U.S. Economy

These Five Inflation Plays Will Provide Protection and Profits

Inflation hawks have been warning since 2008 that the spurt of U.S. money creation that began at the end of that year would spark a surge in consumer-price inflation.

And yet the consumer price index (CPI) statistics remain quiet – not giving ammunition to the deflationary camp, but making "inflationists" look silly, as well. Now, however, it is becoming obvious that inflation will soon arrive. But this time it is sneaking in through the back door – courtesy of our emerging-market trading partners.

Fortunately, there are some very clear steps that investors can take to protect themselves from this expected inflationary surge.

To learn about five investments that can battle inflation even as they fatten your portfolio, please read on...

Why U.S. Stocks Will Rise Above Weak Growth in Global Markets

After another lousy week, it's official: Global markets have suffered the worst late-spring setback since 1940 — a May-June period when the Germans invaded the Netherlands, then marched into Paris, and Italy declared war on France and Great Britain. Just like that, seven decades ago, World War II was on, and markets went into freefall.

If stocks are as good at anticipating global calamity this time as they were in that horrible spring 70 years ago, we may be in for a terrible second half.

It's a bitter irony that so many of those old enmities are flaring up again on the Continent at this critical time. The European Union was created two decades ago at behest of the former Allies to prevent the Continent from sliding into armed conflict again, and the euro currency was later launched to cement the new political relationship.

But many centuries of deep-seated distrust are hard to negate with diplomacy and idealistic optimism, and now we see Europeans back at each others' throats in a flurry of recriminations over who is to blame for outrageous deficits, debts and defaults in the Eurozone — and more importantly, who should pay for them.

To read about how Europe's turmoil could affect the U.S. economy, click here.

Two Big Reasons to Believe the U.S. Stock Market Will Bounce Back

There's been a lot of cheerless news coming out of Europe lately, and that's taken a toll on the U.S. stock market. But I want to take this opportunity to offer up some positive points and remind investors that it's still too early to declare the bull-market dead, and even more premature to fret over a new bear market beginning.

There are two key considerations that support a continued rise in U.S. stocks:

To find out why it's too early to give up on stocks, read on…

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Oil Sector Expert Kent Moors Sees Tough Times, Stricter Regs For BP After Oil Spill

Energy expert Dr. Kent Moors is angry. And the main target for that anger is BP PLC (NYSE ADR: BP).

At its core, the Deepwater Horizon explosion and oil spill is a human tragedy: 11 workers were killed, others were injured and now many Gulf Coast residents will end up losing their homes and livelihoods.

But that's not all that has Dr. Moors seeing red: The accident that resulted from BP's incomprehensible risk-taking has killed an energy bill that could have set the U.S. economy on a course for energy freedom, and is going to summon the heavy hand of government in a way that will cost American consumers dearly while also keeping regular U.S. investors from reaping green.

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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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