Expect QE3 After Geithner's Warnings
In testimony yesterday (Wednesday) before the House Financial Services Committee, U.S. Secretary of the Treasury Timothy Geithner may have inched us closer to QE3 when he warned that the U.S. economy will be slammed by two major factors: the immediate danger from the Eurozone debt crisis and fiscal cliff 2013 that is fast approaching.
"The economic recession in Europe is hurting economic growth around the world, and the ongoing financial stress is causing a general tightening of financial conditions, exacerbating the global slowdown," Geithner said in his testimony.
As much of the revenue for major U.S. corporations such as Ford Motor Co. (NYSE: F), DuPont (NYSE: DD) and Cisco Systems Inc. (Nasdaq: CSCO) comes from Europe, the damage is already being felt by both employees and shareholders. Cisco, down 20.52% for the quarter, recently announced the layoffs of 1,300 workers, about 2% of its global labor force.
Geithner cited other factors harming the U.S. economy, including the rise in oil prices earlier this year, cuts to government spending and slow rates of income growth.
Possible adverse developments in the future, particularly the fiscal cliff, led Geithner to warn that, "These potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run."
Don’t Get Fooled: How to Spot Companies That Lie About Earnings
Investors use earnings season as a key tool for decision making – but you might not be able to believe everything you hear.
On Wednesday afternoon Money Morning's Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business with Melissa Francis to discuss a recent survey with a shocking statistic. Turns out about 20% of companies misrepresent or lie about their earnings – a hefty number when you consider you could be invested in one of these companies.
"This is one of the greatest games going," said Fitz-Gerald.
CFOs who were surveyed admitted to "managing" earnings reports – and their reasons highlight how investors are not their top priority.
Fitz-Gerald calls the whole scheme "financial hocus pocus" – but don't worry, there are ways to protect your portfolio from these misleading companies.
"Investors should not be scared of stocks, but this should serve as a colossal slap in the face that they need to get serious about how and what they buy," warned Fitz-Gerald.
Watch the accompanying video to see Fitz-Gerald's analysis on how you can decipher earnings reports to avoid getting fooled.
Prepare for Stock Market Crash 2013
Volatile market behavior has increased speculation over whether or not we're headed for "stock market crash 2013" – or even 2012.
With the Dow Jones down more than 200 points in the first 20 minutes of trading today (Monday), there's certainly reason to believe wild market moves are in our future.
Even without market plunges, we may just be due for an economic growth slowdown and a stock market pullback.
Stock Market Today: M&A Activity Rules the Day
The stock market today has been relatively mild following Friday's buyer-friendly session.
Friday's momentum was halted as poor reports from around the globe surfaced today.
Unemployment in the Eurozone has reached a record high of 11.1%, the highest since the inception of the euro in 1999. In total the level of unemployment for the 27 countries in the European Union stayed at its May level of 10.3%.
On Sunday Spain dominated the final of the European Championship soccer tournament, beating Italy 4-0 – but that will do little to comfort the fact that Spain has the highest unemployment in the EU at 24.6%.
Stock Market Today: This 85% Gainer is Leading the Rebound
The stock market today is rebounding from yesterday's dismal session, the second worst day of the year. The Dow Jones Thursday sunk more than 250 points, or 1.96%, to 12,573.57 and the S&P 500 fell 2.23% to 1,325.51.
Stocks are fighting back today, trying to ignore Moody's rating downgrades of five of the six largest U.S. banks.
The downgrades included Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM). Each of these stocks were up Friday as the markets already discounted the downgrades.
The markets, led by financials, opened Friday's trading with a jolt upwards before settling back to modest gains. Investors remained focused on Europe as leaders from Germany, France, Spain and Italy met in Rome. Little is expected to amount from this meeting, but it could establish a framework for what is to come in the European Union summit next week.
Besides the financial stocks there are three other companies to keep your eye on today: First Solar Inc. (Nasdaq: FSLR), Darden Restaurants Inc. (NYSE: DRI) and Harvest Natural Resources Inc. (NYSE: HNR).
First Solar (Nasdaq: FSLR), the largest maker of thin film solar panels, jumped in early trading after receiving permission to continue construction on a $1.36 billion power project in Los Angeles County.
First Solar stock has been beaten down this year amid steep losses and criticism over its involvement with the U.S. government. The Antelope Valley Solar Ranch One plant, which had been suspended until today, is partially funded by a $646 million loan from the U.S. Energy Department.
Shares of First Solar have slipped over 85% over the past twelve months from a 52-week high of $142.22.
Stock Market Today: Avoid the Stock Slump with this 40% Gainer
The markets had hoped for something more out of the two-day FOMC meeting and responded negatively to the stimulus.
Also impacting the markets today are a number of weak economic reports including disappointing manufacturing indicators from overseas.
Europe's PMI index, based on a survey of purchasing managers in both the services and manufacturing industries, held steady at 46 which is near a three-year low. A measure of specifically euro-region manufacturing fell to 44.8 from 45.1 – another three-year low – in May, London-based Markit Economics said today in an initial estimate.
Both of those gauges were dragged down by a decrease in Germany's manufacturing output.
China also reported a preliminary PMI index, which if correct at 48.1 would be its lowest level in seven months. PMI levels below 50 indicate contraction.
In the U.S. existing home sales fell 1.5% in May, weekly initial unemployment claims remained depressingly high at 387,000 and the Fed's Philadelphia economic index fell to negative 16.6 in June, its lowest level since August.
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Why Apple Inc. (Nasdaq: AAPL) is Too Rich For the Dow Jones
Assuming the Dow Jones Industrial Average represents the biggest, most influential companies in America, Apple Inc. (Nasdaq: AAPL) easily qualifies.
With its massive market cap, trend-setting products, and global brand recognition, it is easy to argue Apple belongs as much or more than any of the current tech companies in the index.
So what gives?…
In a nutshell, Apple stock is too rich for the Dow Jones Industrial Average.
Because the Dow Jones is price-weighted, Apple's current $565 share price would simply overwhelm the index.
"It wouldn't be the Dow Jones Industrial Average," Nicholas Colas, chief market strategist at ConvergEx Group told the Associated Press. "It would be the Apple Plus Some Other Stuff Index."
In this case, a price move of just 5% in Apple stock could push the DJIA up – or down – about 200 points.
Looking at it another way, had Apple been added to the Dow Jones in 2009 instead of Cisco Systems Inc. (Nasdaq: CSCO), the Dow would now be over 15,000.
That's well above the Oct. 2007 record of 14,164 and 2,500 points higher than where it stands today.
With that kind of heft, it's no wonder the Dow has shunned Apple.
How the Dow Jones Industrial Average Works
But it's not just Apple. Other Dow candidates trade high in the triple digits as well.
The JPMorgan (NYSE: JPM) Losses: Here’s What Happened
Yesterday's announcement by JPMorgan Chase & Co. (NYSE: JPM) that it lost $2 billion on a "hedge" position is not only surprising, it's frightening.
I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
Investing In ETFs: How Exchange-Traded Funds Can Save You Money
High commissions and management fees, along with taxes, can really cut into your returns.
That's where exchange-traded funds, or ETFs, come in. In today's investment world, ETFs are cheaper and more tax-friendly than mutual funds.
The average expense ratio for U.S.-listed ETFs is 0.4%, compared with 1.42% for diversified U.S. stock funds.They also give you exposure to an entire industry or market with the click of a mouse.
It's one of the reasons why exchange-traded funds are quickly becoming the investment of choice for investors seeking broad market exposure.
In fact, the number of ETFs has surged over 10-fold in the last decade.
The total number of ETFs in the market grew to 1,114 by October 2011, with assets over $1 trillion, according to the Investment Company Institute.
And the ETF market will expand to roughly $3.1 trillion by 2016, according to projections from the Financial Research Corp. in Boston.
So if you're looking to diversify your portfolio and save money doing it, ETFs may be the way to go.
Here's a primer on how ETFs can work for you.