Eurozone
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Stock Market Today: Europe Concerns Ruling the Day
The factors weighing on the stock market today should sound pretty familiar to investors by now. The Eurozone debt crisis - with its carousel of struggling countries thirsting for a bailout - worsens every day.
Today the Spanish government made a formal request for more financial aid for its struggling banking sector. In a letter to Euro group Chairman Jean-Claude Juncker, who is also Luxembourg's prime minister, Spain's Economy Minister Luis de Guindos asked for up to 62 billion euros ($77 billion) in financial assistance for the recapitalization of the Spanish banks that require it.
This move was expected as yields on the Spanish 10-year bonds have been under tight scrutiny as they hover around the alarming 7% line.
Members of Germany, France, Italy and Spain on Friday agreed on a set of growth-enhancing policies equal to about 125 billion euros, or 1% of Eurozone gross domestic product. The European summit takes place later this week and investors are expecting less and less to come from the meeting.
In a bit of good news that doesn't seem to be impacting the sell-ridden market today, new single family home sales grew 7.6% to their highest level in two years. New sales were at a seasonally adjusted 369,000-unit annual rate, almost 20% higher year-over-year, but still a far cry from where sales should be in a healthy economy.
Here are some companies making headlines today.
Chesapeake Energy Corp. (NYSE: CHK) is in the news again and this time for anti-trust violations. Reuters reported today that Chesapeake, led by CEO Aubrey McClendon, conspired with its top competitor Encana Corp. (NYSE: ECA) to suppress land prices. The two companies apparently agreed through numerous emails to avoid bidding against each other at public land auctions to drive land prices for oil and gas fields down.
If these reports are true Chesapeake and Encana violated both federal and state anti-trust laws.
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The Eurozone Crisis is Far From Over
The Greek election last weekend has brought us a brief reprieve. The nation and the Eurozone have stepped back from the brink.
But the larger truth is that little has changed.
Yes, the Eurozone has survived its latest test, yet there is little indication where it will go from here. Considerable continental support for the common currency remains, and EU officials will soon introduce initiatives to consolidate banking and financial policy in the European Union.
Still, the problems keep mounting, and there is very little resolve to fix them.
At this point, a lot of actions (or lack of actions) could still upset the entire apple cart.
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Eurozone Bailout Package: What's Next for Greece
The question regarding whether or not Greece will stick with the Eurozone got at least a short-term answer after the country's elections Sunday, when the conservative, pro-bailout New Democracy party narrowly won the crucial vote.
But Greece's trials and tribulations are far from over, and the relief is temporary. Concerns are increasing over the global cost of a Eurozone bailout package as the mounting woes in Spain and Italy persist.
Citizens of Greece are clamoring for change, but many recognize that the election results are no quick fix. There was no cheering in Greece and global markets reacted cautiously following the vote.
Borrowing costs across Europe rose with Spain taking the lead. The yield on Spain's 10-year bonds spiked to a euro-era high of 7.18%. A reading above 7% raises a red flag that a nation may be approaching the need for a bailout.
Italian bonds also sold off on fears that if Spain is in need of a bailout, an Italy bailout package might not be far off. Italian bonds' 10-year yields are around 6%.
While the Greek election results staved off a calamity, they failed to fix the wider problems facing Greece and its struggling neighbors.
Moody's Analytics' chief economist Mark Zandi told USA Today, "We dodged a bullet, but they've got more bullets coming."
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Eurozone Debt Crisis: The Greek Elections are a Make or Break Moment
What happens this Sunday, June 17 , may be the trigger for a final resolution of the Eurozone debt crisis.
Now I understand that you probably don't follow Greek elections. But this is one you'll want to keep an eye on. At the moment, it dwarfs the contest between Mitt Romney and President Barack Obama.
In fact, come Monday it will be what every banker, politician and trader is talking about.
In the balance is the very fate of the Eurozone.
The
ripple effects could be enough to actually bring the EU down.
That's the first part of the story. Admittedly, it's not a very pleasant one.
The second part concerns your portfolio, since the solutions will involve more money-printing and, in the long run, more inflation.
But you needn't worry. We've already read the central banker's playbook for you.
In this case, the message is clear. Don't buy Europe. But do buy hard assets -- whether gold, oil, or other commodities.
These safe-havens are one of the best ways to hedge yourself against these characters and their money printing schemes.
Now that you know why Sunday is so important, here is how it will likely play out-in both the short term and in the long run.
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Why an Italy Bailout Package is on the Way
With news of the Spain bailout package still fresh, and Greece's crucial elections on Sunday, the next event in the Eurozone debt crisis is already brewing.
An Italy bailout package is likely to be the next costly move in the spiraling contagion.
Italy on Thursday held its first bond auction since European finance ministers came to Spain's rescue, willing to give the ailing country up to 100 billion euro ($126 billion) to shore up its beleaguered banks.
The auction raised a heap of concerns.
Italy's borrowing costs soared following a Treasury sale of 4.5 billion euros of debt, including 3 billion euros of its 3-year benchmark bond that yields a lofty 5.3%. That was the highest yield since December and an increase of nearly 1.4 percentage points from the last sale just a month ago.
In addition, Fitch Ratings reported May 23 that foreign ownership of Italian debt slipped from 50% in 2008 to a current 32%.
"I think Italy could well be a problem, because its current government isn't very good and has no legitimacy, having been imposed by the EU - and it hasn't cut spending as it needs to," said Money Morning Global Investing Strategist Martin Hutchinson. "I'd put it a few weeks away though - market's focused on Greece and Spain at present."
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The 2012 IPO Calendar: How to Spot the Winners
You might find yourself eyeing the 2012 IPO calendar with a bit more scrutiny after the Facebook (Nasdaq: FB) fiasco.
Although Facebook has been nabbing the most attention for disappointing its investors, it's hardly the first IPO to do so. It's all part of the fickle IPO process.
In fact, about 40% of the IPOs to hit the market over the past 12 months have seen their share prices fall below their IPO prices.
Facebook isn't the only factor to blame -- U.S. unemployment is up, the Eurozone debt crisis is sapping bullish spirit, and the upcoming U.S. presidential elections in November are adding to market uncertainty.
But avoiding IPOs altogether could also be a huge mistake.
Just ask those who bought the Google (Nasdsaq: GOOG) initial public offering. The Google IPO priced at $85, started trading at $100, and now trades around $560.
So how can you put yourself in the 60% group and earn a profit in the process?
With the right research and guidance, you can spot winners just like Google.
Do Your IPO Research
Investing in IPOs is like buying and selling any asset: due diligence is required.
An IPO, like a credit-default swap or subprime mortgage, is the ideal financial instrument for a limited set of circumstances. It is up to the individual or the institution to determine if the IPO they are considering is suitable for a long-term investment or a short-term flip.
If it qualifies as just a short-term flips, that is enough to tell you not to buy.
Whatever the investment objective, however, information is readily available for the necessary and needed due diligence.
For example, on March 17, 2011 Michael J. De La Merced wrote an article in The New York Times about the IPO of FriendFinder Networks (NYSE: FFN).
In his Timespiece,"FriendFinder Braves Choppy Market with IPO, Again," De La Merced did an excellent job of detailing his concerns with the stock, ranging from the disposition of the proceeds of the IPO to the accounting at the company to the number of times it had attempted to go public before and had to withdraw the offering.
FriendFinder Network IPO priced at $10 a share last year; it's now selling for around $1.15.
Other times an IPO can be hurt by factors having nothing to do with the financials of the company or the overall economic situation.
Take the Carlyle Group (Nasdaq: CG), a Washington, DC-based private equity group, which went public in May. Until Election Day in November, private equity groups will be vilified by the Obama Administration, unions and others due to Republican presidential candidate Mitt Romney's work with Bain Capital.
There is no way that can aid the share price of Carlyle Group. Now trading around $21 a share, Carlye Group has slipped from its IPO high of $22.45.
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The Three Big Factors Weighing on Oil Prices
Oil prices this week have been pressured by a trio of global factors: OPEC, Iran, and the Eurozone debt crisis.
Crude experienced wide swings on Tuesday, sinking as low as $81 a barrel, a new eight-month low. Prices bounced back later in the day and finished moderately higher at $83.34.
Over the last year, oil prices have fluctuated between $74.95 and $110.55 - with more volatility expected.
Oil's recent wide price swings highlight the market's uncertainty over changes in global supply and demand.
"Oil has given up the ghost, the overriding concern is for global demand to moderate or even come off quite a bit in Europe, the United States and even China and India," David Morrison at GFT Global told Reuters.
Oil Prices and the OPEC Summit
Weighing on crude oil prices this week were words Monday from Saudi Arabia's oil minister as he arrived in Vienna for Thursday's OPEC summit.
The Saudi minister remarked that OPEC production quotas may be too low. The suggestion could move OPEC members such as Iran and Venezuela to shy away from a production cut.
In a research note Tuesday, analysts at energy focused investment bank Simmons and Company wrote, "This position is an indication that Saudi is not overly concerned about the recent pullback in oil prices. It is not yet anxious to aggressively cut supply."
As a matter of fact, Saudi Arabia has actually been increasing its oil supply over the last few months in an effort to pick up the slack from Iran's declining output, which experienced a slump in exports on the heels of tightening U.S. sanctions.
Iran is the No. 2 oil producer in OPEC's exporting countries, earning more than half of government revenue from oil sales, according to the International Monetary Fund (IMF). Its oil output has slipped more than 40% this year, the International Energy Agency (IEA) reported Wednesday.
The IEA report could influence OPEC's decision on production quotas. At OPEC's last meeting in December the members decided to maintain actual output at 30 million barrels per day.
Iran Sanctions Approaching
Also influencing oil prices was a report from the Obama administration on Monday that noted seven countries, including India and South Korea (sizable importers of Iranian crude), have sufficiently reduced their oil imports from Iran and will not be subject to sanctions from the U.S., set to take effect at the end of June.
"By reducing Iran's oil sales, we are sending a decisive message to Iran's leaders: until they take concrete actions to satisfy the concerns of the international community, they will continue to face increasing isolation and pressure," U.S. Secretary of State Hillary Clinton said in a statement Monday.
Oil prices have slipped as markets expect the U.S. exemptions will prevent major supply disruptions.
China, the leading Iranian crude importer in the first half of last year, has not yet been granted an exemption. U.S. officials said talks were ongoing and that status could change before the June 28 deadline to impose sanctions.
Talks over Iran's nuclear programs will restart this weekend in Moscow. It'll likely be the final round of discussion before the sanctions and before a ban on importing Iranian oil into Europe is set in motion.
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Why the Spain Bailout Package Won't Work
The pricey Spain bailout package convinced markets it could fix the Eurozone debt crisis for only a moment Monday, before reality set in that the plan was far from ideal.
Following the announcement of a $126 billion (100 billion euro) bank rescue package, markets rose briefly. But the relief was short-lived as investors hastily refocused and remembered that the struggling Eurozone still faces a number of key obstacles.
The Dow Jones Industrial Average lost 142.97 points, or 1.14%, to close at 12,411.23.
Spain's bailout package was assembled swiftly as EU officials attempt to stave off suppositions about the country's sickly banks with crucial Greek elections just a few days away.
But it falls short of resolving what the Eurozone as a whole is up against.
Banking analysts at Societe Generale summed up in a note to clients, "The plan looks like a classic Eurozone fudge."
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Eurozone Debt Crisis: Why the Next Three Months are Crucial
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No Bull: Could the 10-Year Note Hit 1%?
In the wake of Friday's disastrous jobs number, 10-year Treasury Note yields finally fell through the 1.5% level, trading as low 1.44% on the day.
That plunge took many traders, talking heads and politicians by surprise.
Our "leaders" in Washington D.C. were heard to say: "Nobody saw this coming."
Well, that's just not true. Not one iota.
If you've been reading Money Morning you saw this coming. So did tens of thousands of our Money Map Report subscribers.
I've been warning that 10 year yields would drop below 2% then hit 1.5% for more than 2 years now.
In fact, our readers had the opportunity to profit handsomely on our bond related recommendations that have earned them 30%-71% so far.
What does this mean for you?
First questions first...
Now that we've busted 1.5%, the next stop is 1%.
I can even see negative yields ahead, meaning that investors who buy Treasuries will actually be paying the government to keep their money.
Be prepared. I'm going to show you here what to do and - yes -how you can profit from this move-- even at this stage of the global financial crisis.
Why Bond Yields Will Continue to Fall
First off, 10-year yields dropping to 1% means several things:
- Bond prices go even higher. Rates and prices go in opposite directions. Therefore when you hear that yields are falling, this means that bonds are in rally mode.
- The world is more concerned with the return of its money than the return on its money. You can take your pick why. Personally I think it comes down to two things above all else: the looming disintegration of the Eurozone and the fact that our country is $212 trillion in the hole and warming up for another infantile debt ceiling debate instead of reining in spending.
- More stimulus. Probably in the form of a perverse worldwide effort coordinated by central bankers as part of the greatest Ponzi scheme in recorded history.
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