companies in the IPO pipeline.
A record 215 companies have withdrawn their IPOs so far this year. The previous record was set in 2008, when 214 companies withdrew their plans to list.
"Nobody wants to IPO into this fiasco of a market," Alec Levine, an equity derivatives strategist at Newedge Group told CNBC. "There's just massive liquidity risk. It would be great if you IPO'd the last 2 days, but awful if you IPO'd the previous 2 days-and so on."
Yet some companies, even several that had strong first days, have managed to stay in positive territory despite the rocky market conditions.
One of the most successful 2011 IPOs has been LinkedIn Corp. (NYSE: LNKD), which soared 109% on its first day. LinkedIn closed Friday at $87.65 – close to double its $45 IPO price. Servicesource International Inc. (NYSE: SREV) popped 35% on its first day and remains an impressive 54% above its IPO price.
And as a group, 2011's IPOs have outperformed the Standard & Poor's 500 Index by about 6.5%, although the stronger companies have generally done far better.
So let's take a closer look at a few of the busts – and some companies that now look like smart buys — from this year's IPO class:
The Looming Bear Market: What You Can do That Washington Can't and Wall Street Won't
I just finished a battery of media appearances on Fox Business, Bloomberg, BNN and CNBC Asia, and without exception I was asked about two things: President Barack Obama's jobs bill and the U.S. Federal Reserve's "QE3."
The first thing investors and analysts alike want to know is whether or not the president's jobs bill will work. The answer to that question is "no" – not as it stands, anyway.
The second question is whether or not Fed Chairman Ben S. Bernanke will further extend the central bank to help the economy. Well, I do think the Fed will intervene, but I don't believe for a second that the central bank's intervention will help the U.S. economy.
As a result, we're likely to see stocks enter into a bear market and retest their March 2009 lows.
I know that's a terrifying thought. But to be perfectly honest, there's nothing President Obama or Bernanke can do at this point. If companies don't want to spend the $2 trillion worth of cash they're hoarding, there's very little the government can do to encourage them to loosen their purse-strings.
That said, I want to give you five specific steps to take to protect yourself from the looming bear market, preserve your sanity – and even profit.
But before I get to that, you need to understand the dangers that are fast approaching.
A Roadblock to Recovery
President Obama and Chairman Bernanke can toss all the money they want at the economy. But no amount of spending can change the fact that we need the following three things to get our market moving again. They are:
- Sustained demand.
- A solution to the European sovereign debt crisis.
- And a bottom in housing prices.
As it currently stands, the U.S. economy will be lucky to log 1% growth this year, which is even lower than the anemic 1.5% I predicted in my annual forecast in January.
That's pathetic for a nation that spent more than $1.4 trillion of borrowed money on "stimulus." This lackluster growth is also evidence that the Obama administration's $800 billion stimulus plan – and the Fed's two rounds of quantitative easing – did absolutely nothing to salvage our economy.
Citizens are scared silly. Businesses are uncertain. They're uncertain of regulatory changes, uncertain of taxes, and uncertain about their overall economic environment. So they're doing what rational people do when confronted with the unknown: They're hunkering down.
And with good reason.
The typical U.S. family got poorer during the past 10 years due to a decade-long income decline. Median household income fell to $49,995 last year, and is now 7% below where it was in 2000. The number of people living in poverty has risen to 15.1%, the highest level since the U.S. Census began tracking this information in 1959.
It should also be noted that a large portion of that decline is directly attributable to inflation, which the Fed continues to assert is "transitory."
Out of the Fire…
You may be holding out hope that the president's jobs plan will help turn things around – but it won't.
Don't Miss the Stock Breakout for Ag Leader Monsanto Co. (NYSE: MON)
Higher food prices aren't disappearing any time soon – meaning it's time to revisit one of the best "Buys" in the agricultural industry – Monsanto Co. (NYSE: MON).
I first called Monsanto Co. a "Buy" in October 2010, when I told you the company had started a rebound that would pay off for investors. The stock was trading at $56 a share and down 34% for the year – compared to an 11% gain in the Standard & Poor's 500 Index.
Since my recommendation, Monsanto has reversed its downward trend and is up more than 23% — almost triple the S&P 500's 3.4% rise. The stock hit a 52-week high of $77.09 on July 25 before recent volatility dented its comeback. Monsanto stock closed Friday at $69.77.
If you missed getting a position on Monsanto the first time around, it's not too late. This innovative global Ag leader is still taking off.
You see, St. Louis, MO-based Monsanto is the largest producer of seeds to commercial farms. With food prices expected to increase 4% next year, and global reserves dwindling, demand for Monsanto's products will rise.
This means Monsanto should see record-high seed prices and margins.
Not only that, Monsanto has a competitive edge: It's a leader in creating genetically modified seeds that help crops reach levels of productivity unimaginable a few decades ago.
So it's time – again – to buy Monsanto Co. (**) – especially if you didn't get a chance to pick it up last year. If you already have shares, I suggest you continue holding them and possibly look to add to your position.
A Stock-Market Tale: An E-Mail, An Energy Stock And the Best Market Intelligence I've Ever Seen
The Best Currency to Short Right Now
There's never been a better time to be a short-seller.
Right now stocks are slipping and sliding all over the place, overall trending downward. And it doesn't look like this downtrend is going anywhere soon.
Short-selling can help you protect your overall portfolio when stocks start sliding off the map. Also, you can earn some of the fastest profits from short-selling in "down" markets because markets drop a lot faster than they rise.
We saw that over the last few weeks as the Dow Jones Industrial Average and Standard & Poor's 500 Index erased all their 2011 gains in a couple of days. That's pretty common. In fact, it usually takes an index all year to gain 10% to 20%. Then it can drop as much as 30% in a week.
So if you were able to short stocks during those times, you would make a decent return for a full year within weeks, or even days.
However, it's not always easy to execute short- sells in the stock market – which is why I always look for the best short-selling opportunities in foreign currencies first.
And I just found the ideal short-sell in the f orex market to play as markets fall.
Don't Miss Out as Silver Prices Surge to $150 an Ounce
Silver prices had an exciting run-up in the year ending in April – they almost tripled, briefly touching $50 an ounce before settling back down to the low $30s.
Now, silver prices are back above $40 an ounce. That may have you feeling the urge to sell – but don't.
Resist the temptation to sell silver because this recovery is for real, and it has much further to go.
In fact, I anticipate silver prices will peak at $150 an ounce within the next 12-18 months.
The reason is simple: With central banks around the world pushing lax monetary policies, prices for all commodities – gold and silver in particular – will invariably rise.
We've already seen this happen with gold hitting a record high $1,923.70 an ounce on Sept. 7. And when gold goes higher, silver quickly follows.
That's reflected in something called the "gold/silver ratio," which shows how many ounces of silver it takes to buy one ounce of gold. Traditionally, this ratio acts as a price barometer for the two precious metals. And if you look at it right now, it's easy to see that $150 silver isn't far in the offing.
The Gold/Silver Ratio
Gold and silver prices traditionally move together because both are considered stores of value in inflationary times. And while we think of gold as the premier store of value, remembering the 19th century gold standard, other societies – notably the Spanish empire in the Americas, Imperial China and Mogul India – used the silver standard and are hence more focused on silver when inflation threatens.
In the 19th century and before, silver and gold prices maintained a fairly steady relationship to each other in a ratio of 16 to 1. Silver depreciated against gold in the 20th century. However, it also acquired industrial uses, which is something gold never did (the two metals are chemically very similar, but silver is much cheaper and hence more suitable for industrial uses).
The gold/silver ratio briefly approached 16 to 1 in the 1980 precious metals bubble (silver peaked at $50 per ounce, gold at $875) but then fell back beyond 50 to 1, with gold trading around $250 an ounce in the late 1990s, while silver was below $5 an ounce.
Gold was the first to take off after 2000. And by 2010, gold traded well above $1,000 an ounce while silver traded at $12-$14 an ounce – a ratio of close to 80 to 1. This was unsustainable, and it resulted in the price rise of 2010-11, which at its peak took silver to $50 an ounce and about a 30 to 1 ratio to the price of gold.
Rogue Trader Costs UBS $2 Billion – Sends Stock Skidding 11%
A rogue trader at UBS AG (NYSE ADR: UBS) lost $2 billion on a series of unauthorized transactions, the bank disclosed yesterday (Thursday) despite internal risk controls designed to prevent such activity.
An employee of the London UBS desk that trades exchange-traded funds (ETFs), 31-year-old Kweku Adoboli, was arrested yesterday on suspicion of fraud.
"This is a frightening level of wrongdoing in a bank that was held up as the world class example of good risk management before the [2008 financial] crisis," Chris Roebuck, a former UBS employee and a current visiting professor at Cass Business School, wrote in on efinancialnews.com.
The company's stock fell 11% on the news.
UBS warned that its third quarter probably would be unprofitable, although analysts say the bank – Switzerland's largest – should be able to absorb the loss. Previously UBS had forecast a profit of $1.5 billion for the third quarter.
The UBS rogue trader revelation is just the latest blow to its finances and its reputation. From 2006 through 2009, the UBS investment bank division recorded $65 billion in losses, from which the bank had only recently recovered.
"How many times do we have to see huge UBS losses?" Simon Maughan, head of sales and distribution at MF Global Ltd. in London told Businessweek. "It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS's strategy."
Some speculated that the incident could tarnish other UBS divisions.
"The key area of damage in our view is reputational and extends beyond the investment bank, into UBS's private banking business," Goldman Sachs (NYSE: GS) said in a note to clients.
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The Mortgage Meltdown Was Big… The Coming Oil Crisis – EVEN BIGGER!
We are on the verge of another financial crisis even bigger than the real estate collapse.
This time, it's in oil. It's not a supply/demand problem, or a geopolitical one. Rather, the crisis stems from the rising inability to determine crude oil's genuine value.
A new round of speculation is growing, manipulating the energy markets. When no one can figure out how much oil should really cost, prices rise artificially… leading to catastrophic fallout.
The Insidious Truth About Federal Reserve Policy
So far, U.S. Federal Reserve policy has done nothing to help the economy. To the contrary, it's actually been quite destructive.
Yet Federal Reserve Chairman Ben S. Bernanke and his cohorts will likely expand upon their ineffective policies next week by announcing a new "Operation Twist."
That begs the question: Why?
If ultra-low rates and quantitative easing haven't put a dent in unemployment or spurred economic growth, then why expand on those programs?
The answer: Because the Fed doesn't work for the American public – it works for Wall Street .
That's right. It's not the economy the Fed has on life support – it's the banks.
America's banks are facing huge litigation costs. Worse, they've grown entirely dependent on the Fed's easy-money policy.
So the Fed is going to bail them out – again.
And we're going to be the ones who pay for it.
Federal Reserve Policy Follies
To really understand what's at play here, let's start by taking a closer look at the Fed's misguided policies.
There are two reasons why Federal Reserve policy hasn't worked: First, the Fed's artificially low interest rates are handicapping the economy. And second, Bernanke is telegraphing Fed policy decisions to the markets, giving speculators an edge over investors.
By keeping overnight lending rates between 0.00% and 0.25%, banks can borrow at next to nothing and buy risk-free U.S. T reasury securities that yield a lot more than their financing costs. The result is a "positive interest rate spread," which is the basis for banks' revenues and profits.
Additionally, banks can borrow more money by using their Treasury securities as collateral for overnight and "term" loans. Then they use the cash they borrow to buy more Treasuries. They do this over and over again to leverage themselves.
Essentially, banks have become giant hedge funds that finance their "trading books" with virtually free money, courtesy of the Fed's zero-interest-rate policy.