Eurozone

This Weekend's G-20 Meeting Won't Bring Any Answers on Financial Regulation

Finance ministers from the Group of 20  (G-20) nations this weekend will attempt to reach a compromise on the implementation of stricter banking regulations at a meeting in Busan, South Korea. However, significant changes to financial regulation will come slow, if at all.

The meeting will start late Friday and will involve discussions about how to reduce deficits and prepare financial institutions for a wider set of rules.

"Sustaining world economic growth is the most important item on the G-20 agenda this weekend," said U.K. Chancellor of the Exchequer George Osborne. "Countries with high budget deficits must show that they can deal with them. Equally, surplus countries, such as China, must show that they too can support economic growth going forward."

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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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Banks and Investors Both Rattled by European Debt Concerns

European debt concerns continued to weigh on investor sentiment today (Thursday) as rumors circulated that the European Central Bank (ECB) was planning an intervention into the continent's banking sector.

The ECB is buying government bonds and increased its lending to banks, but that has done little to alleviate concern that the nearly-$1 trillion (750 billion euros) Eurozone bailout package announced last month won't be enough to prevent a collapse in the banking industry.

The ECB said on Monday that European banks will have to write off more loans this year than they did in 2009. The region's banks are expected to write off some $237 billion (195 billion euros) in bad debt by 2011.

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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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Caution Is the Buzzword After Last Week's Stock Market Drop

Risk aversion was the story of the week last week amid rising exasperation with Eurozone countries to act in unison to solve their debt afflictions and swelling concerns that financial reform may constrain U.S. financial companies' profits. Economic reports didn't offer much help to the stock market, as industrial manufacturing outlooks showed a surprising amount of slowing.

Stocks mounted a modest bounce on Friday after a week that saw the major market averages sink another 2% to 4%. All of the positive action in the week came in a single low-volume session on Thursday that didn't ultimately do much to erase the negative tone of the worst May since the Kennedy administration.

More troublesome was the fact that positive corporate earnings news and mergers failed to bolster the appetite for stocks. Companies as varied as Dell Inc. (Nasdaq: DELL), Chicos FAS Inc. (NYSE: CHS), Brocade Communications Systems Inc. (Nasdaq: BRCD) and Sears Holding Corp. (Nasdaq: SHLD) beat analysts' expectations this month but saw their shares thrashed by up to 20%.

Most emerging markets fell hard during the week, and there was a broad sense that institutional investors were purging portfolios of high-beta assets that could be vulnerable to a slowdown in earnings growth. This is why bland food makers like Campbell Soup Co. (NYSE: CPB) and General Mills (NYSE: GIS) have survived the month without a crunch, but more economically sensitive companies like Johnson & Johnson (NYSE: JNJ) and Intel Corp. (Nasdaq: INTC) have flailed.

While the Standard & Poor's 500 Index did not close on Friday above its 200-day average -- the level that separates bull cycles from bear cycles -- the Nasdaq 100, Midcap 400 and Smallcap 600 did. This will be used by bulls as evidence that the May decline was just a modest setback on an upward journey.

Yet bears are making a good case that this is much more than a mere correction. Breadth has been hellaciously negative except for the 11-1 positive session on Thursday, and less than 100 stocks are making new highs on the three major U.S. exchanges. Plus volume has been much bigger on down days than up days, a sign of distribution.

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Global Recovery Gaining Momentum, but Obstacles Remain

The Organization for Economic Cooperation and Development (OECD) announced yesterday (Wednesday) that it has lifted its economic growth outlook, but warned that governments must enforce strict fiscal policies to sustain the global recovery and balance global expansion.  

The OECD reported that the combined economy of its 31 members would grow 2.7% this year and 2.8% in 2011. Troubles of debt-plagued developed economies will be offset by the rapid economic growth of emerging markets. The numbers have been revised upward from November predictions of 1.9% growth in 2010 and 2.5% growth in 2011.

The OECD estimated global gross domestic product (GDP) would rise 4.6% this year and 4.5% in 2011, up from the previous expectation of 3.4% and 3.7%, respectively.

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Is Europe on the Verge of a Liquidity Crisis?

The euro's recent struggles have done more than bring the currency's viability into question. They've put the European Central Bank (ECB) on a collision course with a liquidity crisis.

The ECB is running low on dollars, and that problem could escalate when the U.S. Federal Reserve closes swap lines that were temporarily reinstated as the Greek debt crisis escalated. Additionally, more deposits are being yanked from the central bank as holders question whether or not the ECB has enough juice to stop a classic bank panic.

The euro yesterday (Wednesday) remained at a near four-year low against the dollar, tumbling 0.5% to $1.2306. The beleaguered currency dropped against the yen and British pound, as well.

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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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Borrowing Costs on the Rise as Banks Cope with Contagion Fears

LIBOR (London Interbank Offered Rate) - the rate banks pay each other for three-month loans in dollars - yesterday (Tuesday) rose to its highest level since last July.

The rise in borrowing costs is directly attributable to Europe's debt crisis, which is forcing financial institutions to re-think their peers' creditworthiness.

The Libor increased to 0.536%, the highest level since July 7, from 0.510% on Monday, the 11th consecutive day it has increased, according to data from the British Bankers' Association (BBA). German and French bonds surged, pushing 10-year yields to record lows, as investors moved into the safest assets.

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Why the Eurozone Debt Contagion is Telling Us That It's Time to Buy Dividend Stocks, REITS and MLPs

With the escalating Eurozone-debt-contagion fears of recent weeks, a significant shift is taking place in the global stock-and-bond markets.

The powerful bull cycle that grew out of the early March 2009 market lows - the quickest and strongest stock-market rebound of the past 50 years - has been losing some of its youthful verve as it matures. That means we can expect the pace of gains to moderate as asset classes (stocks, bonds, currencies, commodities) begin to differentiate themselves.

But that doesn't mean the profit opportunities are gone. As that differentiation plays out, such income-oriented plays as high-yielding dividend stocks, real estate investment trusts (REITS) and master-limited partnerships (MLPs) will prove to be major beneficiaries, experiencing a handsome run-up in price. Shrewd investors will move into those investments before their prices increase.



To see what stock-market sectors hold the most promise, please read on...

Money Morning Investment Report Update: German Economy Shows Surprising Strength

The German economy – Europe's largest, and one of three markets highlighted in Money Morning's most recent investment-research report – is demonstrating some real muscle. Just as we expected it to. The country's statistics office, Destatis, said Germany's gross domestic product (GDP) expanded at a better-than-expected rate of 0.2% in the first three months of […]

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Germany's Short-Selling Ban Lacks the Political Muscle to Go Global

Hoping to win more public and political support for its involvement in the bailout of Greece, Germany has banned the naked short-selling of European sovereign debt instruments. However, other European governments are refusing to follow suit, highlighting the lack of political will that's needed to regulate the credit default swap (CDS) market.

German Chancellor Angela Merkel said that the ban would remain in place until the EU comes up with a comprehensive plan for financial reform.

"This will all remain in place until other rules are established on the European level," she said.

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What Does Germany's Credit-Default-Swap Ban Mean for You?

Germany did something on Tuesday that I've been hoping would happen for three years: It outlawed naked short-selling and speculation on European government bonds with naked credit default swaps.

The financial institutions that have been profiting from this type of speculation immediately went on the offensive.

German officials justified the surprise, unilateral move by financial regulator BaFin by stating that the "exceptional volatility" in government debt - if accompanied by massive short-selling and naked CDS trading - could result in excessive price movements that would actually "endanger the stability of the entire financial system."

To learn about the strategies you should employ because of Germany's move, please read on...

A Broad-Based U.S. Recovery is Strengthening the Global Economy Against Europe's Turmoil

Stocks scattered across the capital markets last week like the unwanted children of a terrible divorce, as a blunted rally following a global margin call put a hex on every sector and most commodities - but a U.S. recovery marched on.  

So far in the ten sessions of May, the Dow Jones Industrial Average is down 3.6%, the Nasdaq 100 is -4.7%, the S&P SmallCap 600 is -3.1% and overseas large-caps are down 8.6%.

That's a whole lot of falling, and for what reason? The headlines tell us that investors freaked out over Greek debt, fear of a contagion effect on Spain, speculation that U.S. earnings have peaked, and worry that the great global capital machine will soon seize up for lack of customers and credit.

But headlines don't always tell the whole story.

To take a closer look at why the markets are down, click here.

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Gold Prices Surge and Will Keep Climbing as Investors Protect Against European Debt Crisis

Gold prices yesterday (Wednesday) broke through to a record high, as investors feared the Eurozone bailout plan would debase the euro and escalate inflation.

Gold for June delivery continued its record-breaking Tuesday climb to hit $1,243.10 an ounce Wednesday. The contract reached an intraday high of $1,249.20 an ounce. Spot gold prices hit $1,244.45 an ounce, up almost 20% in the past three months.

Gold's reputation as a "safe haven" investment causes the metal's price to move inversely to investor confidence, which has been rattled by the Greece debt crisis and last week's 1000-point plunge in the Dow Jones Industrial Average.

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