Archives for January 2012

January 2012 - Page 7 of 11 - Money Morning - Only the News You Can Profit From

If You're Out of Work Blame Your Cell Phone

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Times are tough out there.

We would like to blame China, incompetent politicians, Federal Reserve Chairman Ben Bernanke, the banking system, or some unseen forces for this phenomenon.

But in reality, the answer is no further than our pockets. The real culprit is your cell phone.

The arrival of these gadgets changed everything…

That's because before the cell phone boom, it was very difficult to run an efficient international outsourcing operation. Until then, there were no means of communicating between different offices other than fax, telex, and the balky international telephone system.

Consequently, these communication barriers made manufacturing products overseas cumbersome and expensive.

And since there were relatively few outsourcing operations at the time, there was also an acute shortage of skilled employees in poor countries, making a difficult situation even worse.

As for competition, there wasn't much. That meant the jobs of workers in rich countries were still relatively secure.

But not for long.

Starting in 1995, the Internet and the modern telecommunications revolution changed everything.

The Race to the Bottom

Suddenly, these same barriers began to come down. The job market was changed forever.
Now it was possible to communicate on a real-time basis with factory or service operations in poor countries all across the globe. Outsourcing had been born.

At about the same time, the retail behemoth Wal-Mart Stores Inc. (NYSE: WMT) discovered a China and the price advantage it could gain by manufacturing goods overseas. Wal-Mart's new world began to take shape.

Goods could now be designed by Wal-Mart, made to Wal-Mart's specifications and delivered to Wal-Mart stores in just a few weeks, enabling the retail giant to keep up with trends in fast-moving markets.

The rest, as they say, is history.

There was only one problem. This sea of change wasn't self-limiting.

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Why Weak Earnings Today Could Turn the Bulls Loose Tomorrow

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Everybody is hoping for a swell earnings season on the assumption that it will help the markets move higher.

However, if history is any guide, weaker earnings may be just what the doctor ordered.

Here's why.

Obviously we don't want a disastrous set of numbers, but downbeat earnings and guidance actually creates the possibility of more positive surprises that will encourage money to move into the markets instead of away from them.

Think of it this way: When things shift from good to bad there's a distinct aversion to risk and assets flee like they did following the "dot.bomb" blowup in early 2000 and at the onset of the financial crisis in 2007.

But when they go from bad to less-bad, it's human nature to assume things are improving. And that sentiment brings out the bargain hunter in all of us while also drawing money into the markets. That was the case in mid-2002 and just after March 2009, when people were hoping for something – anything really – to get the juices flowing again.

Winning the Expectations Game

Wall Street understands this psychology better than you might imagine. That's why m anipulating earnings and analyst expectations is a science in and of itself.

Everybody denies it happens, but ask nearly any seasoned Wall Streeter and you'll get a sideways glance and a knowing smile.

The wall that supposedly separates the research, investment banking, brokerage and trading functions of any given firm is a plumber's worse nightmare, depending on your perspective.

Former analyst Stephen McClellan notes in his book "Full of Bull" that this is how the game is played.

He says that's why it's important to do what Wall Street does rather than what it says as a means of securing your personal profits.

I couldn't agree more.

Having spent more than 20 years closely involved with the markets, I've learned that Wall Street's blinders, miscues, set-ups and secrets are often more telling than the "telling" itself.

Consider what's happening right now.

According to Standard & Poor's, analysts have raised projections for 366 companies while lowering those associated with another 534 companies. In other words, lowered expectations out number rising expectations by almost 2:1. Bespoke Investment Group notes that all ten S&P sectors have had more negative revisions than positive.

That's in stark contrast to two years ago when analysts were positive at the onset of 2010 for roughly 80% of the market with the exception of healthcare and utilities. Both were viewed as little more than bastard children and cast as negative performers.

As you might expect, many investors bailed out of the latter while rushing into the former. But that turned out to be a mistake — healthcare and utilities were the best performing sectors in 2011.

This doesn't always happen, but it's well documented that Wall Street often says one thing and does another. You'd think at this stage of the game things would be different, but they're not.

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The Four Hottest Trends from the 2012 Consumer Electronics Show

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The 2012 Consumer Electronics Show (CES) in Las Vegas, NV wraps up today (Friday) after setting the stage for this year's hottest tech trends.

The 3,100 companies in attendance have launched about 20,000 new products since the tradeshow opened on Jan. 10. They range from everyday items like new smartphones to crowd-wowing flying cameras.

Besides companies using the venue to introduce consumers to their hottest new products, this year's Consumer Electronics Show highlighted the materials and capabilities that will dominate the tech world in 2012 and for years to come. The prototypes and early models that debuted this year are the first versions of technology destined to change not only our consumer experiences, but eventually redesign our households and even our nation's military strategies.

Here are four of the most important trends from the 2012 Consumer Electronics Show setting the stage for the future of tech:

Shaping the Future of Tech

1. Gorilla Glass: This game-changing material by Corning Inc. (NYSE: GLW) is lightweight, damage-resistant, and dominating new products that rely on thinner glass for optimal use.

"The Gorilla Glass breakthrough is important because we are moving to a touch-screen world," said Money Morning Defense and Technology Specialist Michael Robinson. "Thinner glass is integral to technology that will greatly enrich the user experience of smartphones, ultrabooks, TVs, and ATMs. The thinner the glass, not only the smaller the electronics, but the more responsive and accurate the screens become."

Robinson has detailed industry-defining innovations like Gorilla Glass in his Money Morning series, The Era of Radical Change.

While Gorilla Glass was showcased in smartphones and laptops at the Consumer Electronics Show, Robinson said the material's importance goes beyond these everyday items.

"We are moving to the Japanese model in which a wide range of products typically sold in stores now come to consumers through vending machines located everywhere," Robinson said. "You'll control them with a smartphone or with touch screens depending on consumer preference. I predict a flood of new vending machines will hit the U.S. in the next five years that will need tough glass to deal with thousands of consumer purchases a day."

2. Ultrabooks: With traditional laptop sales plummeting, and tablets last year's hottest CES export, companies have combined a computer's operating capacity and a tablet's size to create ultrabooks, the latest phase in personal computing.

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Emerging Markets Forecast 2012: Forget the BRICs! Here Are the Best Emerging Markets of 2012

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Don't let the headlines fool you, there's lots of money to be made in global investing in 2012.

You're just going to have to be careful – more so than in years past – because right now the line drawn between successful markets and markets that are in danger of collapse is treacherously thin.

Take the fashionable growth markets, the BRICs – Brazil, Russia, India and China – for example.

It's been 10 years since Goldman Sachs Group's Chairman of Asset Management Jim O'Neill coined the BRIC acronym. His recommendation was certainly effective – one of the best of all time, even. But today, all four BRIC countries face problems, and their troubles illustrate the dangers of following investment fashions.

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JPMorgan Chase (NYSE: JPM) Earnings: Don't Be Misled by Sagging Banking Sector

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As the grim bank earnings roll in over the next couple of weeks, beginning with JPMorgan Chase & Co. (NYSE: JPM) tomorrow (Friday) morning, don't fall into the trap of thinking the financial sector's woes in the last quarter reflect a sinking U.S. economy.

While bank earnings are usually a good barometer for the nation's economy, many of the factors weighing down financials, such as tougher regulations and the Eurozone debt crisis, aren't necessarily a reflection on U.S. economic activity.

In fact, according to the U.S. Federal Reserve's Beige Book report, released Wednesday, the overall economy at the end of last year continued to improve slowly but steadily.

Friday the 13th for the Financials

Analysts have been consistently lowering earnings expectations for all the big banks in recent weeks.

"Friday the 13th will live up to its name when it comes to bank earnings," Mike Mayo, an analyst with independent research firm CLSA in New York, told Bloomberg News. "You're going to see all sorts of revenue and margin pressure and the results will be underwhelming."

The consensus estimate for JPMorgan, the nation's biggest bank by assets and a bellwether for the industry, has slid from $0.97 per share to $0.94 per share in the past month; three months ago the estimate was $1.11 per share.

That puts JPMorgan's earnings below the $1.02 per share of the previous quarter and well below the $1.13 of the year-ago quarter. JPMorgan's revenue is expected to drop 20.8% from first-quarter 2011.

And as disappointing as that sounds, JP Morgan will be one of the strongest performers this bleak bank earnings season, which follows a year in which some bank stocks fell more than 40%.

As the other major U.S. banks report earnings next week – Citigroup Inc. (NYSE: C) and Wells Fargo & Company (NYSE: WFC) on Tuesday, Goldman Sachs Group Inc. (NYSE: GS) on Wednesday and Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Thursday — the din of negativity will be hard to ignore.

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What Anti-Capitalism Talk Will Do to U.S. Markets

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Recent attacks on Republican presidential hopeful Mitt Romney and his private equity background at Bain Capital have triggered more criticism for candidate Newt Gingrich and his "capitalism bashing" stance. Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business' "Varney & Co." program Thursday to discuss what these capitalism debates mean for the U.S. election […]

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3D Chips Will Deliver an Era of Radical Change

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Forget about the "Tablet Wars." That's yesterday's news.

The same thing goes for the long-predicted "Death of the PC."

You see, the mainstream media has unleashed a torrent of technology predictions for 2012. They're all a mile wide and an inch deep.

No one seems to get the big picture.

The single most important computing trend that will unfold this year is getting almost no buzz. And yet…

This is the year when the technology sector will enter a whole new dimension. It's called 3D computing.

Make No Mistake About it… This is Huge

Now, I'm not talking about wearing funny glasses while you watch TV.

This is the year Intel Corp. (NASDAQ: INTC) plans to hit the market with 3D chips.

This doesn't just put the storied Silicon Valley leader ahead of its competition; it also symbolizes the breakthroughs that will drive the "Era of Radical Change."

Fasten your seat belts folks. As I discussed yesterday, the world is speeding up.

As you are no doubt aware, all manner of computers keep getting smaller – and faster. Like clockwork, chips pack twice as much punch every two years.

Take a look at a cell phone from the early 1990s. You couldn't make a decent call on one and it was nearly as big as a brick.

Today, a smart phone fits in the palm of your hand. It surfs the Web, plays video, and can even pilot an unmanned drone half a world away.

Smaller, Faster, More Powerful than Ever

It's all because of Moore's Law. An Intel co-founder, Gordon Moore predicted that every two years computing power would double. Moore realized high-tech engineers would keep finding new ways to make transistors smaller.

But let's not resort to geek speak. Just remember that the size of all electronics is governed by how many of these little devices we can put on a single chip.

Just like loading up your wallet, when it comes to chips more is better – much better.

Except that every few years the "experts" warn us that we're about to hit a brick wall and our electronics just can't get any smaller.

That's because in the past we could only put all of this key information on a flat surface. At some point you just run out of real estate − unless you can go vertical.

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Four Dividend Stocks to Put Money in Your Pocket

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Anxiety over the European debt crisis and distrust in the markets drove volatility in global stock markets to dizzying heights in 2011. The intense level of chaos, and record low bond yields, sent investors scrambling for stocks that deliver steady returns in the form of dividends.

Dividend stocks have long been regarded as "widow-and-orphan" stocks because they provide steady payouts and tend to fall less than others when times are tough. And when stock prices fall, dividend yields actually rise because they reflect a percentage of a stock's price.

In fact, investors seeking shelter from market volatility and economic cycles flocked to dividend stocks in 2011. And most held up much better than the Standard & Poor's 500 Index.

The top 100 highest-yielding stocks in the S&P 500 last year were up an average of 3.7%, before dividends, The Wall Street Journal reported. By comparison, the 100 lowest-yielding stocks were down 10% on average.

Meanwhile, some investors tapped into dividend yields of more than 4% — more than double the feeble yields of 10-year Treasuries — on the stocks of utilities, manufacturers, and telecom companies.

"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 Strategist and Editor of the Permanent Wealth Investor Martin Hutchinson. "Dividends are easy – you can drop them on your foot, as it were. 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."

Still, buying dividend stocks can be tricky. Individual stocks are inherently risky because they are confined to one sector of the economy. As such, they tend to rise and fall along with the rest of their industry peers.

Many investors are solving that problem by turning to dividend exchange-traded funds (ETFs).

ETFs allow investors to capture income from a cross section of companies, without risking all of their capital on one sector. And because ETFs track broad categories of stocks rather than relying on active managers to pick securities, they provide some safeguards against loading up on the riskiest companies.

That said, here are four dividend stocks worthy of a look right now:

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Small Shale Oil Companies Make Prime Take Over Targets

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Cash-rich oil majors are set to go on an epic buying spree. In the process, they are going to create a huge investment opportunity.

Small oil companies have become attractive takeover targets because they have something that oil majors like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) want – expertise in the hydraulic fracking and horizontal drilling methods that are used to extract oil from North America's vast shale reserves.

And many of these takeover targets are companies based in North America.

"The main opportunities to profit from M&A (mergers and acquisitions) will be in the U.S. and Canadian markets," said Money Morning Global Energy Strategist Editor of theOil & Energy Investor Dr. Kent Moors.

Ironically, many of these small companies developed their expertise after buying assets the majors sold as soon as easy-to-reach deposits were tapped. Many of those assets contained shale oil, which is much harder and more expensive to extract.

But since the global price of oil is high enough to make shale oil drilling profitable, the oil majors have been seeking out smaller players to retrieve their assets and expertise.

"These shale prospects are exploration frontiers and the big international players see them as a runway to growth," Mark Hanson, an analyst at Morningstar Inc. told Bloomberg News.

Shale oil becomes profitable when global oil prices are in the $70 a barrel range. The higher the price of oil goes, the more attractive shale oil formations become.

The price of West Texas Intermediate (WTI) averaged about $95 a barrel in 2011, but will keep rising. Moors believes oil will reach $150 a barrel as early as this summer.

So the big oil companies, with billions of dollars of profits burning a hole in their deep pockets, have plenty of motivation to shop around.

For investors that means they need to stake out their positions before all the buying starts.

That's the only way to take advantage of the sudden jump in the stock price that occurs when a takeover deal is announced. Luckily, several oil sector analysts have already identified the most likely takeover targets.

According to Subash Chandra, an analyst specializing in energy stocks for Jeffries Group Inc., the stocks to watch are …

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