Category

U.S. Economy

Two Energy Stocks For a Post-Oil-Spill World

With the failure of the BP PLC (NYSE ADR: BP) "top kill" strategy, the Deepwater Horizon oil spill takes on a more serious hue, both for the Gulf of Mexico environment and for BP itself. If it indeed proves impossible to cap the oil flow before August, public anger against BP and against deep-sea drilling in general may put BP out of business and set deep-sea drilling around the United States back for years.

The business fallout from the oil spill could be widespread. As was true of the Three Mile Island nuclear accident of 1979, the Deepwater Horizon oil spill could end up causing massive damage to companies that were in no way involved with the BP tragedy. Risks of different types of operation will be reassessed, new rules will be enacted, and the energy business will change radically.

Smart investors will anticipate these changes.

To discover two stocks poised to thrive in a post-oil-spill world, please read on...

BP's Sharp Stock Drop Prompts Takeover Rumors as Gulf Oil Spill Disaster Spirals Out of Control

BP PLC's (NYSE ADR: BP) share price has plunged by more than one-third, as the company has struggled to contain the Gulf oil spill. Now, the company is being rumored as a takeover target as its stock has yet to find a floor.

BP shares have tumbled 36% since the company's leased drilling rig Deepwater Horizon exploded on April 20. The company has lost a third of its market value – $75 billion – stirring rumors that there could be acquisition interest. About $17 billion in losses came on Tuesday alone when the stock plunged 15%.

"There is a 10% to 20% chance of BP being taken over," Gudmund Halle Isfeldt, an analyst at DnB NOR ASA, told Bloomberg News. "The only real candidate, in size and with similar operations globally, would be Royal Dutch Shell [PLC (NYSE ADR: RDS.A, RDS.B)]."

BP's drastic market value loss could make it cheap enough to attract buyers, but some analysts say the total cost and implications of the spill are too vague to justify a commitment.

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Question of the Week: Readers Respond to Money Morning's Market Volatility Query

The Dow Jones Industrial Average last week dipped below 10,000 for the first time since February as a month of market volatility and price declines continued. Analysts predicted volatility to continue into June as government exit strategies begin and liquidity dwindles.

The zooming rebound in U.S. stock prices from their March 9, 2009 bottom – the strongest rebound since the Great Depression – has been stymied by concerns over the Eurozone debt contagion, financial reform, the market flash crash and new political sparks in Korea. Figures show that the bulls are still hanging around – on the sidelines – but the bears have been calling the shots during a month that has seen stock prices fall more than 8%.

"I think it's a question of pick your poison," Dan Alpert, managing partner at Westwood Capital, told MarketWatch. "The market was poised for a very severe correction and whether it's southern Mediterranean countries or worries about German banks, you can pick your catalyst."

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The 50-40-10 Investment Strategy Pays Off in Profits, Protection & Potential

What's more important: Having an investment strategy that performs strongly when the overall market is up, or having an investment strategy that guards against downside risk when the overall market is trending down, while keeping you in the hunt for inflation-beating, long-term profits?

Before you answer, consider the following:

  • If you invested $1,000 in the Standard & Poor's 500 Index in 1950, it would have grown to $613,013 by December 2007.
  • If you had tried to "time" the market and missed the 30 best months in that 57-year period, the value of your initial $1,000 investment would have risen to just $35,404 – a difference of $577,609.
  • But if you tried to time the market and missed the 30 worst months in that time, your $1,000 would have grown to $9,509,094!

That's right – more than $9.5 million! (Obviously the study is a little dated given recent events but the net effect isn't all that different)

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We Want to Hear From You: How Do You Feel About the U.S. Housing Market?

Housing market reports released last week showed that prices and sales are up from a year ago. The Standard & Poor's Case-Shiller Home Price Index showed a 2.3% increase in prices for March on a year-over-year basis, and the National Association of Realtors said sales of previously owned homes rose 7.6% from March to April – a five-month high – and were up 22.8% from April 2009.

The median existing single-family home price was $173,400 in April, up 4.5% from a year ago.

Government-incentive programs offering tax credits to buyers have helped bolster the U.S. housing market in recent months. First time homebuyers were eligible for an $8,000 tax credit if they signed a contract by April 30.

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U.S. Treasury Bonds: The Not-So-Safe "Safe Haven"

In the last few weeks, international investors spooked by the budget crisis in Greece and the turmoil in southern Europe have been flocking into the U.S. Treasury bond market as a "safe haven."

The huge resulting funds flows have pushed the 10-year Treasury bond yield down to 3.16%, very little above its level during the crisis of October 2008. To a rational investor, this is extremely peculiar: After all, what on earth is safe about the "haven" of long-term U.S. Treasury bonds?

To learn about the potential investment dangers posed by U.S. government debt, please read on…

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Question of the Week: Readers Respond to Money Morning's U.S. Consumers Query

Recent reports show U.S. consumers are spending again; some are even ditching the whole discount mentality in favor of luxury brands and making long-delayed big-ticket purchases.

The shift from buying cheaper necessities to comfortably splurging is shown in strong quarterly numbers from Whole Foods Market, Inc. (Nasdaq: WFMI) and Saks Inc. (NYSE: SKS). Whole Foods' quarterly profits doubled from the same period a year ago, while Saks reported a profit of 12 cents per share – higher than the predicted 5 cents per share.

Whole Foods products offer consumers a break from pinching pennies while not viewed as an out-to-dinner splurge. Consumers are putting themselves out there a little more and feel more comfortable buying some higher-end foods – and now the company's stock has gone up 83% since May 2009.

Businesses such as jewelers and travel agents are benefiting from this growing willingness to spend.

But don't misunderstand: Although U.S. consumers are venturing back from their spending hiatuses, they remain cautious buyers.

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We Want to Hear From You: How Are You Responding to Market Volatility?

The Dow Jones Industrial Average dipped below 10,000 Tuesday for the first time since February as a month of market volatility and price declines continued.

The zooming rebound in U.S. stock prices from their March 9, 2009 bottom – the strongest rebound since the Great Depression – has been stymied by concerns over the Eurozone debt contagion, financial reform, the market flash crash and new political sparks in Korea. Data shows that the bulls are still hanging around – on the sidelines – but the bears have been calling the shots during a month that has seen stock prices fall more than 8%.

"I think it's a question of pick your poison," Dan Alpert, managing partner at Westwood Capital, told MarketWatch. "The market was poised for a very severe correction and whether it's southern Mediterranean countries or worries about German banks, you can pick your catalyst."

Read More…

Will Extreme Volatility Actually Stabilize the Markets?

Stocks tumbled across the board last week like a pair of dice rumbling around a craps table, rocked by extreme volatility.  Just when it looked like they were rolling up the unnerving loss of the critical 200-day average on Thursday, bulls' returned to the fray and pushed the major indexes just barely back into safe territory.

But is the market really safe? It's currently at the bottom of its multi-week range, so this is the time to get bullish again if you think the range will remain in force. The S&P 500 Index actually touched its February 2010 low on Friday before rebounding, which will give all the range-traders a green light.

Click Here to Find Out What Last Week's Extreme Volatility Means for the Markets...

Dodge a Possible Debt Debacle With These Two Stimulus-Plan Safety Plays

U.S. President Barack Obama's $862 billion stimulus plan, passed in great haste after his inauguration, has now revealed its true costs and benefits. It didn't revive the U.S. economy – that bottomed about May 2009, before a dollar of it had been spent. Further, combined with the mad wave of similar "stimulus" outlays across the planet, it has destabilized global bond markets – which may end up being very expensive indeed.

For details of the two stimulus-plan safety plays, read on…

For details of the two stimulus-plan safety plays, read on...

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