January 2012 Archives - 4/11 - Money Morning - Only the News You Can Profit From
The Markets or the Mattress: I Know Where My Money is Going
The next 1,000 points on the Dow Jones Industrial Average in either direction are going to be determined by what happens in two cities thousands of miles from our own shores…
Athens and Berlin.
What's more, the risks associated with Europe's redemption, or its failure, are more concentrated now than they were before the crisis began.
There are two reasons: a) Europe won't help itself and b) Wall Street may still have $1 trillion or more in exposure to European problems.
What makes me crazy right now is that European chatter is what's driving the markets.
Every sound bite from Europe is critical these days. Not because there is anything relevant in the political babbling from financial ministers tasked with fixing this mess, but rather that there is a cascade of events that could take us in either direction.
Fix this mess and the markets will take off for a 1,000 point gain that will leave anybody who is on the sidelines hopelessly behind.
Fail and the markets could tank.
It certainly fits the pattern established in recent months. News leaks suggesting solutions have brought on rallies, while negative leaks have caused a ripple effect that has quickly dumped stocks into the hopper.
Yet, it's not really the numbers that matter at the moment – even with the Fed rumored to be considering another $1 trillion stimulus and reports that the European Central Bank (ECB) and International Monetary Fund (IMF) may be seeking as much as $600 billion each.
No. The market swings we are seeing are all about confidence or, more specifically, the near complete lack thereof.
The Mattress vs. The Markets
A recent report from TrimTabs shows that checking and savings accounts attracted eight-times the money that stock, bond and mutual funds did from January to November 2011.
That is a whopping $889 billion that went under "the mattresses" versus only $109 billion that went into the markets.
In fact, CNBC is reporting that the pace of money headed for plain-Jane savings and checking accounts from September to November accelerated to nearly 13-times the average monthly flow rate of the preceding nine months from September to November.
What's significant about this is that the money has headed for the sidelines when the markets have rallied. Usually it's the other way around. Normally money floods into the markets when they move higher.
The other notable thing here is that, generally speaking, up days this year have had thinner volume than down days. This means that most investors just can't handle the swings. In other words, every time the markets dip, they're packing it in.
Pessimism is the Breeding Ground of Opportunity
Bottom line: Investors are making a gigantic mistake – especially those with a longer-term perspective.
Five Tech Stocks to Avoid: RIMM, HPQ, YHOO, ORB, GRPN
After a rocky 2011, tech stocks have gotten a nice bounce so far this year.
But while tech stocks may look tempting right now, knowing which tech stocks to avoid will prevent a lot of pain to your portfolio in 2012.
So here are five tech stocks you should avoid, at least for now.
Buy, Sell or Hold: Dump Petroleo Brasileiro S.A.(NYSE ADR: PBR) Before Its Stock Gets Drilled
At first glance, Petroleo Brasileiro S.A. (NYSE ADR: PBR), or Petrobras, looks like a quality investment…
But looks can be deceiving – and in the case of Petrobras, surface-level success is hiding some serious blemishes.
No doubt, Petrobras is one of the top five major energy companies in the world. And the offshore discoveries made off the coast of Brazil over the past few years have been remarkable.
However, these reserves, while large, present problems of their own. The oil they hold will be costly and difficult to extract, and legal red tape and government interference are further complicating matters.
Additionally, new sources of shale oil are proving more reliable and convenient than such precarious deepwater drilling operations
So it's time to sell Petroleo Brasileiro S.A. (NYSE ADR: PBR) (**), before the only thing getting drilled is its stock.
Into the Deep
Deepwater drilling is hard enough to begin with. Imagine what it takes to force high-pressure/high-heat fluids into chilled production equipment sitting on the ocean floor.
That's no easy task. And in Brazil's case, it's made even more challenging by a thick layer of salt sitting above the oil.
The Carioca field, for instance, is 170 miles offshore, more than 6,000 feet below the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.
The trouble is, it's beyond both Brazil's and Petrobras' capacity to fully fund or provide the level of drilling expertise to carry out these projects. So they must rely on international experts and new, unproven technology to make these deepwater fields productive.
This is a risky strategy – not to mention an expensive one.
The first wells drilled in the exploration cost as much as $100 million each. Petrobras' development plans for 2011-2015 include $224 billion in total investments to fund 688 projects.
As if these headaches weren't enough, Petrobras was thrown another curveball in December.
Tech Stocks to Watch: Apple Inc. (Nasdaq: AAPL), Research in Motion (Nasdaq: RIMM), Guidewire Software
Major change for RIM: Research in Motion, the struggling Blackberry smartphone maker, has named a new Chief Executive Officer to replace co-CEOS Mike Lazaridis and Jim Balsillie – but could be too little, too late for RIM.
The company announced Monday morning that RIM-insider Thorsten Heins would take over the reins effective immediately. Lazaridis will stay on as vice chairman of the board; Balsillie will stay as a director.
The Ultimate Fate of the Keystone Pipeline
The Obama Administration last week decided not to approve the Keystone XL pipeline.
This has introduced another political firestorm into an already uncertain market.
If there is one subject that is likely to stimulate more angst over economic recovery prospects, it is the availability of energy.
A Hundred Billion Reasons to Invest in Robotics Technology
Here's a 100 billion reasons why space technology should be on your radar screen -especially if you're interested in robotics.
According to the journal Nature, the Milky Way Galaxy alone contains at least 100 billion planets.
Now forgive me if I sound excited…but that is huge.
After all, just 20 years ago, astronomers still widel y believed that our own tiny solar system contained allof the major planets.
So when I talk about how we are entering an Era of Radical Change, this is exactly what I'm talking about.
It's not about tiny incremental changes but gigantic shifts in thought.
And here is something else to ponder…
With all of this new data, scientists now believe the universe may contain more than 150 billion galaxies. The math is enough to make your head spin.
How Nuclear-Powered Robots Are Winning the New Space Race
All this brings to mind one key point: The odds that we are alone in the universe grow smaller and smaller every day.
That puts us on the cusp of a New Space Race – one that will undoubtedly favor robots.
That's why I think NASA's new Spidernaut is such an important piece of technology. It's an eight-legged robot that looks like it crawled right out of a sci-fi movie.
NASA plans to use these robots to help construct a new generation of space-science platforms that are so large and fragile they'll have to be built in orbit.
As it turns out, spiders are really nimble creatures. NASA designed the prototype arachnid robot to have the grace and weight distribution of real spiders.
If the technology works as planned, these giant spider robots would crawl across a "web" of space tethers so as not to damage delicate equipment.
Now how cool is that?…
It all goes to show you that despite the soft global economy and budget cuts, we've actually never had more interest in space exploration.
The Best "Buy" of the New Dividend Aristocrats
If you are looking for a steady stream of safe dividends in today's troubled markets, the list of "Dividend Aristocrats" is a good place to start.
Compiled and tracked by Standard & Poor's, Dividend Aristocrats are companies that have consistently increased their dividend payouts for 25 consecutive years.
Currently, there are 51 of them, including the 10 new Dividend Aristocrats added this year.
That offers yield conscious investors a choice of 51 solid companies with a reliable track record of providing guaranteed payments-even during volatile markets and down economic cycles.
"The problem with going for capital growth is that you very often don't get it, and then you've got nothing – the investment just sits there," said Money Morning Global Investing Specialist Martin Hutchinson.
"Dividends" Martin says, "are easy."
Not only are they easy, they're also increasing.
Dividends on the Rise in 2012
Standard & Poor's reported that dividend increases for all their indices in 2011 almost doubled the dividends paid in 2010.
Total dividend increases hit $50.2 billion last year – an 89.2% rise over 2010's dividend increases of $26.5 billion – and are expected to climb even higher in 2012.
That's welcome news for investors searching for steady income sources in a zero-growth environment.
Few other assets – especially bonds – are expected to deliver an increased payout this year.
"With 10-year Treasury bond yields below 2%, bonds just don't give you the income they used to," said Hutchinson. "Dividend stocks can give you a better yield than bonds, and if you pick the right ones, will provide both protection against inflation and a chance to share in global economic growth. While they'll fluctuate with the market, dividend stocks of attractive companies are thus really a three-fer."
Dividend Aristocrats even go a step further than ordinary dividend stocks because of their lengthy payout history.
But before you dive into investing in these Dividend Aristocrats, the list needs some scrutiny.
Even though all 51 Aristocrats are known for increasing dividends, not all of them make for great investments in today's market.
"All you have to do is figure out which companies are run by sharpies – and are paying dividends out of capital – and which companies have genuinely solid business models that aren't going away," said Hutchinson.
In fact, there's only one of the freshly-minted Aristocrats that you should add to your portfolio right now.
The Verdict Is In: End Congressional Perks
Three-day workweeks. A full pension. Retirement benefits. Gym memberships. Car service. Free flights to anywhere in the world and travel allowances worth thousands of dollars…
With so many Americans struggling to just find a job, isn't time we put an end to Congressional perks like these?
That's the question we put to you just a few short weeks ago. And we're happy to say the response has been overwhelming.
We've been inundated with comments and responses. Here's just a small sampling:
- 2012 U.S. Dollar Outlook: How to Play A Short-Term Rally
Crisis in the Eurozone: The Reality of the European Downgrades
It turned out to be a ruinous Friday the 13th for Europe last week.
After the close, Standard & Poor's downgraded nine of the sovereign states in the European Union (EU).
That included dropping Austria and France to AA+ status from their formerly lofty AAA rating.
While the decision was expected, and will most likely be followed by additional downgrades from the other rating agencies such as Moody's Corp. (NYSE: MCO) and Fitch Ratings Inc., it's the knock-on effects that will have larger implications for investors around the world.
In the Wake of the European Downgrades
The first and most obvious effect was the downgrade of the European Financial Stability Facility (EFSF) that followed on Monday. In the wake of Friday's bad news, the EFSF was also dropped to a AA+ rating.
According to the S&P:
"We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues are currently not in place. We have therefore lowered to 'AA+' the issuer credit rating of the EFSF, as well as the issue ratings on its long-term debt securities."
The S&P also warned more EFSF downgrades would follow if the ratings of other individual states dropped in the future.
In a warning the EFSF could fall below AA+ the S&P said:
"Conversely, if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'."
So where do we go from here?