Archives for November 2011

November 2011 - Page 2 of 9 - Money Morning - Only the News You Can Profit From

Lure of Profits Spurs Oil Sands Pipeline Projects

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There's a pipeline race happening in the oil industry, and the winner will unlock huge profits.

You see, the Canadian oil sands are missing an efficient way to get the oil from the fields to the refineries and to the customers. That means profits are trapped in areas like the Athabasca oil sands of northeasternAlberta, Canada — the second-largest crude reserves in the world with about 1.7 trillion barrels of oil.

That's why TransCanada Corp.'s (NYSE:TRP) Keystone XL pipeline, recently delayed for a year for further review by the U.S. State Department, has been such a big deal. The Keystone pipeline would bring the Canadian crude from Alberta to U.S. refineries, reducing the need for imports from distant and often unstable Middle Eastern countries.

But because the Keystone pipeline crosses an international border, the State Department must approve it,but the 1,700 mile route has raised environmental concerns.

Now several other companies have redoubled their efforts on similar oil pipeline projects, not only to move oil from Canada but also to relieve an oil bottleneck in Cushing, OK, that is helping depress prices of West Texas Intermediate (WTI) crude.

"The markets need a solution really badly to the Cushing problem," Lanny Pendill, senior energy and utilities analyst at Edward Jones told MarketWatch. "If Keystone gets deferred too long, it's highly likely that competing proposals will gain traction at TransCanada's expense."

Other companies did indeed react swiftly to TransCanada's setback.

Almost immediately after the announcement that Keystone pipeline would be delayed, Canadian pipeline company Enbridge Inc. (NYSE: ENB) said it had bought a 50% stake in the Seaway Crude Pipeline, which now carries oil from Freeport, TX, to Cushing. Enbridge plans to reverse the flow of oil next year. (Enterprise Products Partners LP (NYSE: EPD) owns the other 50%.)

"The producers think this is great, because now you have enhanced connectivity and enhanced transportation into the largest area and concentration of refiners in the U.S," Darren Horowitz, an analyst with Raymond James & Associates (NYSE: RJF), told Bloomberg.

Price Pressures

The bottleneck at Cushing has been a major factor in opening a spread between the market price of WTI and Brent crude.

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Struggling Barnes & Noble Inc. (NYSE: BKS) Will See Its Stock Plunge - For Good

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Don't believe the recent rally in Barnes & Noble Inc. (NYSE: BKS) stock – it's not going to stick.

In fact, this stock is ready to plunge.

The share price has been on a roller coaster ride all year. It climbed in February to over $18, fell to almost $8 in April, rose to around $21 in June, and then slipped to $10 in October.

Now it's on a tear again. It's moved up by 5% to 10% per day lately, soaring 65% in the past month.

But this move isn't based on strong fundamentals and good earnings. In fact, Barnes & Noble's business faces serious obstacles.

The book-retailing sector has been struggling with the growing popularity of eBooks. While Barnes & Noble has benefited from deep-pocket investors who have built a major stake in the company, the fundamentals aren't there to support this investment. It is extremely overleveraged, and the company has reached the stage where it's borrowing money to pay high dividends.

That is never a long-lasting business model.

The market agrees with this sentiment, building one of the largest short positions in a public stock.

You see, I believe the majority of Barnes & Noble's share price climb is due to shorts covering their positions. As of Oct. 14, 46.7% of the float was short.

Once this short cover period is over, I expect the stock to fall again, dipping even lower than before.

So it's time to sell Barnes & Noble Inc., before the stock rally collapses and all you're left with is a weak company in a struggling sector. (**)

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Don't Miss These Three Year-End Trading Strategies

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Before yesterday's Thanksgiving leftovers even got cold many U.S. consumers ventured out to catch the best Black Friday deals, already worried about how much this holiday shopping season will cost them.

But instead of fretting over how much you'll spend this year, now's the time to focus on how much more you can earn.

You see, over the next few weeks, three year-end trading strategies will come into play, all capable of producing major short-term profits for astute investors.

They are:

  • Annual tax-loss selling – which, given some major stock and sector declines since early-year highs, could be heavy this year.
  • A "Santa Claus rally" in late December, triggered in part by bargain hunters buying beaten down stocks.
  • And the "January Effect," a strong tendency for nearly all stocks – especially small caps – to gain during the first month of the year, or even earlier.

We've outlined all three here, so you can pick your favorite option for year-end profiting.

Tax-Loss Selling

There are a few ways to play the tax-selling phenomena, depending on your goal, but the most common is to offset your taxable gains.

The best time to unload a large paper loss is the end of the year. Taking a loss on a position reduces your trading gains and limits your tax liability. You'll also see professional fund or portfolio managers do it to replace losers with stronger performers before they issue quarterly or annual reports – a process often referred to as "window dressing."

So if you're sitting on a position with a large paper loss in a stock you want to drop, go ahead and sell to realize the losses for tax purposes. But make sure you beat the crowd – begin looking for selling opportunities now, and try to get out on a day when the market – and hopefully your stock – is sharply higher. (No one wants to take a loss that's larger than absolutely necessary, even to save on taxes.)

If you have a handful of losing stocks and don't know where to begin, start with your biggest gainers, or choose those stocks with the poorest fundamentals.

But before you go cleaning house, there are few things to remember to maximize your profit potential from this trading strategy.

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Your Vote Will Help Us Put the Squeeze on Congress

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While most Americans will have to pinch pennies to come up with extra cash this holiday season, our leaders in Congress won't have much to worry about.

Despite failing to deliver on a number of promises and assignments, like developing a debt-reduction plan, members of the House of Representatives and the Senate will still receive their annual salary of $174,000.

Plus, many will make millions more through investment gains.

If you are surprised to discover that 58% of our congressional leaders have the investment savvy to turn a six-figure salary into millions, don't feel bad.

You see, there's more to that story: Our friends in Washington aren't competing on a level playing field .

According to a Nov. 13 CBS News "60 Minutes" report, our elected leaders in Congress may be using information gained from their "insider" positions to make highly profitable trades in the stock market.

If you or I used "inside" information to profit in the U.S stock market, we could expect a visit from the Securities and Exchange Commission (SEC) and the U.S. Justice Department. And those "visits" would only represent the start of our troubles.

The same would be true for a corporate executive, a member of the executive branch , or even a federal judge. In every case, the use of inside information would be considered a punishable criminal act.

But, it's a completely different story for Congress, where those same laws simply don't apply. For those elected leaders in Congress, this form of insider trading may well be unethical. But it's also completely legal.

Congressional leaders, even though privy to non-public information, are not considered corporate insiders, and so can trade on such insights and escape penalty. Congressional staffers and lobbyists also are exempt.

Just look at U.S. Rep. Spencer Bachus, R-AL, chairman of the House Financial Services Committee.

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An Inside Look at Europe's Energy Challenges

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I am in Frankfurt, Germany right now attending three days of meetings, and I must say they're shaping up to be quite interesting.

The focus is on structuring a new financial and organizational approach to developing Polish shale gas.

A successful outcome would have an impact on both continental energy sources and the ongoing European debt crisis. And the stakes have become even higher in the past several weeks.

In focus this week are the rising energy needs across Europe and what securing considerably greater sources of domestic natural gas will mean to the debt crisis. Meanwhile, we have to consider the potential for some North American companies to generate significant profits by meeting these growing energy demands.

As I noted during my last advisory trip to Poland, Warsaw has decided to fast- track its shale gas development. With reserves now estimated to be much higher than initially thought, the country has the opportunity to become self-sufficient and to start exporting gas to other European countries and elsewhere as early as a decade from now.

That would have a serious impact on the energy balance in Europe as a whole. With the prospects of additional domestically produced energy, the balance of payments will be improved, and with it the debt picture.

Now reinvigorating the Polish picture is not going to do this on its own. Here is where it gets very interesting.

What takes place in Poland will expand elsewhere into Western Europe. There are shale gas reserves in Germany, Hungary, Austria, France, the Baltic countries, Sweden, and even the U.K.

Political opposition has suspended activities in France, and the Greens in Germany have given notice that they intend to target shale gas operations after their successes in phasing out the country's nuclear power stations.

Poland, however, has no significant opposition to drilling. At least, not at the moment. But as I advised the government in September, that situation is likely to change as the number of wells increases. In order to combat any opposition, the country is going to need to access to drilling technologies developed in the Western Hemisphere, technologies that address the primary concerns about hyrdofracking and horizontal drilling.

The North American Advantage

The eight- to 10-year head start North America has had on the rest of the world means there have been significant technological and operational developments in the U.S. and Canada to meet a number of the environmental and logistical problems related to hy drofracking and horizontal drilling.

It's these two advances that have ushered in this whole new world of energy in the United States.

Now eight to 10 years may not sound like a huge advantage…

But it most certainly is.

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Don't Let the Active IPO Market Fool You

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Although last week was the most active for the initial public offering (IPO) market since 2010, don't expect it to be the start of a sustained wave of IPOs and a rally among volatile U.S. stocks.

Encouraged by Groupon Inc.'s (NYSE: GRPN) successful IPO Nov. 5 as well as the October rebound in the stock markets, eight stocks went public last week. They include such well-known names as Angie's List Inc. (Nasdaq: ANGI) and Delphi Automotive PLC (NYSE: DLPH).

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Honesty is the Best Policy...

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I hate it when people ask me that. As if I’m going to respond, “No, lie to me.”

But the truth is, it’s usually a preface that suggests we’re not going to want to hear what we’re about to be told.

So… can I be honest with you?

I have no idea what’s going to happen in stock markets or bond markets this week.

We are at a critical juncture for both stocks and bonds, and this week might be huge.

This past week was ugly, as in really ugly. But, as ugly as it was, U.S. equities are hanging on (by a thread) to their upward bias. As far as the rest of the world, it’s pretty much the same; however, there are cracks everywhere.

From a technical perspective, we are in a very dangerous position. If we don’t see a good rally early in the week, we might be in trouble. If we see a hard sell-off before Thursday, we could be on our way to testing this year’s lows, or breaking them.

Sorry, but I feel I have to digress here for a moment. This is for all of you who just sighed when you read the word “technical” and thought “technical analysis, that’s like reading tea leaves.” Can I be honest? If you think that, you are an idiot. Sorry, just being honest.

Technical analysis is not a matter of random hash marks on a graph accompanied by lines with circles and arrows. Where do you think those marks on that graph came from?

Technical analysis is all about psychology. It’s a reflection of investor activity and the mindset that accompanies it.

The marks on a bar graph reflect the high and low prices of that day. There can also be little marks on each vertical line that show the opening price and the closing price, too. When you string a lot of daily prices together on a graph, it is exactly what happened when investors and traders (we’re all traders now, I’m just appeasing you out there who don’t know it, or are fighting it) bought and sold whatever instrument you’re looking at.

What you may not realize is that things like “support” and “resistance” (to name the most often cited technical analysis tools, though there are many other excellent ones) are places where traders made actual decisions with their money.

A support line, for example, reflects where a stock, an index, a commodity (it doesn’t matter) experienced buying interest. The instrument was going down and stopped declining, because buyers stepped in, and selling abated. A resistance line would reflect the opposite.

That means that people actually took a position at that juncture.

In the case of support, buyers stepped in and maybe short sellers stepped to the sidelines. Then the instrument rises in price. Maybe it comes back to that support level a few times (the more times an instrument touches its support or resistance levels, the more important those levels become) and each time buyers again step in the instrument goes higher, again.

If you think that technical analysis is mumbo-jumbo, think again.

If you've already signed up for Wall Street Insights & Indictments, Shah Gilani's new free newsletter, there is no need to sign up (you've already received this report as part of your existing subscription). But if you aren't a subscriber, take a moment to sign up below to receive this full article. You'll also receive Shah's latest report, "5 Ways to Trade the Coming EU Collapse – And Make a Killing."

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China Changing the Global Gold Market

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While many investors have been distracted by the goings on in Europe, China has been making a dent in the global gold market by making it easier for investors to buy and invest in the yellow metal.

The goal: To dominate the global gold market and carve out a new role for its currency, the yuan.

China and other developing nations like India have been encouraging citizens to buy and hold physical gold, in forms ranging from jewelry and coins to bullion bars. China's aggressive promotion has pushed Chinese consumer demand for gold up 25% overall this year – much higher than the 7% global average.

World Gold Council (WGC) Far East Managing Director Albert Cheng, who predicted in March 2010 that Chinese gold demand would double by 2020, noted: "We now believe this doubling may, in fact, be achieved far sooner."

China is pushing gold because it wants the government and citizens to build financial reserves in assets stronger than the U.S. dollar, euro, and other weakening currencies. It also increases China's role in the precious metals market.

But there's another effect of this push for gold ownership: it's dislodging the dollar as the world's main reserve currency.

China's Gold Push Efforts

China's push for private gold ownership represents a major policy shift.

Chinese citizens were barred from owning physical gold under penalty of imprisonment until 2002. Since that policy was dropped and the Shanghai Gold Exchange opened, China has steadily stepped up efforts to encourage precious metal ownership.

The government now airs news programs on state-owned China Central Television describing how easy it is to buy and sell gold and silver. It also started its first gold vending machine, letting Chinese customers easily buy gold coins and bars using cash, debit cards and credit cards.

Current plans call for an additional 2,000 gold vending machines to come on line in the next two years. If they prove as successful as they did in Germany, where metals vending machines were first introduced, China's consumer gold demand will surge.

Chinese consumers turned off by the vending machines' high price mark-ups have another option – official government-operated "Mint Stores." Structured like a typical jewelry store, they feature specially minted bars in a variety of sizes. Mark-ups are minimal since each store has a Bloomberg screen tracking the current spot gold price, usually quoted in renminbi based on Shanghai trading, rather than in dollars on the London or New York market.

China also has encouraged more gold investment through new exchanges and yuan-denominated products.

The country on June 28 opened its first precious metals spot exchange. The South Rare Precious Metals Spot Exchange offers spot trading – as well as deferred and long-term electronic trades – in gold, silver, bismuth, indium and tellurium, with plans to add 13 other metal-related products. Chinese citizens can trade the metals through either direct margin accounts with the exchange, or through their banks and brokerage firms.

These efforts have increased Chinese consumers' gold interest, but it's the next development that will make China a major global player in gold trading.

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Three Doomsday Scenarios: What Happens If the Eurozone Breaks Up?

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The time has come to confront an ugly truth: The possibility that the Eurozone will break up, or rather fall apart, is growing increasingly likely.

In fact, I'd say given recent developments in Italy the probability of a breakup is as high as 40%.

Indeed, if a country as small as Greece or Portugal were to default or abandon the euro, the effect on the Eurozone would be manageable. The debts of those countries are too small to make more than minor dents in the international financial system, and they represent too small a share of the Eurozone economy for their departure to have much impact.

The psychological effect of their departure would be considerable – if only because Eurozone leaders have expended so much money and effort to bail them out. However, devastated credibility among the major Eurozone leaders is more of a political problem than an economic one.

But now that the markets' focus has moved to Italy and Spain, the Eurozone is really in trouble.

Asking for Trouble

Part of the problem is that in arranging the partial write-down of Greek debt, authorities made it "voluntary," thereby avoiding triggering the $3.8 billion of Greek credit default swaps (CDS) outstanding. Of course, this caused a run on Italian, Spanish, and French debt, as banks that thought they were hedged through CDS have begun selling frantically, since their CDS may not protect them.

Honestly, how stupid can you get! I don't like CDS, but fiddling the system to invalidate them is just asking for trouble. And so far, the only effect has been a considerable increase in the likelihood of a Eurozone breakup.

Italy, Spain, and France are too big to bail out without the European Central Bank (ECB) simply printing euros and buying up those countries' debt. However, if the ECB adopted the latter approach, hyperinflation would almost certainly ensue. Furthermore, the ECB itself would quickly default, since its capital is only $14.6 billion (10.8 billion euros) – a pathetically small amount if it's to start arranging bailouts.

Of course, Europe's taxpayers could then bail out the ECB by lending the money needed to recapitalize the bank, but a moment's thought shows that the natural result of such a policy is ruin.

So what would a breakup of the Eurozone look like? Basically, there are three possibilities.

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