One of the Telltale Signs Behind Risky Stocks
Short-term corporate thinking has been blamed for many of America's economic ills.
With little foresight beyond next year, management sometimes closes down plants and fudges accounting to make this year's earnings look better and boost the stock price.
Often, it is simply because management is excessively rewarded by short-term incentives such as stock options.
While investors might benefit from these shenanigans in the short-run, a new study points out the long-term effects are frequently negative.
A new Harvard Business School study entitled "Short-termism, Investor Clientele and Firm Risk" has shown that short-termism is bad for investors increasing their risks without any corresponding increase in returns.
In other words, risk and the short-term thinking usually go hand in hand.
Breaking Down the Conference Call
The study used a very interesting method to find out which companies are short-term oriented or more risky.
France May be the Domino that Causes the Euro to Collapse
Commentators are wringing their hands again, worried the troubles in Spain could cause the whole euro project to collapse.
As a result, all eyes are now on Spanish 10-year debt yields, which went above 6% last week as the threat of euro-chaos returned.
But it's not Spain the markets should be worried about.
The reality is that Spain is not in too bad a shape and that a rescue would be affordable for the European Central Bank even if it was needed.
The real tottering European domino to worry about is France.
After all, it would be impossible for the remaining solvent members of the EU to bail out France if it began to fall.
The larger reality is that France's fiscal position is considerably worse than Spain's.
The country's debt-to-GDP ratio was 85% at the end of 2011, while Spain's was only 66%. What's more, France's public spending is 56% of GDP, according to the Heritage Foundation, compared to Spain's 45% of GDP.
Spain's current government has also instituted a stiff austerity program, mostly comprised of cuts in public spending, which will reduce its deficit below France's by 2013.
Meanwhile, France's austerity has so far consisted almost entirely of tax increases on the rich -not actual spending cuts.
Investing in Emerging Markets: Is it Time to Invest In Thailand?
There is a good reason investors have been clamoring to invest in emerging markets.
With the West spinning its wheels, the truth is there's a good deal of money to be made in these markets in 2012.
One emerging market I like is Thailand.
That's true even though Thailand has only been in the news recently for its terrible floods, which have disrupted supply chains worldwide.
That's understandable; the floods drove down Thai gross domestic product by no less than 9% in the fourth quarter of 2011.
Nevertheless, the level of global disruption caused by these floods indicates just how crucial Thailand has become to the world economy.
And since the place is now well run, and looks to be set to have a nice catch-up year in 2012, with further decent growth in 2013, as investors we'd be wise look carefully there.
Thailand: A Real Emerging Market
Here's why things have changed for the better in Thailand.
Germany Set to Invest $260 Billion in a Renewable Revolution
The moment Germany announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster; observers began to ask one very important question.
Just what energy source would replace such a huge swath of power in Europe's dominant economy?
The short-term solution had to be natural gas.
But this would make Germany more dependent upon imported energy, especially from Russia.
In that sense, the nuclear phase-out made the Nord Stream pipeline – from Russia, under the Baltic Sea, to northern Germany – absolutely essential.
Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).
Then there is the other Russian project – South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.
Much of that will also reach Germany.
In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea.
Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution.
Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.
But there is a problem for Germany in all of this.
It does not want to form an increasing dependence upon imported gas to power its economy.
And this sentiment is driving one of the biggest alternative energy revolutions in recent memory.
The German Push Toward Wind and Solar Power
The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy.
That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.
Germany does have shale gas.
But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.
There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling.
And they have not instilled much confidence for the markets.
Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.
The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.
The price tag is staggering. It is already pegged at more than 8% of the nation's entire gross domestic product (GDP). And it could move even higher.
This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nation's power needs generated from renewable sources by 2020.
However, the developments of this massive policy shift are even more exciting.
Investing in Japan: Three Choices One Year after the Disaster
Like it has been for other Japanese families, this past year has been a tough one in my household, too.
Perhaps not surprisingly, Sunday's one-year anniversary brought long-buried emotions to the surface 12 months to the day after the horrific earthquake and the tsunami it spawned devastated Japan.
The tragedy haunts it still. I don't know a single Japanese who isn't affected.
And I still struggle to process the enormity of what's happened in a country where I've spent much of the last twenty years as a businessman, a husband, and a father.
How do you explain a 9.0 earthquake or a 65-foot high wall of water moving at 80 miles an hour?
Or come to terms with the friends and families who were literally wiped from existence
I couldn't explain that to my youngest son, Kazuhiko, when we visited Kamigamo Jinja, our ancestral family shrine to pray shortly after the disaster.
He wanted to know how the spirits of those departed would find their way home each August for Obon, a more than 500-year-old annual celebration when ancestral spirits make their way back to family altars.
My wife, Noriko and our boys, Kunihiko and Kazuhiko, return home to Kyoto this Friday so we'll see if they've made peace in their young lives as so many other children have.
It is through their young eyes that the future does indeed live, as is the case in so many cultures.
The Aftermath of the Japan Disaster
To that end, I'm sure you've seen the many before and after pictures of Japan making the rounds in recent days.
They're staggering and impressive.
But at what cost?
So far Japan has scraped millions of tons of debris from disaster-hit areas into monstrous piles. Only 6% has been burned or otherwise disposed of. You don't hear about that from U.S. news sources.
Nor do you hear about the additional 130 million to 150 million cubic meters of soil that have yet to be scraped, processed or otherwise remediated to eliminate everything from toxic chemicals to radioactive contamination.
That's enough to fill the Empire State Building floor-to-ceiling 143 times.
In the aftermath, only two of Japan's 54 nuclear reactors are online and running. The rest are down for "inspections" and disaster preparedness drills.
There is a good probability that many may never be restarted, especially with anti-nuclear protests building not only in Japan but around the world as a result of this mess. Most are decades old and of questionable design given what we know about nuclear power safety today.
While I used to be a staunch advocate of nuclear power, today I am now firmly against it.
Cleaning up Fukushima is especially problematic on a couple of levels and estimates suggest it may be 40-50 years before the plant is completely decommissioned.
Not only does the Japanese government have to figure out how to contain the mess, but things are so badly mangled on the ground that the Tokyo Electric Power Company (TEPCO) isn't even sure it can locate the melted nuclear fuel rods at the moment!
An estimated 100,000-275,000 people remain in temporary or modified housing according to various sources. The Japanese government is telling people that it may be a decade or more before they can return home — if ever.
To its credit, the government has gone to great lengths to keep neighbors and families together as a means of preserving the cultural groupism that has played such a vital role in Japan's society for more than 1,000 years.
Separating people would have broken that bond and weakened recovery efforts.
So what now?…
The Greek Bailout, the CDS Market, and the End of the World
A not-so-funny thing happened on the way to the latest Greek bailout.
The terms and conditions of the bond swap Greece agreed to before getting another handout constitutes a theoretical default – but not a technical default.
That's not funny to CDS holders.
Greece hasn't defaulted (so far), but some of the buyers of credit default swaps, basically insurance policies that pay off if there is a default, claim the terms and conditions of the bond swap constitutes a "credit event" or default.
If it is, they want to get paid.
While on the surface this looks like a fight over the definition of a default, underneath the technicalities, the future of credit default swaps and credit markets is at stake.
In other words, the ongoing Greek tragedy is really becoming a global tragedy of epic proportions.
The Next Act in the Greek Bailout?
Here's the long and short of it.
How This Indian Wedding Tradition Drives Global Gold Demand
An Indian wedding tradition dating back thousands of years is more than a simple cultural practice – it has become one of the biggest drivers of global gold demand.
In a Feb. 12 CBS News' "60 Minutes" report, correspondent Bryon Pitts took a look at how the Indian wedding tradition of draping the bride in gold jewels has propelled India to be the biggest source of global gold demand. India is now No. 1 in gold consumption of jewelry as well as physical bars and coins.
India accounts for about 32% of the global gold market with half of the gold Indians buy spent on jewelry for the 10 million weddings held there each year.
As a result, gold prices typically rise ahead of wedding season as families prepare.
"The demand for gold out of India is fundamental for the health of the industry," Ajay Mitra of the World Gold Council told Pitts. "If India sneezes, the gold industry will catch a cold."
Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil
Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.
There are three reasons for this – all happening within the last week:
- First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
- Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
- Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.
All of this is, once again, leading to a rise in crude oil prices.
What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.
Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.
And that is what makes this both a full-blown and an intensifying crisis.
Brinksmanship in the Straits of Hormuz
So what's being done?
Washington has little – leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.
Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.
And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.
Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.
Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path…
The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.
Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.
The West is seeking a more moderate application of what will remain the Iranian cultural reality.
However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play – the Strait of Hormuz.
There has been much misinformation circulated about the strait. Here are the facts.
On any given day, 18% to 20% of the world's crude oil passes through it.
According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.
Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.
If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge – an upsurge that is already happening.
Now for the question I'm being asked several times a day in media interviews…
Just how bad can it get?
What the Glencore Xstrata Deal Means for the Global Mining Industry
The Glencore Xstrata deal, an all-share merger creating a $90 billion global mining industry powerhouse, would be the sector's biggest and could trigger the busiest year for M&A activity.
The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).
Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).
"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."
The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.
The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.