Archives for November 2011

November 2011 - Page 5 of 9 - Money Morning - Only the News You Can Profit From

The New Banking Fees That Are Silently Squeezing You

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Customers won a victory in early November when their protests prompted Bank of America Corp. (NYSE: BAC) to drop new banking fees on debit cards.

But while you were celebrating, banks got busy finding new ways to recoup that money.

Now they've implemented new, inconspicuous tactics to charge fees – ways so under-the-radar they haven't (yet) triggered damaging customer backlash.

"Banks tried the in-your-face fee with debit cards, and consumers said enough," Alex Matjanec, co-founder of MyBankTracker.com, told The New York Times. "What most people don't realize is that they have been adding new charges or taking fees that have always existed and increased them, or are making them harder to avoid."

So if you haven't paid close attention to your statements, or haven't been monitoring communication from your bank, you could be facing exorbitant new costs – just to keep banking in the same manner you have for years.

Your New Banking Fees

Bank of America was one of the last big banks to scrap plans for a monthly debit card fee. SunTrust Banks Inc. (NYSE: STI) and Regions Financial Corp. (NYSE: RF) had already ended their programs and reimbursed customers, while JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) cancelled program testing.

But that hasn't stopped them from looking for new ways to stick it to customers.

The most common charges banks have implemented or proposed include a monthly fee for personal checking accounts, cash wiring fees, ATM withdrawal charges, and higher payments to receive paper statements.

Some specific fees that banks have hoped to slip by you include:

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These Two Emerging Markets Just Got A Lot More Enticing

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With U.S. economic growth on the wane and the European Union (EU) on the brink of collapse, there's never been a better time to increase your exposure to emerging markets.

And two fast-growing developing economies just became a lot more enticing.

I'm talking about Colombia and South Korea – both of which just signed free trade agreements (FTAs) with the United States.

Both treaties date back to the last days of the Bush administration – when bilateral trade deals were fashionable – but had gotten hung up in Congress.

To some extent, free trade agreements merely deflect trade from other paths. However, since the EU has signed a trade deal with South Korea and is negotiating one with Colombia, there are both defensive and trade-building reasons for these deals.

South Korea is a trillion-dollar economy and one of the United States' most important trading partners, with two-way trade totaling $74 billion in 2008. And Colombia's potential as a trading partner is enhanced by its geographical position – close to both the East and West Coast U.S. markets.

Both countries are growing quite fast. In fact, Colombia is expected to clock growth of more than 5% in 2011 and 2012.

The Biggest Beneficiaries

The South Korean deal offers the most potential to U.S. exporters, as the deal is expected to add about $10 billion to U.S. exports and gross domestic product (GDP).

U.S. exporters of agricultural products, which are projected to double from their current $2.8 billion, will be the primary beneficiaries. However, U.S. auto manufacturers and banks will also have a chance to break into the market.

On the other side, Korean exporters of cars, trucks and computer equipment will benefit from better access to the U.S. market.

Colombia has a thriving agricultural sector, but U.S. meat exports should jump significantly. Pork exports, for example, are forecast to grow 72%. IT companies and chemicals producers also will gain improved access to the Colombian market. But the greatest potential will be unlocked in the heavy equipment sector, as Colombia races to develop its mineral resources.

Reduced sanitary inspection barriers will improve the trade flow both ways. That will increase demand for Colombian coffee and flowers. But the big breakthrough will be in Colombia's energy sector, as the country's oil is an increasingly important export to the United States.

Now let's take a look at some of the specific companies that will cash in on these deals.

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Sector Watch: Five Stocks To Help You Fight Food Inflation Pain

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Unless you've stocked up on enough food to hold you through next year, you won't be able to avoid the effects of food inflation.

According to the U.S. consumer price index, overall food prices rose 4.7% in September from the year before. That's more than the 4.6% increase in August and 4.2% jump in July.

And the price pain will continue.

Global food prices are expected to increase 4% next year, and could climb even higher on supply squeezes. Droughts and floods have disrupted global crop yields, meaning higher prices at both grocery stores and restaurants.

Food at home prices rose 6.2% in September from the previous year. Grocery stores were eating most of the price increases earlier in the year, somewhat insulating U.S. consumers, but recently that's begun to change.

"The era of grocers holding the line on retail-food cost increases is basically over," John Anderson, a senior economist at the Farm Bureau in Washington, told Bloomberg News.

Food away from home didn't rise as high as food at home, up a more modest 2.6%. That's the widest gap between the two price measures since 1990.

The faster rise in grocery store prices has led some restaurants to start boosting prices to catch up. They think consumers are less likely to be deterred by increases now that food at home costs more, too.
MM Sector Watch
"If people go to the supermarket and see that the core items they're purchasing are on the rise, then they are less likely to be surprised if restaurants are raising prices as well," Jeffrey Bernstein, an analyst with Barclays Capital, told Bloomberg.

Many chains have tried to avoid changes, but the third-quarter's 8% surge in commodity prices has pushed some to their breaking point. Now popular eateries like McDonald's Corp. (NYSE: MCD) and Panera Bread Co. (Nasdaq: PNRA), which have already adjusted their menu prices this year, are considering more price hikes.

Since food companies and restaurants are charging more for their products, brands that are consumers' favorites are raking in profits. Higher prices have boosted the Consumer Staples Select Sect. SPDR exchange-traded fund (NYSEARCA: XLP) about 15% in the past two years, while the Standard & Poor's Supercomposite Restaurants Index has soared 64%.

This means now's the time for you to offset your bloated food budgets by hunting for the sector's most successful stocks.

Five Food Inflation Investments

Here are five food-related stocks positioned to grow along with food prices:

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China Still Key for Investors Despite Slumping Stock Markets

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Despite the recent downturn in China's stock market, investors need to remain focused on the profit-generating long-term growth potential of the Asian powerhouse.

The Shanghai Composite Index is down about 10% on the year, compared to a drop of less than 1% year-to-date for the Standard & Poor's 500 Index.

Chinese exchange-traded funds (ETFs), a popular way for U.S. investors to dip their toes into the Chinese stock markets, are off an average of more than 21% for 2011. That's a big shift from 2010, when the average China fund gained 13%, or 2009, when the average gain was an eye-popping 64.5%.

Anthony Bolton, one of the United Kingdom's most respected fund managers, called the end of the third quarter "a brutal period for Asian markets – as difficult a time to be running money as I can remember."

Bolton's U.K.-based Fidelity China Special Solutions Fund dropped 28.9% in six months.

A recent bounce up from lows reached in October has some experts wondering if China's stock markets hit a bottom or if they might slip still lower, but in any case investors mustn't abandon China, said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

"Long-term, you can't afford to be without Chinese stocks," Fitz-Gerald said. "Timing is not what you should be focused on. You need to be focused on growth, and who has the money."

Fitz-Gerald pointed to the debt-crippled economies of the United States and Europe.

"That's not where the money is," he said. "It's in the emerging economies like China."

Controlled Slowdown

Several factors have combined to rock the Chinese stock market this year. The Chinese government has attacked inflation by raising interest rates five times over the past 12 months, but at the cost of slowing economic growth.

Even so, the Chinese central bank has projected the country's gross domestic product (GDP) will grow at a 9.2% rate in 2011 and an 8.5% clip next year.

That's still more than triple the growth of the U.S. economy. The Philadelphia Fed's quarterly survey yesterday (Monday) lowered its projected U.S. GDP for 2012 to 2.4%.

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Was the October Rally Just a Melt Up?

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Global Economic Intersection Article of the Week Editor's Note: This was originally posted October 30. It is quite interesting to compare this analysis to what has happened in the ensuing week. John Mauldin, for whom I have a great deal of respect, put forth a very convincing and enlightening argument last weekend in his free […]

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Crop-Killing Drought to Push Food Inflation Even Higher

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A drought affecting one-third of the lower 48 states has hurt several key food crops, driving up prices this year and assuring widespread food inflation well into 2012.

According to the National Climatic Data Center, the drought has caused more than $10 billion in losses to agriculture and cattle, a number it expects to keep rising as the drought continues.

Meteorologists blame the drought on a La Niña weather pattern expected to last at least through the winter.

Crops most affected include corn and peanuts. In addition, the lack of rain dried cattle grazing pastures to dust, which has translated to higher beef prices.

"Yes, we are going to see higher prices this Thanksgiving," Purdue University agricultural economist Corinne Alexander told The Atlantic.

The American Farm Bureau estimates that a Thanksgiving meal for 10 will cost 13% more this year than it did last year.

The U.S. economy already has inflationary pressure as a result of the stimulative policies of the U.S. Federal Reserve pumping it with hundreds of billions of dollars.

"Ultra-low interest rates and excess money supply growth are what's been driving inflation," said Money Morning Global Investing Strategist Martin Hutchinson. "They raise commodity prices, which over time feeds into inflation in general."

Now the drought is pushing food inflation higher than overall inflation.

The Consumer Price Index (CPI) in September was up 3.9% over the previous year, while the increase for food alone was up 4.7%. Over the past five years, world food costs have risen 68%.

Earlier in the year, grocery stores were eating most of the price increases, somewhat insulating U.S. consumers. But in recent months that's begun to change.

"The era of grocers holding the line on retail-food cost increases is basically over," John Anderson, a senior economist at the Farm Bureau in Washington, told Bloomberg News.

The Biggest Bites

Prices are going up the most dramatically in the categories of food most affected by the drought. Beef is up 10.1%, for instance.

With pastures drying up over the summer, many ranchers were forced to sell off cattle before they could reproduce. While that briefly increased the supply of beef, the current shortage of cattle – the U.S. herd was at a 38-year low this summer – is impacting prices.

The drought has caused the price of hay to skyrocket from $80 a ton to $200 a ton, which, because it's used as forage for farm animals, has contributed to a 10.2% spike in dairy prices.

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EOG Resources Inc.(NYSE: EOG) Is Looking to Lead U.S. Oil Production

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EOG Resources Inc. (NYSE: EOG) has undergone a massive change in its business model – and it's paying off astoundingly.

EOG Resources used to be known as a leader in natural gas exploration and production.
But low natural gas prices led to declining profits. In fact, the company lost $70.9 million in 2010's third quarter.

So it embraced a major production and technology change. EOG perfected horizontal drilling techniques to access shale rock formations trapping large reserves of oil – instead of reserves of gas, as many competitors were doing.

Now EOG has transformed from a leading gas drilling company to a major oil producer, increasing its liquid production last year by 49%.

With this new production model, EOG's profits are driven by high oil prices instead of depressed natural gas prices. The company just reported its third-quarter earnings and the results are astonishing – it turned a loss from the same quarter last year into a blowout earnings surprise this year. Net income hit $541 million.

The bottom-line growth helped the company's share price rally 20% since earnings were released Nov. 2.

By changing its focus to profitable oil production, EOG Resources is now a low-risk, high-reward energy stock, making it a "Buy" for investors looking to cash in on rising oil prices. (**)

EOG Resources Inc.: Unlocking Profits from Shale Oil

EOG Resources is one of the largest independent (non-integrated) U.S. oil and natural gas companies, with proven reserves in the United States, Canada, Trinidad, the United Kingdom, and China.

It's the largest oil producer in North Dakota's Bakken Shale, and the largest producer in the Eagle Ford Shale in South Texas. These two shale oil fields have played a key role in ramping up U.S. oil production over the past few years, with each having an estimated 4 billion barrels of recoverable reserves.

EOG's extensive operations in these fields have pushed its total liquid production to 130,000 barrels per day, and Chief Executive Officer Mark G. Papa said he expects to reach 200,000 barrels per day in 2012. That could make the company the second or third largest oil producer in the United States.

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Mortgages for the 'Middle-Rich' Are Class Warfare Ammunition

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For weeks now I've been telling you the markets are broken.

Now I'm going to prove it.

Today I'm talking about the housing market. It's broken. The truth is Congress broke it. Of course, it had help from mortgage originators, banks, and a deliriously greedy public.

But now, amidst all the rhetoric about class warfare, wouldn't you know it, some congressmen want to further grease the wheels of an already slippery housing market for a class of homebuyers I call the "middle-rich."

It's just plain stupid. And not only will it add to our housing woes, it's ammunition for middle-class Americans, who rightly recognize they are the biggest losers in a class warfare battle they never imagined would undermine the American dream.

A Good Idea Gone Terribly Wrong

What's being debated in Congress is the maximum size of mortgages that Fannie Mae and Freddie Mac can guarantee.

The previous maximum mortgage eligible to be backed by the Government Sponsored Entities (GSEs) was $625,000. In the aftermath of the credit crisis and housing bust lobbyists easily got that maximum raised to $729,750.

The increased limit expired on September 30, 2011. But the usual lobbying forces – in this case that would be banks, mortgage originators, realtors, home builders and financial intermediaries that trade mortgage pools guaranteed by taxpayers – are pushing to extend the higher limit until at least the end of 2013.

It doesn't make sense for the government, or taxpayers, to guarantee mortgages at all. The whole scheme, which originated in the Great Depression and made good sense at that time, should have been phased out decades ago. Instead, it mushroomed.

The idea is simple enough. In order to drive money towards housing finance, the government establishes "conforming" criteria for mortgages. When mortgages conform they are believed to be of a certain standard and quality and can be packaged into mortgage-backed pools. The government guarantees the payment of principal and interest on those pools. Investors buy the pools because they are guaranteed, and the money they pay banks and originators for the mortgages in the pools goes back to originators and banks, which now have more money to make more loans to more homebuyers.

Taken at face value this isn't a bad idea. But as is so often the case with even the best ideas, there are unintended consequences. In the case of the government guaranteeing mortgages, there are plenty of very negative unintended consequences, like "moral hazard," for example.

That's why, after the horror of the Great Depression had passed, government guarantee programs should have been phased out, so that private markets could freely price the risk of originating and holding mortgages.

Unfortunately, that didn't happen. That's why we find ourselves in the situation we do today.

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Copper Prices Update: Prosper As Copper Becomes the "New Gold"

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The Statue of Liberty is one of the most recognizable American icons in the world.

And as she towers 305 feet above Ellis Island, what's Lady Liberty wearing? Copper – 60,000 pounds of it.

Clearly, copper's big in art. It's also a key metal that keeps the world economy humming. Copper consumption has grown at an average annual rate of 4% since 1900.

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Five Companies to Avoid Until the Eurozone Debt Crisis is Over

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U.S. companies with significant exposure to Europe will take a profit hit regardless of how the Eurozone debt crisis shakes out.

The financial strain of Europe's efforts to avert default among its troubled members – Portugal, Italy, Ireland, Greece and Spain (PIIGS) – has set the Eurozone on course for a recession even if its efforts succeed.

Yesterday (Thursday) the European Commission dropped its forecast for growth in the Eurozone to just 0.5% from its previous estimate of 1.8% in May. The commission blamed austerity measures, which were aimed at lowering budget deficits, but ended up eroding investment and consumer confidence.

"The probability of a more protracted period of stagnation is high," said Marco Buti, head of the commission's economics division. "And, given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded."

Falling consumer demand has already begun to affect the bottom lines of many U.S. companies that derive large portions of their revenue from the Eurozone bloc.

"In light of cutbacks in government spending, tax increases and waning business confidence, there already has been some [company] commentary on slipping appliances, bearings and heavy-duty trucks demand," Citigroup equities analyst Tobias Levkovich told MarketWatch. "In many respects, these early remarks are a worrisome sign."

For example, General Motors Co. (NYSE: GM) on Wednesday said the debt crisis would prevent it from breaking even in Europe this year. And Rockwell Automation Inc. (NYSE: ROK) on Tuesday warned of declining capital spending in Europe next year.

Although sales to Europe account for only 10% of revenue for the Standard & Poor's 500 as a group, several sectors have far more exposure to the Eurozone.

The auto sector derives 27.6% of its sales from Europe, followed by the food, beverage and tobacco sector at 22%, the materials sector at 19.8%, the consumer durables and apparel sector at 16.2% and capital goods at 16.4%.

"Europe is a major component to the U.S. economic engine and it is a concern," Howard Silverblatt, an analyst with S&P Indices, told MarketWatch. Silverblatt noted that while a European recession may not necessarily take down the U.S. economy, "it has an impact that will move stocks."

Here are five U.S. stocks that have significant exposure to Europe and leveraged balance sheets high – making them risky investments until Europe gets back on its feet:

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