Money Morning » Top News http://moneymorning.com Global Investment News Fri, 10 Feb 2012 22:24:16 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Congress Insider Trading: Rep. Spencer Bachus, You're Up http://moneymorning.com/2012/02/10/congress-insider-trading-rep-spencer-bachus-youre-up/ http://moneymorning.com/2012/02/10/congress-insider-trading-rep-spencer-bachus-youre-up/#comments Fri, 10 Feb 2012 22:11:01 +0000 Kerri Shannon http://moneymorning.com/?p=63425 insider trading ban, Rep. Spencer Bachus, R-AL, could be the first member to be penalized for profiting from power.

The Office of Congressional Ethics is investigating Bachus, the chairman of the House Financial Services Committee, for possibly violating insider trading laws, The Washington Post reported Thursday.

Activity disclosed on Bachus' annual financial disclosure forms triggered the investigation, which started late last year.

This is the first insider trading case involving a member of Congress. It was announced days after the House approved the Stop Trading on Congressional Knowledge (STOCK) Act, which basically says that members of Congress must obey insider trading laws.

The House voted 417-2 to approve the bill; the Senate approved it last week in a 96-3 vote. It took more than two months to get the bill through both houses. The House amended the Senate bill, meaning the process still has to go through another step: a conference to produce a common version.

Bachus issued a statement Thursday.

"The Office of Congressional Ethics has requested information and I welcome this opportunity to present the facts and set the record straight," Bachus said in a statement released by his spokesman, Tim Johnson.

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As Washington works on finalizing a Congress insider trading ban, Rep. Spencer Bachus, R-AL, could be the first member to be penalized for profiting from power.

The Office of Congressional Ethics is investigating Bachus, the chairman of the House Financial Services Committee, for possibly violating insider trading laws, The Washington Post reported Thursday.

Activity disclosed on Bachus' annual financial disclosure forms triggered the investigation, which started late last year.

This is the first insider trading case involving a member of Congress. It was announced days after the House approved the Stop Trading on Congressional Knowledge (STOCK) Act, which basically says that members of Congress must obey insider trading laws.

The House voted 417-2 to approve the bill; the Senate approved it last week in a 96-3 vote. It took more than two months to get the bill through both houses. The House amended the Senate bill, meaning the process still has to go through another step: a conference to produce a common version.

Bachus issued a statement Thursday.

"The Office of Congressional Ethics has requested information and I welcome this opportunity to present the facts and set the record straight," Bachus said in a statement released by his spokesman, Tim Johnson.

The "Inside Trades" of Rep. Spencer Bachus

The Post reported that most of Bachus' investments were for less than $10,000, and almost all involved options rather than stock purchases.

Bachus' Fidelity brokerage statement for 2008 shows $30,474 in short-term investments, many of them bought and sold in a matter of days, some even in the same day.

In the summer of 2008, when then-President George W. Bush's fiscal stimulus bill was in the works, Bachus bet that the stock of Burlington Northern Santa Fe would rise, and he cashed out that July for a $16,588 profit. In August, he made the same bet - but lost $2,900.

Bachus attended closed-door briefings in September 2008 with then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. Congressional leaders in those meetings were warned that a "global financial meltdown" was about to occur.

The next day, Bachus bought stock options that would allow him to profit when the economy tanked. He made $5,715.

He also cashed out of options betting on the rise of General Electric Co. (NYSE: GE), and made $12,713.

But Bachus' bets weren't always winners. In October 2008, Bachus bet on the market going up, but lost $21,558.

Bachus' office released a statement last year that he never trades on nonpublic information, or in financial services stock. Bachus has said he gave up his "hobby" of trading when he became chairman of the House Financial Services Committee in November 2010.

Congress Insider Trading: Who's After Bachus?

Bachus isn't the only Congress member recently highlighted in the news for possible insider trading, although no one else has been known to be under investigation.

Rep. John Boehner, R-OH, was one of the members of Congress who bought health insurance stocks during the 2009 healthcare debate. Boehner fought against a government-funded insurance plan that would compete with private companies, which rose in share price after the provision died in Congress - and after Boehner bought the related stocks.

Former Rep. Dennis Hastert, R-IL, made $2 million from selling land he owned after receiving a federal earmark to build a parkway near his property. Former Sen. Judd Gregg, R-NH, helped get $70 million in funds to go toward redeveloping a U.S. Air Force base in which he and his brother had a commercial interest. And Rep. Nancy Pelosi, D-CA, and her husband bought 5,000 shares of the 2008 Visa Inc. (NYSE: V) initial public offering (IPO) while legislation affecting credit card companies was debated in the House.

Pelosi's actions led to the so-called "Pelosi Provision" added to the House version of the STOCK Act. The provision would tighten rules regarding participation in initial public offerings.

Washington insiders who tip off Wall Street could also start to face charges. Financial firms pay handsomely for inside information on issues debated in Congress.

New York-based broker-dealer JNK Securities Corp. arranges about 12 meetings a month between legislators and hedge fund managers, according to The Wall Street Journal. If the information discussed turns into a useful stock tip, the hedge fund must execute the trade with JNK so it can earn a commission.

The Office of Congressional Ethics would not comment on the Bachus investigation.

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]]> http://moneymorning.com/2012/02/10/congress-insider-trading-rep-spencer-bachus-youre-up/feed/ 0 Mortgage Settlement Just the Start of Trouble for Bank of America (NYSE: BAC) and Friends http://moneymorning.com/2012/02/10/mortgage-settlement-just-the-start-of-trouble-for-bank-of-america-nyse-bac-and-friends/ http://moneymorning.com/2012/02/10/mortgage-settlement-just-the-start-of-trouble-for-bank-of-america-nyse-bac-and-friends/#comments Fri, 10 Feb 2012 19:07:01 +0000 Kerri Shannon http://moneymorning.com/?p=63382 BAC), finally reached a $25 billion mortgage settlement to help homeowners - but the banks still face years of legal battles and billions of dollars in costs.

The provisions to the mortgage settlement include:

  • $5 billion total in cash penalties, payable to borrowers, states, and the federal government.
  • $20 billion in additional aid, through reducing homeowners' loan balances, and refinancing for underwater homeowners who are current on their loans.
Bank of America will pay an additional $1 billion to settle claims that it inflated appraisal prices from 2003-2009.

The multi-billion dollar mortgage settlement ends state and federal investigations into improper foreclosure procedures (like robo-signing), but banks can still get hit with criminal enforcement actions due to lending practices and mortgage-related securities.

"It's a big check with narrow immunity," Paul Miller, an analyst with FBR Capital Markets and a former Federal Reserve examiner, told Bloomberg News. "You get the state attorneys general off your back, but you're not getting immunity from securitizations, which could come with their own steep cost down the road."

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The biggest U.S. mortgage lenders, including Bank of America Corp. (NYSE: BAC), finally reached a $25 billion mortgage settlement to help homeowners - but the banks still face years of legal battles and billions of dollars in costs.

The provisions to the mortgage settlement include:

  • $5 billion total in cash penalties, payable to borrowers, states, and the federal government.
  • $20 billion in additional aid, through reducing homeowners' loan balances, and refinancing for underwater homeowners who are current on their loans.

Bank of America Price
History (NYSE: BAC)


Bank of America will pay an additional $1 billion to settle claims that it inflated appraisal prices from 2003-2009.

The multi-billion dollar mortgage settlement ends state and federal investigations into improper foreclosure procedures (like robo-signing), but banks can still get hit with criminal enforcement actions due to lending practices and mortgage-related securities.

"It's a big check with narrow immunity," Paul Miller, an analyst with FBR Capital Markets and a former Federal Reserve examiner, told Bloomberg News. "You get the state attorneys general off your back, but you're not getting immunity from securitizations, which could come with their own steep cost down the road."

Why the $25 Billion Mortgage Settlement is Just the Start

The five main players in the mortgage settlement are Bank of America, JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), Citigroup Inc. (NYSE: C), and Ally Financial Inc. These five banks handle payments for 55% of all outstanding home loans, according to Inside Mortgage Finance.

In order to get the deal rushed through after 16 months of negotiations, the banks opted for a broad mortgage settlement that kept them liable for other misconduct.

"Because of the narrow nature and the fact that the banks didn't get the widespread assurances they were seeking, this was mostly meaningless," David Lykken of Mortgage Banking Solutions told Bloomberg.

The other liabilities include packaging bad loans into securities and allowing billions of dollars in investments to fuel a market vehicle designed to collapse. The mortgage settlement also won't prevent states from pursuing claims regarding banks' database use to conduct foreclosures.

New York Attorney General Eric Schneiderman is determined to hold big banks accountable. He filed a lawsuit Feb. 3 against Bank of America, JPMorgan, and Wells Fargo for fraudulent use of the Mortgage Electronic Registration Systems, or MERS. Schneiderman claims use of the mortgage-registering database sped up the process of bundling bad mortgages into securities.

"The conduct that led to the crash is still fair game," Schneiderman told The Washington Post. "I'm confident the releases are narrow enough so our investigation into misconduct should produce more significant relief going forward."

U.S. President Barack Obama pledged support in his State of the Union address Jan. 24. He announced the creation of a mortgage crisis unit to investigate the real estate lending actions of big banks.

Be Wary of a BAC Rally

Bank of America and the other firms aren't likely to see a big hit to earnings with this deal. Institutions have marked down their balance sheets to account for reducing loan balances.

Financial stocks rallied after the mortgage settlement news broke. BAC rose 4%, continuing its 45% climb for 2012.

But the uncertainty surrounding the remaining liability, and how much it'll continue to cost them, will put downward pressure on share prices this year.

Further investigations and settlement costs could exceed the amount banks have earmarked, and Bank of America is rumored to have the most exposure to mortgage-related legal fallout.

Banking analyst Richard Bove from Rochdale Securities LLC told Bloomberg that banks could still face quarterly legal fees of up to $2 billion.

"What we're going to see for the next five to seven years is these lawsuits going through court after court," said Bove.

The five biggest lenders have already racked up about $72 billion in faulty mortgage-related costs, with Bank of America paying the most.

BAC was down 1.22% to $8.08 by 1 p.m. Friday.

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]]> http://moneymorning.com/2012/02/10/mortgage-settlement-just-the-start-of-trouble-for-bank-of-america-nyse-bac-and-friends/feed/ 8 Will LinkedIn Corp. (NYSE: LNKD) Earnings Follow Groupon's Dismal Lead? http://moneymorning.com/2012/02/09/will-linkedin-corp-nyse-lnkd-earnings-follow-groupons-dismal-lead/ http://moneymorning.com/2012/02/09/will-linkedin-corp-nyse-lnkd-earnings-follow-groupons-dismal-lead/#comments Thu, 09 Feb 2012 20:55:07 +0000 Kerri Shannon http://moneymorning.com/?p=63302 LNKD) reported earnings today (Thursday) that beat expectations, further distancing it from struggling Groupon Inc. (Nasdaq: GRPN) and raising the bar for competitors.

LinkedIn's revenue for the fourth quarter was $167.7 million, an 105% increase compared to $81.7 million for the same period the year before. That beat The Street estimate of $159.7 million.

Net income rose 30% to 6 cents per share or $6.9 million, up from $5.3 million a year ago, according to FactSet. Non-GAAP net income for the quarter was $13.3million or 12 cents per share.

LinkedIn had warned the fourth quarter could result in another loss due to costs of hiring more workers for new projects to grow its subscriber base. LinkedIn, however, usually gives conservative guidance and beats estimates, which it has done for the past few quarters.

LinkedIn Corp. (NYSE: LNKD) Gives Strong Guidance

LinkedIn scored half of total fourth-quarter revenue from hiring solutions, the services used to match up jobs and job seekers. About 30% of the total quarterly revenue came from its marketing business and ad sales, and the remaining 20% from premium subscriptions.

Those business segments' growth rates show their demand in the career networking universe: hiring solutions sales climbed 136%, marketing sales were up 77%, and premium subscriptions grew 87%.

LinkedIn also made strides in its international business, branching into growing markets that will have a bigger need for professional networking. It finalized three offices, one each in Japan, Brazil, and India.

For the current quarter, the company forecasts revenue in a range of $170 million to $175 million, ahead of the average $171 million estimate.



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LinkedIn Corp. (NYSE: LNKD) reported earnings today (Thursday) that beat expectations, further distancing it from struggling Groupon Inc. (Nasdaq: GRPN) and raising the bar for competitors.

LinkedIn's revenue for the fourth quarter was $167.7 million, an 105% increase compared to $81.7 million for the same period the year before. That beat The Street estimate of $159.7 million.

LinkedIn Price History
(Nasdaq: LNKD)


Net income rose 30% to 6 cents per share or $6.9 million, up from $5.3 million a year ago, according to FactSet. Non-GAAP net income for the quarter was $13.3million or 12 cents per share.

LinkedIn had warned the fourth quarter could result in another loss due to costs of hiring more workers for new projects to grow its subscriber base. LinkedIn, however, usually gives conservative guidance and beats estimates, which it has done for the past few quarters.

LinkedIn Corp. (NYSE: LNKD) Gives Strong Guidance

LinkedIn scored half of total fourth-quarter revenue from hiring solutions, the services used to match up jobs and job seekers. About 30% of the total quarterly revenue came from its marketing business and ad sales, and the remaining 20% from premium subscriptions.

Those business segments' growth rates show their demand in the career networking universe: hiring solutions sales climbed 136%, marketing sales were up 77%, and premium subscriptions grew 87%.

LinkedIn also made strides in its international business, branching into growing markets that will have a bigger need for professional networking. It finalized three offices, one each in Japan, Brazil, and India.

For the current quarter, the company forecasts revenue in a range of $170 million to $175 million, ahead of the average $171 million estimate.

LinkedIn: Not a Groupon

Favorable investor reaction pushed the shares up more than 5% to $80.40 in after-hours trading - a stark difference from the dismal tone Groupon set Wednesday.

Groupon reported earnings Wednesday for the first time since going public in November 2011. It failed to meet The Street's expectations, reporting a net loss before adjustments of $42.7 million, or 8 cents a share. Revenue rose 194% to $506.5 million.

Wall Street expected earnings per share of 3 cents on $475 million in sales.

With profit missing expectations and disappointing investors, Groupon shares fell about 16% Thursday. LinkedIn fell about 3% in early trading but by 3 p.m. neared Wednesday's closing price of $76.54.

LinkedIn Ready to Fight Facebook Add On

LinkedIn has always separated itself from fellow networking site Facebook, by taking a career networking approach. The different themes have kept the two companies from direct competition.

Now another professional connection provider, BranchOut, is trying to compete with LinkedIn - and is using Facebook to get ahead.

BranchOut allows users to connect professionally to millions of Facebook members. When someone signs up for the service, the app puts all of that person's Facebook friends into its database.

BranchOut is trying to shortcut growing its own subscriber base and capitalize on the booming popularity of Facebook - similar to online gamer Zynga Inc. (Nasdaq: ZNGA).

While the site still only has 10 million users compared to LinkedIn's more than 150 million, a connection to superpower Facebook could be a strong lifeline. BranchOut claims its users can reach 300 million people through Facebook.

But besides its established reputation in the professional networking world, LinkedIn has a healthy recruiter return rate. About 87% of recruiters used LinkedIn last year, up from 78% the year before, according to data from a survey conducted by social recruiting platform Jobvite.

With the Facebook IPO in full swing since the company filed papers Feb. 1, the social networking site is getting more attention than ever - but it remains to be seen if that rising tide will lift all boats, like BranchOut.

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]]> http://moneymorning.com/2012/02/09/will-linkedin-corp-nyse-lnkd-earnings-follow-groupons-dismal-lead/feed/ 1 The STOCK Act: Lawmakers Forced to Admit They Must Obey The Law http://moneymorning.com/2012/02/09/stock-act-lawmakers-forced-to-admit-they-must-obey-law/ http://moneymorning.com/2012/02/09/stock-act-lawmakers-forced-to-admit-they-must-obey-law/#comments Thu, 09 Feb 2012 10:00:44 +0000 David Zeiler http://moneymorning.com/?p=63340
The House voted 417-2 to approve the STOCK Act; the Senate vote last week was 96-3.

You'd think that lawmakers wouldn't need prodding to obey laws that apply to everyone else, but their behavior has said otherwise.

By the legislators' own admission, an insider trading law shouldn't even be necessary.

Click here to continue reading...

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Six years after the bill was introduced, the House joined the Senate today (Thursday) in approving the STOCK Act, which basically says that members of Congress must obey insider trading laws.

The House voted 417-2 to approve the STOCK Act; the Senate vote last week was 96-3.

You'd think that lawmakers wouldn't need prodding to obey laws that apply to everyone else, but their behavior has said otherwise.

By the legislators' own admission, an insider trading law shouldn't even be necessary.

"The STOCK Act has been characterized ... as to prevent insider trading by members of Congress, as if members of Congress are allowed to participate in insider trading today, and they are not," Rep. Bob Woodall, R-GA, told The Hill.

ACBS News "60 Minutes" report last November found that many legislators, including Speaker John Boehner, R-OH, and House Minority Leader Nancy Pelosi, D-CA, had traded stocks based on information learned on the job.

If not for that report, the STOCK Act may have languished forever.

Once the "60 Minutes" report broke, however, passing the STOCK Act should have been a no-brainer.

But it has taken more than two months to get the bill through both houses. And because the House amended the Senate bill, the process still has to go through another step: a conference to produce a common version.

Each version is tougher on some transgressions than others. The final version of the STOCK Act could easily end up as feel-good legislation with no teeth whatsoever.

The "Pelosi Provision'

For example, the House version added the so-called "Pelosi Provision" that would tighten rules regarding participation in initial public offerings (IPOs). The "60 Minutes" report noted that Pelosi's husband bought 5,000 shares of Visa Inc. (NYSE: V) at the same time Congress was debating credit-card legislation.

The House bill also broadened disclosure rules to include officers and staff in the Executive and Judicial branches. But the House bill covers only 30,000 higher-ranking officials, while the Senate version includes 300,000 government employees.

Trades would need to be reported within 30 days in both versions.

The biggest disagreement is over "political intelligence consultants," people who gather information on market-moving legislation from lawmakers to sell to Wall Street.

The Senate version would require such consultants, mostly hedge fund managers, to report their activities much as lobbyists do. The House reduced that to a mere study of the issue.

"It's astonishing and extremely disappointing that the House would fulfill Wall Street's wishes by killing this provision," Sen. Chuck Grassley, R-IA, said in a statement. "If Congress delays action, the political intelligence industry will stay in the shadows, just the way Wall Street likes it."

STOCK Act Won't End the Disapproval

If the final version of the STOCK Act ends up so watered down as to become meaningless, it won't stop insider trading. Lawmakers will simply find less obvious ways to do it.

In fact, the whole exercise could turn out to be a big waste of time.

"You have to ask that question, 'What are you trying to solve and will this fix it?'" Rep.Scott Garrett, R-NJ, a senior member of the Financial Services Committee, told USA Today.

Even as a public relations ploy, the STOCK Act is likely to fail.

"With any legislation, you would hope that what you're trying to solve is not just public relations, but substantive problems," Garrett said. "Even if we pass it, if you did a poll, the public will still think that we did not pass a bill that actually solved the problem."

Coincidentally, a Gallup poll released yesterday showed Congressional job disapproval at a high of 86%, tying the record set in December.

"Eighty-six percent of the public thinks we're not worth a warm bucket of spit," Minority Whip Steny Hoyer, D-MD, told USA Today.

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]]> http://moneymorning.com/2012/02/09/stock-act-lawmakers-forced-to-admit-they-must-obey-law/feed/ 0 Tech Sector: Cisco Systems Inc. (Nasdaq: CSCO) Earnings Show It’s Gearing Up for a Rebound http://moneymorning.com/2012/02/08/tech-sector-cisco-systems-inc-nasdaq-csco-earnings-show-its-gearing-up-for-a-rebound/ http://moneymorning.com/2012/02/08/tech-sector-cisco-systems-inc-nasdaq-csco-earnings-show-its-gearing-up-for-a-rebound/#comments Wed, 08 Feb 2012 22:47:21 +0000 Kerri Shannon http://moneymorning.com/?p=63201
The Cisco Systems Inc. (Nasdaq: CSCO) earnings report today (Wednesday) showed the company's dark days of 2011 are gone, and it can once again compete in the booming tech sector.

Cisco beat Wall Street expectations with its second-quarter earnings report today (Wednesday). The tech sector giant reported a 44% year-over-year rise in profit to $2.2 billion, with earnings per share 40 cents. Revenue rose 11% from the year before to $11.5 billion.

Cisco Systems Inc. Stock Price History
(Nasdaq: CSCO)


Excluding the cost of stock-based compensation and some acquisition-related amortization, Cisco earned 47 cents per share.

The stock rose more than 4% in after-hours trading after beating The Street expectations of 43 cents per share on $11.23 billion in revenue.

Investors were optimistic ahead of the report, and hoped CSCO's six-month share-price rally would continue. Cisco's stock is up more than 50% since August.

The company also raised its quarterly dividend 33.3% to 8 cents a share, for an annual yield of 1.6%.

The news fueled investor optimism toward the tech sector, since Cisco is a sector bellwether because it operates globally with a diverse client base. Cisco's earnings also prove its efforts to develop a more efficient, competitive and less costly company have paid off.

"Our operational focus continues to yield positive results - we hit our billion dollar expense reduction a quarter early," Chief Executive John Chambers said in a statement on Wednesday.

Cisco Systems Inc. (Nasdaq: CSCO)
On the Rise

Cisco went through rebuilding efforts last year after watching its stock plunge for years.

From 2001 to May 2011, while the Nasdaq Composite Index gained 34%, Cisco investors lost 12.5%. From 2010 to 2011 alone, as the Nasdaq shot up 20%, Cisco stockholders watched their shares plunge 35%.

"This is absolutely dead money," Steven C. Cortes, a founder of Veracruz LLC, a researcher for institutional investors, told CNBC last year.

Then Cisco launched a restructuring strategy to make products more competitive with rivals Hewlett-Packard Co.(NYSE: HPQ) and Juniper Networks Inc. (NYSE: JNPR). Investors now express the most bullish sentiment for Cisco in years.

"People are looking at improving trends in revenue and operating margins," Sandeep Shyamsukha, an analyst for Auriga USA, told Investor's Business Daily. "We see strong product cycles in many different segments like switches, routers, set-top boxes and servers."

The forecast-beating earnings should buoy CSCO shares into tomorrow. When Cisco even slightly disappoints on earnings, shares have plunged the day after it releases quarterly reports. That's happened five of the last six times after Cisco reported earnings according to Reuters data.

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]]> http://moneymorning.com/2012/02/08/tech-sector-cisco-systems-inc-nasdaq-csco-earnings-show-its-gearing-up-for-a-rebound/feed/ 0 Groupon Inc. (Nasdaq: GRPN) Earnings Report Sends Investors Bailing on the Stock http://moneymorning.com/2012/02/08/investing-in-tech-what-to-watch-in-todays-groupon-inc-nasdaq-grpn-earnings-report/ http://moneymorning.com/2012/02/08/investing-in-tech-what-to-watch-in-todays-groupon-inc-nasdaq-grpn-earnings-report/#comments Wed, 08 Feb 2012 20:23:55 +0000 Kerri Shannon http://moneymorning.com/?p=63149 GRPN) earnings report - the first since the company went public in November 2011 - failed to show investors why they should believe in the social media-related stock.

Groupon reported a net loss before adjustments of $42.7 million, or 8 cents a share, compared to a net loss of $378.6 million, or $1.08 a share, for the same period last year. Revenue rose 194% to $506.5 million.

Wall Street expected earnings per share of 3 cents on $475 million in sales. With profit missing expectations and disappointing investors, shares fell 12% in after-hours trading.

The lower-than-expected earnings fueled the bearish outlook on Groupon.

"True, Groupon has plenty of cash in the bank and no debt, but you can find much better tech companies out there with stronger cash flow and solid earnings," Money Morning Defense and Technology Specialist Michael Robinson said last month. "For 2012, GRPN is a tech stock to avoid."

Avoid Groupon Inc. (Nasdaq: GRPN)

Groupon has slipped about 7% since its first trading day Nov. 11 to Wednesday's closing price of $24.58. Wall Street has a one-year price target of $25.06 - a mere 2% gain from Wednesday's close.

Groupon stock, along with last year's other Internet IPOs LinkedIn Corp. (NYSE: LNKD), Pandora Media Inc. (NYSE: P), and Zynga Inc. (Nasdaq: ZNGA), got a pop from recent investor excitement over the Facebook IPO. Groupon was up 7% Feb. 2, the day after Facebook made its IPO filing. LinkedIn rose 6%, Pandora 3%, and Zynga 17%.

Regardless of a recent share price spikes, the Internet IPOs of last year still face the growth and profitability obstacles that turned investors off before.

To continue reading, please click here... ]]>
Today's (Wednesday's) Groupon Inc. (Nasdaq: GRPN) earnings report - the first since the company went public in November 2011 - failed to show investors why they should believe in the social media-related stock.

Groupon reported a net loss before adjustments of $42.7 million, or 8 cents a share, compared to a net loss of $378.6 million, or $1.08 a share, for the same period last year. Revenue rose 194% to $506.5 million.

Groupon Stock Price History
(Nasdaq: GRPN)


Wall Street expected earnings per share of 3 cents on $475 million in sales. With profit missing expectations and disappointing investors, shares fell 12% in after-hours trading.

The lower-than-expected earnings fueled the bearish outlook on Groupon.

"True, Groupon has plenty of cash in the bank and no debt, but you can find much better tech companies out there with stronger cash flow and solid earnings," Money Morning Defense and Technology Specialist Michael Robinson said last month. "For 2012, GRPN is a tech stock to avoid."

Avoid Groupon Inc. (Nasdaq: GRPN)

Groupon has slipped about 7% since its first trading day Nov. 11 to Wednesday's closing price of $24.58. Wall Street has a one-year price target of $25.06 - a mere 2% gain from Wednesday's close.

Groupon stock, along with last year's other Internet IPOs LinkedIn Corp. (NYSE: LNKD), Pandora Media Inc. (NYSE: P), and Zynga Inc. (Nasdaq: ZNGA), got a pop from recent investor excitement over the Facebook IPO. Groupon was up 7% Feb. 2, the day after Facebook made its IPO filing. LinkedIn rose 6%, Pandora 3%, and Zynga 17%.

Regardless of a recent share price spikes, the Internet IPOs of last year still face the growth and profitability obstacles that turned investors off before.

Investors worry that customers and merchants will leave Groupon for competitors. Competition in the daily deals business has intensified since Groupon's debut, especially from Amazon-company LivingSocial.

Although Groupon's fourth-quarter subscribers rose 275% from the year before, slowing growth rates from 2011's first three quarters leave investors skeptical.

In the first nine months of 2011 Groupon brought in $1.1 billion - seven times as much as the same period in 2010 - revenue growth slowed to 9% in the third quarter from 32% in the second quarter. The number of Groupons sold in the third quarter rose only by 1% to 33 million from the previous quarter, down from a 16% jump in the second quarter.

Groupon also took a smaller cut of deal revenue in 2011's third quarter - a reduction likely taken to compete for merchants. The industry has low barriers to entry, and Groupon offers no competitive advantage to keep its subscribers from flocking to the competition.

That's why Money Morning Chief Investment Strategist Keith Fitz-Gerald has consistently voted against buying Groupon.

"I wouldn't touch it with a ten-foot pole," Fitz-Gerald said last year. "This isn't a stock for an investor looking for a long-term play with stability."

Groupon was the first of the 2011 overly hyped Internet IPOs to report last quarter's earnings. LinkedIn reports tomorrow (Thursdsay), Zynga on Feb. 14, and Pandora Feb 22.

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]]> http://moneymorning.com/2012/02/08/investing-in-tech-what-to-watch-in-todays-groupon-inc-nasdaq-grpn-earnings-report/feed/ 0 The New Money Market Fund Rules You Could Face http://moneymorning.com/2012/02/08/the-new-money-market-fund-rules-you-could-face/ http://moneymorning.com/2012/02/08/the-new-money-market-fund-rules-you-could-face/#comments Wed, 08 Feb 2012 17:52:13 +0000 Kerri Shannon http://moneymorning.com/?p=63121
The U.S. Securities and Exchange Commission (SEC) plans to unveil new money market fund rules that could drastically change the industry - even end it, if investment companies' claims are true.

The SEC is designing new rules to stabilize money market funds. The investments should be secure and easily accessible, but the SEC says a Greek debt default threatens that safety.

"Money-market funds remain susceptible to runs and to a sudden deterioration in quality of holdings, and we need to move forward with some concrete ideas for proposals to address these structural risks," SEC Chairman Mary Schapiro said last week.

The $2.7 trillion mutual fund industry is livid over the new rules, claiming such strict regulation and guidelines will chase away investors.

"We're going to do everything in our power to attack it," said J. Christopher Donahue, president and CEO of Federated Investors Inc. (NYSE: FII). Donahue said his firm plans to sue the government when the rules are released.

Fidelity Investments, a portfolio manager overseeing $433 billion of the mutual fund market, said in a Feb. 3 letter to the SEC that the proposed new money market fund rules "could spark retail and institutional investors to pull significant amounts of assets out of money-market mutual funds, leading to unintended consequences for the financial markets and U.S. economy."

Fidelity said according to internal research, about 47% of retail investors would pull money out of money market accounts.

Here's a look at the new money market fund rules that could affect your investments.

New Money Market Fund Rules

  • Firms would have to set aside capital reserves to prepare for an influx of redemption requests. They could do so in one of three ways:
    1. Raise money through stock or debt security offers.
    2. Collect more money from shareholders.
    3. Inject more money from corporations.
    The industry argues this will limit how much money can be invested and will lower the yield, making money market funds less attractive to investors.
  • Money market funds' net asset value would no longer be fixed at $1. It would be floatable, like other mutual funds. This would require managers to report at regular intervals the actual mark-to-market value of securities held in the money market funds, instead of reporting projected values like they do now. The industry has heavily fought the proposal since it was first introduced in 2009 by a think tank led by former U.S. Federal Reserve Chairman Paul Volcker.
  • Funds would enforce a 30-day rule - or "liquidity fee" - when customers request their funds. Investors would receive about 95% upfront, and the remaining 5% after 30 days. Fund managers say holding a portion of clients' funds would make it harder for investors to make trades, since many investors constantly move money in and out of funds.
The SEC continues to debate the proposals and could release finalized new money market fund rules in the next couple weeks.

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]]> http://moneymorning.com/2012/02/08/the-new-money-market-fund-rules-you-could-face/feed/ 0 Cash for Keys: Avoid Foreclosure, Pay the Bank Less Than What You Owe… and Get $30,000 http://moneymorning.com/2012/02/07/cash-for-keys-avoid-foreclosure-pay-the-bank-less-than-what-you-owe-and-get-30000/ http://moneymorning.com/2012/02/07/cash-for-keys-avoid-foreclosure-pay-the-bank-less-than-what-you-owe-and-get-30000/#comments Tue, 07 Feb 2012 21:33:06 +0000 Kerri Shannon http://moneymorning.com/?p=63093
U.S. banks have a deal for underwater homeowners: Avoid foreclosure by selling your house for less than what you owe... and they'll pay you $30,000 or more to close the deal.

It's called Cash for Keys, and it's working.

Banks typically hate short sales because they lose money. The alternative, however, is even more costly and time-consuming. It can take thousands of dollars to evict homeowners and years to get through the backlog of paperwork.

Now regulatory investigations could lengthen the foreclosure process even more. Banks have been blamed for robo-signing - approving foreclosure papers without reviewing them - and using faulty documents to seize homes.

So instead of blocking short sales, like they have done in the past, lenders are now encouraging them. Banks don't want to keep these assets on the books, and they're willing to pay to speed up the process.

"You could sell your home, owe nothing more on your mortgage and get $30,000," JPMorgan Chase & Co. (NYSE: JPM) wrote in a letter to an underwater homeowner obtained by Bloomberg News.

Banks Prefer Cash for Keys to Costly Foreclosures

Bloomberg said California homeowner Karen Farley struck a deal with JPMorgan in which she received $30,000 for selling her home for $200,000 less than what she owed.

"I wondered, why would they offer me something, and why wouldn't they just give me the boot?" Farley, 65, told Bloomberg. "Instead, I'm getting money."

U.S. government regulators encouraged the Cash for Keys program in a private meeting with banks in March 2011 to speed up the U.S. housing market recovery.

Banks now encourage short sales by pre-approving deals, simplifying the closing process, and forfeiting their right to purse unpaid debt - in addition to paying the seller thousands of dollars.

"My guess is they want to get rid of bad loans," Trent Chapman, a realtor who trains brokers and attorneys to negotiate short sales with banks, told Bloomberg. "If they short sale these types of loans, they have less of a headache and have some goodwill with the homeowner."

Lenders ultimately lose about 15% less in short sales than they do on foreclosures, which incur years of taxes and legal costs. Short sales in the United States average about four months to close, according to Bloomberg.

Incentives Boost Short Sales

The incentives are working. Short sale deals accounted for 33% of related transactions in November 2011, up from 24% a year before, according to CoreLogic Inc. (NYSE: CLGX).

JPMorgan is known for the biggest short-sale incentive payout, but according to real estate agents other banks have followed suit.

Wells Fargo & Co. (NYSE: WFC) offers as much as $20,000 in relocation expenses for short sellers. Bank of America Corp. (NYSE: BAC) tried a short sale pilot program with 20,000 Florida homeowners, offering up to $20,000 or 5% of the unpaid loan balance.

Citigroup Inc. (NYSE: C) offers about $3,000, but the amount varies depending on each case.

Banks also fork over thousands of dollars to second-lien owners, who can block short sales because the deal wipes out their loans.

A continued increase in short sale transactions could help the U.S. housing market rebound faster than if all those homes went into foreclosure. There are currently more than 14 million U.S. homeowners with homes in foreclosure, who are behind on mortgages, or who owe more than what their properties are worth, according to RealtyTrac.

Those homes will continue to weigh on home prices and keep them low for years. U.S. home prices showed another decline for November 2011, its third straight monthly loss, as the U.S. housing market trends toward a bottom this year.

In addition to banks' Cash for Keys incentives, homeowners also can benefit from the U.S. government's Home Affordable Foreclosure Alternatives program. Started in 2010, it offers up to $3,000 for homeowners who choose short sales.

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]]> http://moneymorning.com/2012/02/07/cash-for-keys-avoid-foreclosure-pay-the-bank-less-than-what-you-owe-and-get-30000/feed/ 1 What the Glencore Xstrata Deal Means for the Global Mining Industry http://moneymorning.com/2012/02/07/what-glencore-xstrata-deal-means-for-global-mining-industry/ http://moneymorning.com/2012/02/07/what-glencore-xstrata-deal-means-for-global-mining-industry/#comments Tue, 07 Feb 2012 20:47:34 +0000 Kerri Shannon http://moneymorning.com/?p=63072 Glencore Xstrata deal, an all-share merger creating a $90 billion global mining industry powerhouse, would be the sector's biggest and could trigger the busiest year for M&A activity.

The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).

Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).

"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."

The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.

The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.

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The Glencore Xstrata deal, an all-share merger creating a $90 billion global mining industry powerhouse, would be the sector's biggest and could trigger the busiest year for M&A activity.

The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).

Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).

"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."

The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.

The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.

Glencore Xstrata Deal To Trigger Global Mining Industry M&A

Miners are loaded with cash and want to capitalize on China's industrial growth. Global mining deals hit $98 billion last year, according to Bloomberg data.

"M&A is a space that you'd expect the combined group to be in," Xstrata CEO Mick Davis, who will lead the new company, told Reuters. "We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there."

Possible takeover targets include London-based mining company Anglo American Plc (PINK: AAUKY) and First Quantum Minerals Ltd.

"Midsize players will be gobbled up," Michael Locker of consulting firm Locker Associates told Canada's The Globe and Mail. "They don't have access to the capital. It's going to be very hard for medium-sized companies to compete."

M&A activity in the mining industry also will get a boost this year from low valuations, according to John Robinson, chairman of mining investment vehicle Global Mining Investments.

Robinson told The Wall Street Journal that many mining companies are still seeing healthy cash flow, and can take advantage of lower share prices to go after smaller companies. With global powerhouses like the new Glencore Xstrata combo, companies will need to gain scale to compete.

The formation of bigger commodities players will also create a less fragmented mining industry. Companies will control more of the market for certain metals and resources, and with acquisitions will do more of the metals processing and trading in house.

Shareholders Oppose Glencore Xstrata Deal

At least two of the top 10 Xstrata shareholders said they'd oppose the merger because it undervalued their shares.

Investors Standard Life Investments and Schroders own 5.6% of the shares needed for approval, and could persuade other investors to follow them. The Glencore Xstrata deal needs to be approved by 75% of shareholders.

"I'm in complete agreement with Standard Life and we intend to do exactly the same. This is a fabulous deal for Glencore, it's probably a great deal for the Xstrata management, but it's a poor deal for Xstrata's majority shareholders," Schroders' Richard Buxton told Reuters.

Glencore already has a 34% stake in Xstrata, but will not be allowed to vote on the deal. That means only 16% of shareholders need to vote against the Glencore Xstrata deal to block it.

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]]> http://moneymorning.com/2012/02/07/what-glencore-xstrata-deal-means-for-global-mining-industry/feed/ 1 Anadarko Petroleum Corp. (NYSE: APC) Ready to Rebound After Oil Spill Losses http://moneymorning.com/2012/02/06/anadarko-petroleum-corp-nyse-apc-ready-to-rebound-after-oil-spill-losses/ http://moneymorning.com/2012/02/06/anadarko-petroleum-corp-nyse-apc-ready-to-rebound-after-oil-spill-losses/#comments Tue, 07 Feb 2012 01:02:42 +0000 Kerri Shannon http://moneymorning.com/?p=63048 APC) reported after market close today (Monday) a fourth-quarter profit loss, due to a $4 billion pay out made last quarter related to the BP PlC (NYSE ADR: BP) oil spill in 2010.

Anadarko, the largest U.S. independent oil and gas company by market value, reported a $358 million, or 72 cents per share, loss for the quarter. Revenue rose 42.7% to $3.84 billion from the year earlier quarter.

Excluding the spill-related payout and other items, Anadarko earned 85 cents a share. Wall Street expected the company to book earnings of 60 cents a share, more than doubling the 29 cents earned in 2010's last quarter.

Anadarko Petroleum Corp Stock Price History
(NYSE: AAPC)

Now with its legal battles behind it, the company is ready to take off as higher oil prices and a recent discovery drive future earnings.

To continue reading, please click here...]]>
Anadarko Petroleum Corp. (NYSE: APC) reported after market close today (Monday) a fourth-quarter profit loss, due to a $4 billion pay out made last quarter related to the BP PlC (NYSE ADR: BP) oil spill in 2010.

Anadarko Petroleum Corp. Stock
Price History (NYSE: APC)

Anadarko, the largest U.S. independent oil and gas company by market value, reported a $358 million, or 72 cents per share, loss for the quarter. Revenue rose 42.7% to $3.84 billion from the year earlier quarter.

Excluding the spill-related payout and other items, Anadarko earned 85 cents a share. Wall Street expected the company to book earnings of 60 cents a share, more than doubling the 29 cents earned in 2010's last quarter.

Now with its legal battles behind it, the company is ready to take off as higher oil prices and a recent discovery drive future earnings.

Anadarko Petroleum Corp. (NYSE: APC) Headed Higher

Anadarko has long been a big player in U.S. onshore oil and gas production, and it's about to get even bigger.

The company last year reevaluated the Wattenberg shale in northeast Colorado and now believes it holds between 500 million and 1.5 billion barrels of oil and natural gas.

A billion-barrel field is a rare find - only a handful have been discovered in the United States - and this new discovery could increase Anadarko's annual production rate in the region by 20% in 2012.

Based on 11 test wells, Anadarko is confident it can drill between 1,200 and 2,700 wells over time, and will ramp up Wattenberg's development by drilling 160 wells in 2012.

And these wells will have a quick payback rate.

A great example of this is its Dolph 27-1 well in the middle of the Wattenberg field. Anadarko has a 100% working and net revenue interest in the well, so it funds all operations and collects all the revenue. The well has 600,000 barrels of estimated ultimate recovery (the amount of oil and gas potentially recoverable from the well).

That gives the well about $15 million in net present value before taxes based on an oil price of about $90/barrel.

Tudor, Pickering, Holt & Co. last year named the company "King of the Rockies" and raised its net-asset-value estimate for Anadarko by 5% per share. And Goldman Sachs has a "buy" rating on the stock.

Additionally, John Paulson - the fund manager that made millions shorting the markets before the 2007-08 crash - had nearly $900 million in Anadarko at the end of September.

Anadarko Petroleum shares have climbed 8% so far this year. Wall Street gave the stock a one-year price target of $99, a 21% premium to Monday's $82.87 closing price.

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]]> http://moneymorning.com/2012/02/06/anadarko-petroleum-corp-nyse-apc-ready-to-rebound-after-oil-spill-losses/feed/ 0 China Will Keep Driving Yum Brands Inc. (NYSE: YUM) to New Highs http://moneymorning.com/2012/02/06/china-will-keep-driving-yum-brands-inc-nyse-yum-to-new-highs/ http://moneymorning.com/2012/02/06/china-will-keep-driving-yum-brands-inc-nyse-yum-to-new-highs/#comments Tue, 07 Feb 2012 00:19:22 +0000 Kerri Shannon http://moneymorning.com/?p=63027 YUM) today (Monday) reported fourth-quarter earnings that beat The Street, highlighting the impact a strong emerging market presence can have on soaring profits.

The quick-service restaurant business that owns KFC, Taco Bell and Pizza Hut chains saw quarterly profit rise 34% to 75 cents a share. Revenue for the quarter climbed 15% to $4.11 billion.

Yum's results beat Wall Street's expectations of 74 cents a share and a 13.1% revenue increase to $4.03 billion.

The yearly earnings per share increase of 14% marked the tenth consecutive year of EPS growth of 13% or more. Monday's earnings report shook off speculation that slowing Chinese growth could hurt Yum in 2011.

In fact, its outlook is as bright as ever.

Yum Brands Inc. (NYSE: YUM): Feeding China

Strong sales in China - Yum's major revenue driver - offset the struggling U.S. business. While full-year same-store sales fell 1% in the United States, same-store sales rose 19% in China.

China's quick-service restaurant industry is expected to grow around 15% this year - almost double China's gross domestic product (GDP) growth, which is only expected to jump 8.4%. The growth outlook means other restaurants will try to cut into Yum's market share and appeal to the country's growing middle class.

"KFC and McDonald's are growing outlet numbers, but so are domestic and foreign chains plus independents," Paul French, Mintel's chief China analyst, told Reuters. "The pie is bigger, but the number of players wanting and getting a slice of it are bigger too. A rising tide does not necessarily raise all boats."

Still, Yum's strong position in the region has readied it to beat competitors. Yum was one of the first U.S. quick-service restaurant businesses to successfully profit in China. It opened its first fried-chicken outlet in the region in 1987 and now has more than 4,200 total restaurants, compared to McDonald's Corp.'s (NYSE: MCD) 1,400 stores.

Yum! Brands expects China to lead the company to 10% total sales growth in 2012.

Emerging markets contributed to 50% of Yum's operating profit in 2011, and should account for a bigger portion this year. Yum! Brands plans to open another 600 new stores in China alone, after opening a record 656 in 2011.

Now Yum is diversifying its market presence. It announced Jan. 6 that shareholders of China's leading hot pot chain, Little Sheep Group Ltd., approved a takeover by Yum. Little Sheep operates about 3,000 restaurants in China, with annual revenue of $315 million.

To continue reading, please click here...

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Yum! Brands Inc. (NYSE: YUM) today (Monday) reported fourth-quarter earnings that beat The Street, highlighting the impact a strong emerging market presence can have on soaring profits.

The quick-service restaurant business that owns KFC, Taco Bell and Pizza Hut chains saw quarterly profit rise 34% to 75 cents a share. Revenue for the quarter climbed 15% to $4.11 billion.

YUM Brands Inc. Stock Price History
(NYSE: YUM)

Yum's results beat Wall Street's expectations of 74 cents a share and a 13.1% revenue increase to $4.03 billion.

The yearly earnings per share increase of 14% marked the tenth consecutive year of EPS growth of 13% or more. Monday's earnings report shook off speculation that slowing Chinese growth could hurt Yum in 2011.

In fact, its outlook is as bright as ever.

Yum Brands Inc. (NYSE: YUM): Feeding China

Strong sales in China - Yum's major revenue driver - offset the struggling U.S. business. While full-year same-store sales fell 1% in the United States, same-store sales rose 19% in China.

China's quick-service restaurant industry is expected to grow around 15% this year - almost double China's gross domestic product (GDP) growth, which is only expected to jump 8.4%. The growth outlook means other restaurants will try to cut into Yum's market share and appeal to the country's growing middle class.

"KFC and McDonald's are growing outlet numbers, but so are domestic and foreign chains plus independents," Paul French, Mintel's chief China analyst, told Reuters. "The pie is bigger, but the number of players wanting and getting a slice of it are bigger too. A rising tide does not necessarily raise all boats."

Still, Yum's strong position in the region has readied it to beat competitors. Yum was one of the first U.S. quick-service restaurant businesses to successfully profit in China. It opened its first fried-chicken outlet in the region in 1987 and now has more than 4,200 total restaurants, compared to McDonald's Corp.'s (NYSE: MCD) 1,400 stores.

Yum! Brands expects China to lead the company to 10% total sales growth in 2012.

Emerging markets contributed to 50% of Yum's operating profit in 2011, and should account for a bigger portion this year. Yum! Brands plans to open another 600 new stores in China alone, after opening a record 656 in 2011.

Now Yum is diversifying its market presence. It announced Jan. 6 that shareholders of China's leading hot pot chain, Little Sheep Group Ltd., approved a takeover by Yum. Little Sheep operates about 3,000 restaurants in China, with annual revenue of $315 million.

Yum also is becoming a household name beyond China. It's been expanding into other emerging markets and will continue its growth spurt in 2012.

"Yum! Restaurants International opened 905 new units, including 622 in high-growth emerging markets [in 2011]," Yum CEO David Novak said in an earnings statement."We are on the ground floor of growth in India, Russia and Africa, where system sales grew at strong double-digit rates."

The company plans this year to build 130 stores throughout seven countries in Africa, bringing the total number in the region to 1,000.

Yum increased its annual dividend to $1.14 per share, for the seventh consecutive year of double-digit dividend increases since it started paying a dividend in 2004.

The stock has climbed 28% in the past year and doubled since the beginning of 2010. Earnings pushed the share price up almost 3% in after-hours trading from yesterday's closing price of $63.19.

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]]> http://moneymorning.com/2012/02/06/china-will-keep-driving-yum-brands-inc-nyse-yum-to-new-highs/feed/ 0 Are Federal Reserve Presidents Gaming the System? http://moneymorning.com/2012/02/06/are-federal-reserve-presidents-gaming-the-system/ http://moneymorning.com/2012/02/06/are-federal-reserve-presidents-gaming-the-system/#comments Mon, 06 Feb 2012 21:30:48 +0000 David Zeiler http://moneymorning.com/?p=62993
The presidents of the U.S. Federal Reserve may not have used their knowledge for personal gain, but a look at their assets does show several apparent conflicts of interests.

More than 600 pages of disclosure documents were released last week after Bloomberg News filed a Freedom of Information Act request.

The most troubling revelation concerned Atlanta Fed President Dennis Lockhart.

Two weeks prior to the Federal Reserve's November 2010 decision to go ahead with the second phase of its quantitative easing program (QE2), Lockhart invested $289,000 in several stock index funds.

The $600 billion of government bond-buying that followed helped push the Standard & Poor's 500 index up about 15% over the next six months.

Lockhart also holds numerous major stocks, including Apple Inc. (Nasdaq: AAPL), Boeing Co. (NYSE: BA), Coca-Cola Co. (NYSE: KO), Exxon Mobil Corp. (NYSE: XOM) and Oracle Corp. (Nasdaq: ORCL).

However, Lockhart's moves didn't t actually violate any rules. Fed presidents are only restricted from trading for the seven days that precede a Federal Reserve policymaking meeting.

Losing Confidence in the Federal Reserve

Still, such appearances of impropriety "undermine confidence in the system," said Money Morning Capital Waves Strategist Shah Gilani, Editor of the Wall Street Insights & Indictments newsletter. "People think, "What's the point? The system is rigged against me.'"

Given the Fed's mandate to control inflation, the investments of Dallas Fed president Richard Fisher also raised a few eyebrows.

Fisher, who spent 22 years in the financial industry as a banker, stockbroker and hedge fund manager, owns at least $1 million in gold in the form of the SPDR Gold Trust exchange-traded fund (NYSEARCA: GLD). Fisher is also invested in platinum and uranium.

These investments are widely considered to be hedges against inflation which is a direct conflict since many also consider the Federal Reserve's easy money policies to be inflationary.

Fisher also owns stock in dozens of companies.

While not suggesting new restrictions on the investing habits of Federal Reserve presidents, Gilani does think full transparency would help restore the public's flagging confidence in the Fed.

"When they buy and sell should be publicly disclosed immediately, within a few days of the transaction, not months later," Gilani said. "Why not do it?"

More Conflicts at the Fed

The Federal Reserve had already attracted attention for a different sort of conflict of interest.

Last fall the Government Accountability Office (GAO) warned of concerns from having high-ranking executives from private banks serve on the boards of the Federal Reserve's regional banks.

Those private banks, of course, are regulated by the Fed and can get emergency funding from it.

The structure dates back to the 1913 origins of the Federal Reserve, but has come under more scrutiny since the massive bailouts of the financial sector in 2008.

"It's a very bizarre structure that arose as a political compromise a long time ago," Kevin Hassett, director of economic policy studies at the American Enterprise Institute and a former Fed economist told Bloomberg News. "There's this sort of shadowy world where our financial regulators are connected with Wall Street. It's really important that the New York Fed not be viewed as a captive of Wall Street."

The GAO investigation also showed that New York Fed president William Dudley owned shares of American International Group (NYSE: AIG) and General Electric Company (NYSE: GE) during the financial crisis. Both of those companies got help from the Fed.

Dudley, who reported his holdings to the Fed and eventually divested them, said last fall that Federal Reserve officials have recognized the problem. How much of it will get fixed - and when -- is another question.

"We have to take appearance of conflict really seriously because it does affect the institution by creating questions about our credibility," Dudley told Bloomberg News.

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]]> http://moneymorning.com/2012/02/06/are-federal-reserve-presidents-gaming-the-system/feed/ 1 Jobs in America: The Ugly Truth Behind Those Unemployment Numbers http://moneymorning.com/2012/02/06/jobs-in-america-the-ugly-truth-behind-those-unemployment-numbers/ http://moneymorning.com/2012/02/06/jobs-in-america-the-ugly-truth-behind-those-unemployment-numbers/#comments Mon, 06 Feb 2012 14:45:27 +0000 David Zeiler http://moneymorning.com/?p=62965
More people have jobs in America this month than they did last month, so says the U.S. Bureau of Labor Statistics (BLS).

But the headline unemployment rate of 8.3% isn't the whole story.

It's not that there wasn't positive news. The addition of 243,000 new jobs far exceeded economists' expectations for an increase of 150,000. It was the seventh straight month of increases of 100,000 or more.

And yet buried in the BLS report are numbers that paint a different picture.

One of the main reasons the rate dropped, in fact, is because the BLS stopped counting nearly 1.2 million people as part of the labor force.

That's a record. It puts the labor force participation rate at a 30-year low of 63.7%, significantly below the long-term average of 65.8%.

While it's true the official number of unemployed fell from 13.1 million in December to 12.8 million, it helps when you simply don't include 1.2 million in the equation.

"This is not a fundamentally positive way to see the unemployment rate fall," Jason Schenker, president of Prestige Economics, said in an email to clients.

The labor force participation rate fudge isn't the only dim news lurking in the BLS numbers.

The number of long-term unemployed - those who have been without work for 27 weeks or more - remained stuck at about 5.5 million. That's 42.3% of all unemployed.

The "marginally attached" - people who want have searched for work in the past year but not the past month - category also remained steady at about 2.8 million.

But the number of underemployed workers - "part-time for economic reasons," in BLS-speak - increased from 8.1 million to 8.2 million.

A few more sobering statistics: America has 5.6 million fewer jobs than it did in 2008. And there are 462,000 fewer people working now than three years ago, despite a steadily increasing population.

When you add it all up, the prospects for jobs in America don't look quite so rosy.

"We still have a long way to go before the labor market can be said to be operating normally," noted U.S. Federal Reserve Chairman Ben Bernanke at a House panel hearing Thursday. "Particularly troubling is the unusually high level of long-term unemployment."

We've seen plenty of disturbing American jobs data just in the past week.

For example, a report from consulting firm Challenger, Gray & Christmas said that planned job cuts rose 28% from December to 53,486.

And a report from payroll processor ADP showed that the private sector added just 170,000 jobs in January. That's well short of the 257,000 that the BLS attributed to private sector hiring.

Even reports from other parts of the government contradicting what the BLS is telling us.

The Congressional Budget Office this week said that based on current law and policies, unemployment will actually increase to 8.9% by the end of the year, and 9.2% in 2013.

And pollster Gallup Inc., which does its own tracking of the unemployment rate, reported that the general unemployment rate rose from 8.5% to 8.6%. And Gallup said the rate for the underemployed jumped to 18.7% from 18.3%.

"Regardless of what the government reports, Gallup's unemployment and underemployment measures show deterioration since mid-January," a report on Gallup's Web site says.

So while Democrats running for re-election - including President Barack Obama - now have some pretty statistics supporting their claim for more jobs in America, the crisis is not over.

"I wouldn't get anywhere near the champagne," Jared Bernstein, a former top White House economist now at the Center for Budget and Policy Priorities, told Politico. "That would be both a political and economic mistake."


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]]> http://moneymorning.com/2012/02/06/jobs-in-america-the-ugly-truth-behind-those-unemployment-numbers/feed/ 2 Romney Avoids Nevada's Housing Market Problems with a Tactic That Could Work – for Now http://moneymorning.com/2012/02/03/romney-avoids-nevadas-housing-market-problems-with-a-tactic-that-could-work-for-now/ http://moneymorning.com/2012/02/03/romney-avoids-nevadas-housing-market-problems-with-a-tactic-that-could-work-for-now/#comments Fri, 03 Feb 2012 22:00:36 +0000 Kerri Shannon http://moneymorning.com/?p=62939
Mitt Romney is expected to take Nevada by a large margin this weekend - even though he joined fellow candidates in failing to address the staggering number of foreclosures plaguing Nevada's housing market.

A poll released early Friday gave Romney a 20-point lead over former Speaker of the House Newt Gingrich.

But Romney's win would come without the former Massachusetts governor sharing plans for the frightening number of underwater owners in Nevada's housing market.

Housing market issues are especially sensitive to Nevada voters. Nevada is the No. 1 state for foreclosures. In Las Vegas about 70% of mortgages are underwater.

Homeowner assistance programs have helped some residents stay afloat - barely.

The three other remaining Republican candidates - Newt Gingrich, Rick Santorum and Ron Paul - joined Romney in sidestepping the topic.

One of Romney's few comments on the state's number of foreclosures was during a meeting with Donald Trump Thursday.

"So many people have their homes underwater, it's extraordinary," said Romney.

While that tactic could work in the Nevada caucuses this weekend, Romney will have to be more vocal with a housing market stance if he ends up running against U.S. President Barack Obama.

President Obama appealed to struggling homeowners this week with a $10 billion plan for mortgage refinancing. The plan would make eligible for the first time families whose homes were underwater.

President Obama proposed to pay for the program with an extra fee on big banks. The refinancing would save homeowners about $3,000 a year that the president said would be reinvested in the U.S. economy.

Romney Proposed to Leave Nevada's Housing Market Alone

Romney's strategy of saying little on Nevada's housing market could stem from a comment he made last year.

Romney turned off some Nevada residents when a housing-related comment he made to the Las Vegas Review-Journal editorial board went public.

"As to what to do for the housing industry specifically and are there things that you can do to encourage housing: One is, don't try to stop the foreclosure process. Let it run its course and hit the bottom," said Romney.

The comment led a liberal group to start a "Foreclose Romney" Website.

President Obama, speaking in Falls Church, VA Feb. 1, argued to continue government intervention in the housing market, and took a shot at Romney.

"It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit rock bottom. I refuse to accept that and so do the American people," said the president.

Even though President Obama's current policies have done little to help the Nevada housing market, local politicians claim the state will need government backing to rebound.

"The state of Nevada continues to face the highest foreclosure rate in the nation. President Barack Obama understands this and is taking steps to stabilize the housing market. ," state Sen. Steven Horsford, who is running to represent Nevada's worst foreclosure ZIP code in Congress next year, told the Las Vegas Sun. "The last time Mitt Romney was in Nevada, he had the audacity to say that we should let the foreclosure process "hit the bottom' and that we should do nothing to help struggling families about to lose their homes. Struggling middle-class families need real economic relief, and Mitt Romney hasn't proposed a single new idea to give it to them."

Housing Market: Prices Still Slipping

U.S. home prices have fallen steadily since September.

November 2011 home prices for both the 10-city and 20-city measures of the Home Price Index fell 1.3% from October. Prices fell 3.6% and 3.7% from November 2010, respectively.

While prices are nearing a bottom, they aren't ready to rebound. It's likely more small declines will persist in 2012 before an upward trend takes hold.

Romney housing market
"When people phrase is that way, they say 'we've reached the bottom.' That suggests that we have the expectation of a major turning point right now. But I don't see that," Robert Shiller, Yale professor and one of the economists who created the Case-Shiller Home Price Index, said in an interview with Business Insider editor Henry Blodgett. "I don't see any reason to think that prices are going to start heading up dramatically now."

Strong upward price movements aren't expected for at least another few years. The likeliest outcome is home prices shows sideways price movement for the rest of 2012.

Without a quick housing market recovery in sight, Romney will have to start answering tougher questions about how to handle the nation's foreclosures.

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]]> http://moneymorning.com/2012/02/03/romney-avoids-nevadas-housing-market-problems-with-a-tactic-that-could-work-for-now/feed/ 1 Insider Trading Ban: Congress Really Wants You to Like Them http://moneymorning.com/2012/02/03/insider-trading-ban-congress-really-wants-you-to-like-them/ http://moneymorning.com/2012/02/03/insider-trading-ban-congress-really-wants-you-to-like-them/#comments Fri, 03 Feb 2012 15:35:08 +0000 Kerri Shannon http://moneymorning.com/?p=62896 insider trading ban yesterday (Thursday) preventing Congress members from profiting from non-public information.

The Senate passed the bill in a 96-3 vote. U.S. Rep. Eric Cantor, R-VA, said the House would consider the bill next week. U.S. President Barack Obama pledged to sign it immediately.

Congress members hope the new law will change growing American disgust with Congressional perks and partisanship, which has hammered approval ratings down to the teens.

"The numbers of people who have a favorable impression of this body are so low that we're down to close relatives and paid staff. And I'm not so sure about the paid staff," Sen. Joe Lieberman, I-CT, said earlier this week.

Insider Trading Ban Run Down

The insider trading ban prevents members of Congress, top aides, and administrative officials from using non-public information when trading. Any stock bought or sold must be disclosed in a public report online within 30 days.

Several last-minute amendments added to the insider trading ban include:

To continue reading, please click here…]]>
In an attempt to end plunging approval ratings - and win favor in an election year - the Senate passed an insider trading ban yesterday (Thursday) preventing Congress members from profiting from non-public information.

Insider Trading Ban The Senate passed the bill in a 96-3 vote. U.S. Rep. Eric Cantor, R-VA, said the House would consider the bill next week. U.S. President Barack Obama pledged to sign it immediately.

Congress members hope the new law will change growing American disgust with Congressional perks and partisanship, which has hammered approval ratings down to the teens.

"The numbers of people who have a favorable impression of this body are so low that we're down to close relatives and paid staff. And I'm not so sure about the paid staff," Sen. Joe Lieberman, I-CT, said earlier this week.

Insider Trading Ban Run Down

The insider trading ban prevents members of Congress, top aides, and administrative officials from using non-public information when trading. Any stock bought or sold must be disclosed in a public report online within 30 days.

Several last-minute amendments added to the insider trading ban include:

  • Expanding the rule to 28,000 members of the executive branch, including the president, vice-president, and members of the Federal Reserve.
  • Congress and the president, vice-president and most Senate-confirmed appointees must disclose all residential mortgages.
  • People hired by Wall Street to get stock-related information from Congress members and their staff must disclose their affiliations.
  • And all Congress members must post their annual financial disclosure statements online instead of making only paper copies available on request.

How "60 Minutes" Revived the Trading Ban

CBS News' "60 Minutes" aired a story on Congress insider trading in November 2011. The show's segment fueled support for the STOCK (Stop Trading on Congressional Knowledge) Act, first proposed in 2007.

Prior to the "60 Minutes" report, the bill only had four supporters in Congress. That number grew to 230 by last week.

The "60 Minutes" program featured an interview with Peter Schweizer, a fellow at Stanford University's conservative think tank the Hoover Institution. Schweizer has extensively reviewed Congress members' financial disclosure records to find out how our elected representatives manage to accumulate so much wealth while in office.

Schweizer found that congressional representatives were trading stocks related to hot topics being discussed and debated in Congress before information had been disclosed to the public.

"We know that during the health care debate people were trading health care stocks," Schweizer told "60 Minutes" correspondent Steve Kroft. "We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on."

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]]> http://moneymorning.com/2012/02/03/insider-trading-ban-congress-really-wants-you-to-like-them/feed/ 0 Glencore International, Xstrata Could Make the Next Biggest Deal in Global Commodities http://moneymorning.com/2012/02/02/glencore-international-xstrata-could-make-the-next-biggest-deal-in-global-commodities/ http://moneymorning.com/2012/02/02/glencore-international-xstrata-could-make-the-next-biggest-deal-in-global-commodities/#comments Thu, 02 Feb 2012 20:39:11 +0000 Kerri Shannon http://moneymorning.com/?p=62875
Commodities supplier Glencore International (PINK: GLCNF) could be on the cusp of a multibillion-dollar bet on commodities with mining company Xstrata PLC (PINK: XSRAF).

Switzerland-based Xstrata announced today (Thursday) that Glencore approached the company for an all-share offer in a "merger of equals." Glencore already owns 34% of Xstrata and wants to buy the remaining shares, worth $35 billion (21.9 billion pounds) based on Wednesday's closing price.

The result would be a global commodities giant with an $80 billion market value.

"The combined business of Glencore and Xstrata would be greater than the sum of its parts," Charles Cooper, a mining analyst at Oriel Securities, told The New York Times. "Any deal would put the new company in the same category as the major players like Rio Tinto or BHP Billiton."

The deal would be the most significant to the mining sector since BHP and Billiton joined in 2001 to form BHP Billiton Ltd. (NYSE ADR: BHP), the largest mining company by market capitalization.

Glencore International with Xstrata: A Mining Superpower

Glencore is the world's largest publicly traded commodities supplier. It went public in May 2011 in London's biggest-ever initial public offering (IPO), worth roughly $10 billion. The company said when it filed for the IPO it planned to use the cash for acquisitions.

Xstrata is a leading producer in seven commodities, according to its Web site. It's the world's fourth-largest metals and mining company, and has a market capitalization of about $50 billion.

Glencore International wants to expand its business from the low-margin metals processing it currently focuses on. The deal would give Glencore access Xstrata's profitable coal, copper, and nickel mines all over the world and create a well-rounded industry leader in a bullish sector.

"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd., told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."

A Glencore International-Xstrata entity would have more diversification than other global commodities players, with copper and coal being its biggest earnings drivers.

Under M&A rules in the United Kingdom, Glencore must announce a firm intention of an Xstrata offer by March 1. Previous Xstrata merger attempts have failed to materialize, but analysts think this one is different.

"This may be the rare case where a nil premium merger of equals in which shareholders of both companies share the synergies is possible and maybe even sensible and likely," Jefferies Group Inc. (NYSE: JEF) analyst Christopher LaFemina said in a note Thursday. "A deal like this would never be easy, but now is as good a time as any for it to happen."

The news will likely ignite more M&A activity in the metals and mining sector. Miners are loaded with cash and want to capitalize on China's industrial growth. Global mining deals hit $98 billion last year, according to Bloomberg data.

Glencore International closed with a 6.52% gain Thursday in London trading; Xstrata ended up 10.43%.

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]]> http://moneymorning.com/2012/02/02/glencore-international-xstrata-could-make-the-next-biggest-deal-in-global-commodities/feed/ 1 NEWSFLASH: Mitt Romney Has Rich "Friends" http://moneymorning.com/2012/02/02/newsflash-mitt-romney-has-rich-friends/ http://moneymorning.com/2012/02/02/newsflash-mitt-romney-has-rich-friends/#comments Thu, 02 Feb 2012 11:31:54 +0000 David Zeiler http://moneymorning.com/?p=62794
Campaign fund documents show that Mitt Romney is far more dependent on very wealthy donors than any other presidential candidate, making him even more vulnerable to accusations that he's too close to the rich.

The former Massachusetts governor has raised just 9% of his campaign funds from small donors - contributions of $200 or less, an analysis by the Center for Responsive Politics has revealed.

And that doesn't include money given to the Romney-friendly super PACs, which have collected many more millions from the very rich. About 98% of the donations to the Restore Our Future super PAC were over $25,000.

All of Romney's Republican opponents have raised a much greater portion of their campaign money from small donors. Roughly one-third of Rick Santorum's funds came from small donors in 2011; for Newt Gingrich, the amount was about half; and for Ron Paul, the figure was 52%.

And so far, about 47% of President Barack Obama's campaign funds have come from small donors.

The surge of donations from the wealthy has put Romney far ahead of all of his GOP rivals in terms of total dollars raised as well. He brought in $56.5 million in 2011, compared to Paul's $26 million, Gingrich's $12.6 million and Santorum's $2.2 million.

That advantage, combined with the $18 million raised by Restore Our Future, helped pay for the barrage of television ads in Florida that turned a comfortable Gingrich lead into a 15-point Romney victory in less than 10 days.

In essence, rich donors bought the Florida primary for Romney.
And when voters learn more about who exactly is funding the Romney campaign, they'll be even less pleased. Yesterday's (Wednesday) disclosure of many of the donors to Restore Our Future included plenty of names that could prove unpopular with the American public.

The list of those who made large contributions to Restore Our Future include former associates from Bain Capital, hedge fund managers - including John Paulson - and senior executives from Goldman Sachs (NYSE: GS).

When added to Romney's well-publicized personal wealth, low tax rates and history overseeing leveraged buyouts at Bain Capital, the sources of his campaign funds has created a narrative increasingly difficult to defend.

And Romney isn't helping his case. Just yesterday he added another thread to the story while speaking on CNN.

"I'm not concerned about the very poor," Romney said. "We have a safety net there. If it needs repair, I'll fix it. I'm not concerned about the very rich. They're doing just fine. I'm concerned about the very heart of America, the 90-95% of Americans who are struggling."

Opponents seized upon the first sentence.

Although the Florida primary victory has made Romney the presumptive Republican nominee, his apparent allegiance to the rich will make him vulnerable to Democratic attacks in the fall.

With his frequent calls for "fairness" and taxes on millionaires and billionaires, President Obama has already laid the groundwork for an opponent that can easily be painted as beholden to the rich.

And having raised $125 million in campaign funds already, President Obama will have plenty of money - and material - for ads depicting Romney as a millionaire out of touch with the middle class.

"Mitt Romney has given the Obama team so many buzzwords," said Joe Scarborough on MSNBC's "Morning Joe" program Monday. "Swissbankaccount, Cayman Islands, "I like firing people,' 14 percent, "let the market bottom out,' pink slips, "I know what it's like to be unemployed.' You could go on and on. He has set himself up for a November killing."

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]]> http://moneymorning.com/2012/02/02/newsflash-mitt-romney-has-rich-friends/feed/ 2 Amazon.com Inc. (Nasdaq: AMZN): Growth Phase Pinches Profits, but Investors Should Ride it Out http://moneymorning.com/2012/01/31/amazon-com-inc-nasdaq-amzn-growth-phase-pinches-profits-but-investors-should-ride-it-out/ http://moneymorning.com/2012/01/31/amazon-com-inc-nasdaq-amzn-growth-phase-pinches-profits-but-investors-should-ride-it-out/#comments Tue, 31 Jan 2012 22:26:14 +0000 Kerri Shannon http://moneymorning.com/?p=62715 AMZN) reported soaring revenue and limited profits today (Tuesday) - but investors shouldn't be discouraged by the low earnings as the company invests in future growth.

Amazon.com reported net income of $177 million, or 38 cents a share, compared to net income of $416 million, or 91 cents a share, for the same period the previous year - a 58% plunge. Revenue jumped to $17.4 billion, a 34% rise from the $12.95 billion in 2010's fourth quarter.

While revenue fell slightly short of Wall Street's expectations, earnings were more than double the predicted 17 cents a share. Amazon.com had given fourth-quarter guidance with a revenue range of $16.5 billion to $18.7 billion.

Amazon.com revenue got a healthy boost from sales of Kindle Fire, the tablet and e-reader running Goolge Inc.'s (Nasdaq: GOOG) Android software. Total sales of the Kindle Fire and other e-reader devices increased 177% in the nine-week 2011 holiday season compared to the same period in 2010. The company reported that Kindle Fire is the No. 1 selling product available on Amazon.com since it was introduced in November.

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Internet retailer Amazon.com Inc. (Nasdaq: AMZN) reported soaring revenue and limited profits today (Tuesday) - but investors shouldn't be discouraged by the low earnings as the company invests in future growth.

Amazon.com reported net income of $177 million, or 38 cents a share, compared to net income of $416 million, or 91 cents a share, for the same period the previous year - a 58% plunge. Revenue jumped to $17.4 billion, a 34% rise from the $12.95 billion in 2010's fourth quarter.

While revenue fell slightly short of Wall Street's expectations, earnings were more than double the predicted 17 cents a share. Amazon.com had given fourth-quarter guidance with a revenue range of $16.5 billion to $18.7 billion.

Amazon.com revenue got a healthy boost from sales of Kindle Fire, the tablet and e-reader running Goolge Inc.'s (Nasdaq: GOOG) Android software. Total sales of the Kindle Fire and other e-reader devices increased 177% in the nine-week 2011 holiday season compared to the same period in 2010. The company reported that Kindle Fire is the No. 1 selling product available on Amazon.com since it was introduced in November.

The Price of Amazone Stock (Nasdaq:AMZN)

Amazon.com Inc. (Nasdaq: AMZN) Focuses on Growth

Amazon.com's profit margins have slimmed as it invests in growth initiatives, making it difficult to predict earnings.

Last quarter the company gave margin guidance that was "wide enough to drive a delivery truck through, with the potential for considerable volatility," Scott Tilghman, an analyst at Caris & Co., told The Wall Street Journal.

Tilghman said Amazon.com's profit margins were "the biggest wildcard for 4Q."

In the short-term Amazon.com is in an investment phase as it transitions into a digital-focused retailing world and expands both domestic and international operations.

Amazon.com has been investing in U.S. sales distribution centers to increase efficiency in product delivery and customer service. The company announced in December 2011 plans for two new distribution centers each in Virginia and Tennessee, costing around $270 million. The new facilities are part of the company's plan for 17 new fulfillment centers in addition to the 52 it already operates.

The company also has entered into the world of cloud computing. Its Simple Storage Service, Amazon S3, is a Web service that allows developers to store and retrieve data. The service saw year-over-year storage growth of 192% by the end of 2011.

Despite any short-term profit squeeze, Amazon.com has positioned itself for strong long-term growth. The stock is up about 7% this year. Wall Street has a one-year price target of $233, a 20% gain from Tuesday's close of .

Amazon.com Inc. (Nasdaq: AMZN) fell 9% in after-hours trading.

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]]> http://moneymorning.com/2012/01/31/amazon-com-inc-nasdaq-amzn-growth-phase-pinches-profits-but-investors-should-ride-it-out/feed/ 0 Case-Shiller Home Price Index: U.S. Housing Market Nearing Bottom in 2012 http://moneymorning.com/2012/01/31/case-shiller-home-price-index-u-s-housing-market-nearing-bottom-in-2012/ http://moneymorning.com/2012/01/31/case-shiller-home-price-index-u-s-housing-market-nearing-bottom-in-2012/#comments Tue, 31 Jan 2012 15:12:33 +0000 Kerri Shannon http://moneymorning.com/?p=62670 Case-Shiller Home Price Index showed another decline for November 2011, its third straight monthly loss, as the U.S. housing market trends toward a bottom this year.

Home prices in both the 10-city and 20-city measures of the Home Price Index fell 1.3% from October. Prices fell 3.6% and 3.7% from November 2010, respectively.

The Case-Shiller Home Price Index has fallen steadily since September. Prices in October fell 1.1% and 1.2% from the month before for the 10-city and 20-city indices.

The home price report was on par with what economists expected, as they see this year bringing an end to drastic price declines.

Click here to continue reading...

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The S&P/Case-Shiller Home Price Index showed another decline for November 2011, its third straight monthly loss, as the U.S. housing market trends toward a bottom this year.

Home prices in both the 10-city and 20-city measures of the Home Price Index fell 1.3% from October. Prices fell 3.6% and 3.7% from November 2010, respectively.

The Case-Shiller Home Price Index has fallen steadily since September. Prices in October fell 1.1% and 1.2% from the month before for the 10-city and 20-city indices.

The home price report was on par with what economists expected, as they see this year bringing an end to drastic price declines.

Earlier this month JPMorgan Chase & Co. (NYSE: JPM) chief executive officer Jamie Dimon told USA Today that, "We have seen the worst. We are at the bottom. We may hug along the bottom for a while, but we are at the bottom."

But a home price bottom doesn't mean a rebound just yet.

Case-Shiller Home Price Index and the U.S. Housing Market

Increased U.S. home sales are a sign that home price declines will slow and eventually flatten in 2012.

The National Association of Realtors reported existing-home sales in December rose 5% to a seasonally adjusted rate of 4.61 million. There were 3.6% more sales completed than in December 2010, and completed sales were 1.7% higher for all of 2011 compared to 2010.

"Encouraging precursors to a true stabilization of home values are falling into place as the new year begins," Dr. Stan Humphries, chief economist for real estate information company Zillow Inc. (Nasdaq: Z), told Forbes. "Home sales will show a more consistent upward trend this year, slowly reducing the amount of vacant housing inventory. This increased demand will eventually start to put a floor under home values later this year."

Case-Shiller Home Price Index While prices will stabilize, it's likely more small declines will persist in 2012 before an upward trend takes hold.

"When people phrase is that way, they say 'we've reached the bottom.' That suggests that we have the expectation of a major turning point right now. But I don't see that," Robert Shiller, Yale professor and one of the economists who created the Case-Shiller Home Price Index, said in an interview with Business Insider editor Henry Blodgett. "I don't see any reason to think that prices are going to start heading up dramatically now."

Strong upward price movements aren't expected for at least another couple years. The likeliest outcome is the Case-Shiller Home Price Index shows sideways price movement, that only rises and falls in a small margin for the rest of 2012.

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]]> http://moneymorning.com/2012/01/31/case-shiller-home-price-index-u-s-housing-market-nearing-bottom-in-2012/feed/ 0 Monday's STOCK Act Vote Could End a Major Congressional Perk http://moneymorning.com/2012/01/30/mondays-stock-act-vote-could-end-major-congressional-perk/ http://moneymorning.com/2012/01/30/mondays-stock-act-vote-could-end-major-congressional-perk/#comments Mon, 30 Jan 2012 19:52:53 +0000 Kerri Shannon http://moneymorning.com/?p=62601
The Senate will hold a procedural vote today (Monday) on a bill that prohibits Congress members from using nonpublic information to make stock transactions - known as "insider trading" when conducted by corporate insiders. Today's vote could put a time limit on passing the bill, which the Senate will continue debating this week.

Congress has faced increasing backlash lately for its growing list of financial advantages over the Americans it represents. A CBS News' "60 Minutes" program in November 2011 exposed Congress insider trading - elected representatives trading stocks related to hot topics being debated in Congress before information had been disclosed to the public.

Click here to continue reading...

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Members of Congress could be one step closer this week to losing one of their most profitable perks, thanks to the STOCK Act (Stop Trading on Congressional Knowledge Act).

The Senate will hold a procedural vote today (Monday) on a bill that prohibits Congress members from using nonpublic information to make stock transactions - known as "insider trading" when conducted by corporate insiders. Today's vote could put a time limit on passing the bill, which the Senate will continue debating this week.

Congress has faced increasing backlash lately for its growing list of financial advantages over the Americans it represents. A CBS News' "60 Minutes" program in November 2011 exposed Congress insider trading - elected representatives trading stocks related to hot topics being debated in Congress before information had been disclosed to the public.

The show's segment fueled a resurgence of STOCK Act support in Washington. Prior to the televised report, the bill only had four supporters in Congress. That number has grown to 230.

The act also would make illegal Congress tipping off hedge fund managers to information that could affect stocks, and would require detailed disclosure of members' stock transactions within 30 days. Anyone who violated the insider trading ban would be subject to an investigation by U.S. regulatory agencies and the Justice Department. House and Senate ethics committees could also develop penalties and rules regarding insider trading.

Through a radio address to the nation, President Barack Obama this weekend urged Congress to deliver on the matter.

"The House and Senate should send me a bill that bans insider trading by members of Congress, and I will sign it immediately. They should limit any elected official from owning stocks in industries they impact," said President Obama.

STOCK Act a Congressional Must-Have

Peter Schweizer, a fellow at Stanford University's conservative think tank, the Hoover Institution, told "60 Minutes" correspondent Steve Kroft about the deep-rooted issue of Congress insider trading.

STOCK Act "This is a venture opportunity," said Schweizer. "This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family."

Schweizer pointed specifically to Rep. Spencer Bachus, R-AL, who traded financial stocks after sitting in on a closed-door hearing about an impending economic meltdown; Rep. John Boehner, R-OH, who profited from healthcare stocks while Congress voted on regulations affecting the industry; and Rep. Nancy Pelosi, D-CA, who bought Visa Inc. (NYSE: V) stock while related legislation was debated in the House.

Another Washington transgression was revealed shortly after the insider trading news broke last year.

Turns out Washington insiders have been tipping off Wall Street as to the likely outcomes of legislation being debated in Congress.

For example, New York-based broker-dealer JNK Securities Corp. arranges about 12 meetings a month between legislators and hedge fund managers, according to The Wall Street Journal. If the information discussed turns into a useful stock tip, the hedge fund must execute the trade with JNK so it can earn a commission. But as questionable as it all sounds, no one is breaking any laws.

It boils down to "buying information from members of Congress in a perfectly legal way," Richard Painter, a former ethics lawyer for President George W. Bush and currently a law professor at the University of Minnesota, told The Journal.

The Senate plans to start STOCK Act debates at 4:30 p.m. Monday in Washington.

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]]> http://moneymorning.com/2012/01/30/mondays-stock-act-vote-could-end-major-congressional-perk/feed/ 1 Before You Get Excited About the Facebook IPO… http://moneymorning.com/2012/01/27/before-you-get-excited-about-the-facebook-ipo/ http://moneymorning.com/2012/01/27/before-you-get-excited-about-the-facebook-ipo/#comments Fri, 27 Jan 2012 22:04:09 +0000 Kerri Shannon http://moneymorning.com/?p=62527 Facebook IPO, and now it finally appears as though one is on the way.

The social media giant could file papers for an initial public offering as soon as Wednesday, according to a report from The Wall Street Journal. The company is looking at a deal that would value the social media giant between $75 billion and $100 billion, the WSJ reported, making it one of the biggest in U.S. history.

Scott Sweet of IPO Boutique told MarketWatch a Facebook IPO will likely lead to "pandemonium."

"It's absolutely massive," Sweet said in an interview. "The mere drop of a hint will cause pandemonium."

Facebook is looking to raise as much as $10 billion, which would make it the fourth-largest U.S. IPO behind Visa Inc. (NYSE: V), General Motors Co. (NYSE: GM), and AT&T Wireless. A $100 billion valuation would make Facebook worth as much as global powerhouse McDonald's Corp. (NYSE: MCD).

To continue reading, please click here...]]>
For more than a year there has been rampant speculation about a Facebook IPO, and now it finally appears as though one is on the way.

The social media giant could file papers for an initial public offering as soon as Wednesday, according to a report from The Wall Street Journal. The company is looking at a deal that would value the social media giant between $75 billion and $100 billion, the WSJ reported, making it one of the biggest in U.S. history.

Scott Sweet of IPO Boutique told MarketWatch a Facebook IPO will likely lead to "pandemonium."

"It's absolutely massive," Sweet said in an interview. "The mere drop of a hint will cause pandemonium."

Facebook is looking to raise as much as $10 billion, which would make it the fourth-largest U.S. IPO behind Visa Inc. (NYSE: V), General Motors Co. (NYSE: GM), and AT&T Wireless. A $100 billion valuation would make Facebook worth as much as global powerhouse McDonald's Corp. (NYSE: MCD).

The WSJ reported Morgan Stanley (NYSE: MS) would be the lead underwriter, a job that could give the firm tens of millions in fees.

A strong performance by Facebook when it starts trading could test the idea that social media companies are overhyped. But before you get excited about Facebook shattering that theory, you'd do well to look at some of the other hot tech IPOs of the past year.

Can the Facebook IPO Standout from Tech Flops?

A series of tech IPO disappointments in the past year has fueled speculation of another dot-com bubble.

Online music provider Pandora Media Inc. (NYSE: P) is down 20% since it listed in June of last year. Business networking site LinkedIn Corp. (NYSE: LNKD) is down more than 18% from where it listed in May, and daily deal site Groupon Inc. (Nasdaq: GRPN), has plunged 23% since its November debut.

Most recently, strong debut by online gamer Zynga Inc. (Nasdaq: ZNGA) flopped in December. The company has posted a slight rebound since but is still performing below its lofty expectations.

The question investors have to ask themselves is: What makes Facebook different?

After all, it is the most trafficked Website in the world but it business model leaves a lot to be desired.

"One out of every 12 people in the world visits the popular social networking site and the collection of human data that's stored there makes Facebook the largest, self-fueled marketing database in human history. That point is well taken," said Money Morning Chief Investment Strategist Keith Fitz-Gerald said "But exactly what is Facebook going to do with all of that data?"

Furthermore, Mark Zuckerberg, the young genius behind the company will be challenged to manage a global company whose financial performance will be scrutinized every three months by investors. And Facebook still faces concerns about users' privacy.

Yet the company is currently looking at a deal that would value the social network between $75 billion to $100 billion, said people familiar with the matter.

"This appraisal highlights Facebook's popularity, not its earnings potential," said Fitz-Gerald. "Facebook may have jumped ahead of Google as the most visited Web site in 2010. But it's not worth $100 billion."

Fitz-Gerald points out that Google Inc. (Nasdaq: GOOG) made $3.26 billion in revenue in its first year public (2004), but it had valid, often user-driven sales opportunities.

Google's advertising targets, through its search engine, at least, are often looking to be "sold" when they go to the site. Whereas, Facebook users don't want their chatting/gaming/posting time consumed by invasive or even passive salesmanship.

Said Fitz-Gerald: "Sure, Facebook has a lot of people trolling through its site, but the important question is how do they monetize that traffic? In other words, they face the same old dilemma salesmen have faced since the beginning of time: How do you convert the "tire-kickers' into buyers."

Zuckerberg and company need to answer these questions soon with the Facebook IPO on the brink of reality.

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]]> http://moneymorning.com/2012/01/27/before-you-get-excited-about-the-facebook-ipo/feed/ 2 Subscribers Flock to Rebounding Netflix Inc. (Nasdaq: NFLX) – Time For Investors To Follow http://moneymorning.com/2012/01/26/subscribers-flock-rebounding-netflix-inc-nasdaq-nflx-time-investors-follow/ http://moneymorning.com/2012/01/26/subscribers-flock-rebounding-netflix-inc-nasdaq-nflx-time-investors-follow/#comments Thu, 26 Jan 2012 21:11:22 +0000 Kerri Shannon http://moneymorning.com/?p=62414 NFLX) beat expectations with an earnings report Wednesday after the bell that sent its stock up more than 14% in after-hours trading, and set the stage for a stock rally in 2012.

The company reported U.S. subscribers in the fourth quarter jumped by 610,000 to reach 24.4 million. The increase helped recoup the 800,000 U.S. customers Netflix lost in the third quarter after it changed monthly rates.

The video rental and streaming company reported surprisingly good earnings for the fourth quarter. Net income was 73 cents a share, about 33% higher than The Street's estimate of 55 cents a share. Revenue rose 47% from a year ago to $876 million, compared to analysts' estimated $857.3 million.

By 1 p.m. Netflix shares today (Thursday) had soared 21% to just over $115.

Today's stock boost offers investors a much needed price spike as NFLX stabilizes its business from a tumultuous 2011. After the company announced a 60% price increase and a business segment spin off, frustrated subscribers attacked Chief Executive Officer Reed Hastings and cancelled subscriptions.

The stock took a toll - tumbling from a mid-year high of $305 to a yearly low of $62.37 by Nov. 30. The share price ended 2011 down 61%.

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Price of Netflix (Nasdaq: NFLX) Stock
Stock Price: 1/26/2012 (4:00PM ET): 116.30
Data Source: Yahoo Finance
Netflix Inc. (Nasdaq: NFLX) beat expectations with an earnings report Wednesday after the bell that sent its stock up more than 14% in after-hours trading, and set the stage for a stock rally in 2012.

The company reported U.S. subscribers in the fourth quarter jumped by 610,000 to reach 24.4 million. The increase helped recoup the 800,000 U.S. customers Netflix lost in the third quarter after it changed monthly rates.

The video rental and streaming company reported surprisingly good earnings for the fourth quarter. Net income was 73 cents a share, about 33% higher than The Street's estimate of 55 cents a share. Revenue rose 47% from a year ago to $876 million, compared to analysts' estimated $857.3 million.

By 1 p.m. Netflix shares today (Thursday) had soared 21% to just over $115.

Today's stock boost offers investors a much needed price spike as NFLX stabilizes its business from a tumultuous 2011. After the company announced a 60% price increase and a business segment spin off, frustrated subscribers attacked Chief Executive Officer Reed Hastings and cancelled subscriptions.

The stock took a toll - tumbling from a mid-year high of $305 to a yearly low of $62.37 by Nov. 30. The share price ended 2011 down 61%.

Now the stock is posting the second-biggest advance on the Standard & Poor's 500 Index for 2012. As of Wednesday's close, the stock was up 37% for the year.

Netflix's positive earnings report triggered a slew of Wall Street upgrades. Citigroup Inc. (NYSE: C) analysts pushed the price target to $130 from $80, Hudson Square analyst Daniel Ernst raised his target to $125 from $110, and Michael Olson from Piper Jaffray Cos. (NYSE: PJC) raised his target to $130 from $100.

For next quarter, the company expects to report a first quarter loss of $0.49 to $0.16 per share, compared to the consensus estimate of a loss of $0.30. But the subscriber growth numbers show it's back on track for long-term growth.

"Q4 results will likely serve to increase the level of comfort investors have with a story that has been volatile and unpredictable in the last 6 months," Piper Jaffray's Olson wrote to investors.

Netflix Inc. (Nasdaq: NFLX) Builds Growth From Streaming Service

Netflix currently has 21.7 million streaming-service subscribers in the United Sates, and mail order customers have slipped to 11.2 million.

The company said it expects to lose video rental subscribers each month as it focuses on lower margin video streaming. Domestic DVD-subscribers fell by 2.76 million last quarter and are expected to slip by another 1.5 million in this year's first quarter.

Netflix will have to balance the looming profit loss from losing hybrid subscribers who pay more for both DVD and online-streaming services. But it raised profit margins for its streaming business to 10.9%, and expects that number to rise 1% per quarter.

"From these results it is clear Netflix remains well positioned to capitalize on the secular growth of online streaming," Atlantic Equities analyst James Cordwell wrote in his research report.

To lure more streaming customers the company is focusing on initiatives like original content. The first Netflix original series, "Lllyhammer," will premiere Feb. 6 and run eight episodes. Two more series due out later this year include "House of Cards" and a revival of the TV series "Arrested Development," cancelled in 2006.

The company also hopes to gain traction in the emerging markets it's already ventured into. Netflix expects international users to range from 2.5 million to 3.1 million in 2012's first quarter, up from 1.86 million at the end of 2011. The company gained 370,000 international customers in the fourth quarter.

Netflix said it will hold off expanding into other foreign markets until it reaches global profitability.

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]]> http://moneymorning.com/2012/01/26/subscribers-flock-rebounding-netflix-inc-nasdaq-nflx-time-investors-follow/feed/ 0 The 2012 State of the Union Tax Reforms That Could Affect You http://moneymorning.com/2012/01/25/the-2012-state-of-the-union-tax-reforms-that-could-affect-you/ http://moneymorning.com/2012/01/25/the-2012-state-of-the-union-tax-reforms-that-could-affect-you/#comments Wed, 25 Jan 2012 22:35:45 +0000 Kerri Shannon http://moneymorning.com/?p=62335
U.S. President Barack Obama outlined significant tax reforms in his 2012 State of the Union address Tuesday night. As expected, tax reform was a main theme in the president's speech, mentioned 34 times.

The White House today (Wednesday) fleshed out in detail the tax reforms aimed to achieve the president's goals of reviving U.S. manufacturing and job creation.

While some of the reforms received hearty applause from Congress members, many will be heavily battled by policymakers as well as the Republican candidates as the 2012 election heats up.

2012 State of the Union Tax Reforms

The following proposed tax reforms aim to help America's middle class - to reduce U.S. income inequality and promote education:

  • Extend payroll tax cuts - set to expire at the end of February - to the end of the year to prevent $40 being removed from middle-class paychecks

  • End tax cuts for those earning more than $250,000
  • Enforce the Buffett Rule - a 30% minimum tax rate for those earning more than $1 million

  • Extend the American Opportunity tax credit, which provides up to $2,500 toward higher education expenses
The following tax reforms were proposed to spur U.S. manufacturing:

  • 20% income tax credit for companies that move operations back to United States from abroad, and no more tax deductions given to companies that move operations overseas

  • 9% tax deduction for U.S. manufacturers; 18% deduction for advanced manufacturing technologies that create U.S. jobs

  • $6 billion in Manufacturing Communities Tax Credits, for investments that aid communities suffering from excessive job loss

  • $5 billion in Advanced Energy Manufacturing Tax Credits, to drive $20 billion in investments for new clean energy manufacturing

  • 100% expensing of plant and equipment investments by U.S. manufacturers - providing up to $50 billion over two years in savings for businesses

  • Remove the tax loophole allowing companies to pay less in U.S. taxes by holding profits overseas

  • Impose a minimum tax on the international earnings of U.S. companies - aimed to limit sending jobs overseas
Look for Republican candidates to attack some of President Obama's State of the Union tax reforms as they gear up for Florida's Jan. 31 primary election.

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]]> http://moneymorning.com/2012/01/25/the-2012-state-of-the-union-tax-reforms-that-could-affect-you/feed/ 0 Five Things Obama Didn't Want You to Hear in His State of the Union http://moneymorning.com/2012/01/25/five-things-obama-didnt-want-you-to-hear-in-his-state-of-the-union/ http://moneymorning.com/2012/01/25/five-things-obama-didnt-want-you-to-hear-in-his-state-of-the-union/#comments Wed, 25 Jan 2012 22:24:13 +0000 David Zeiler http://moneymorning.com/?p=62324
Although the president never actually lied, he repeatedly left out facts that contradict his claims of success.

President Obama hadn't yet left the House chamber when the reality check started. And it didn't take long to find some pretty big the holes in the State of the Union address.

To continue reading, please click here...]]>
Seeking to put the best possible spin on his message, President Barack Obama took some liberties with the truth in his State of the Union address.

Although the president never actually lied, he repeatedly left out facts that contradict his claims of success.

President Obama hadn't yet left the House chamber when the reality check started. And it didn't take long to find some pretty big the holes in the State of the Union address.

The bending of reality ranged from domestic oil issues to General Motors Company (NYSE: GM) to tire imports.

Here are just five instances in the State of the Union address in which President Obama didn't tell the whole story:
  1. What the President Said About the Auto Industry:
    On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world's number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.

    What the President Didn't Tell You:
    First of all, President Obama forgot to mention that the GM bailout process started under President George Bush. And Ford Motor Company 's (NYSE: F) success has nothing to do with the government; it never took any government help. Jobs were saved, but the auto industry lost 200,000 workers. Analysts say the industry won't get back to pre-recession job levels until 2015.

    President Obama also left out the cost of the bailout to the American taxpayer. Because the United States became a major shareholder in GM, the nation still holds 500 million shares of the stock. Given the nation's investment, the U.S. would need to sell those shares at $53 each to break even. GM currently trades at about $25 a share, putting U.S. taxpayers $14 billion in the hole.

  2. What the President Said About Oil:
    Right now, American oil production is the highest that it's been in eight years. That's right - eight years. Not only that - last year, we relied less on foreign oil than in any of the past sixteen years.

    What the President Didn't Tell You:
    While U.S. oil production is at its highest levels in eight years, production is only incrementally higher than it was in 2003. And higher production is not, as the president implied, responsible for the nation's reduced reliance on foreign oil. That resulted from years of declining consumption - a trend that started in 2006, two years before President Obama was elected. He also forgot to mention that the price of gasoline has skyrocketed 83% during his term, from $1.79 in January 2009 to $3.28 in December.

  3. What the President Said About Job Growth:
    In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s.

    What the President Didn't Tell You:
    The jobs picture is not quite as rosy as the president described. Total employment is still 1.7 million lower than it was in January 2009, and 6 million lower than the peak in January 2008. And of course, President Obama did not want to remind Americans that the unemployment rate, though it has dropped to 8.5%, was over 9% for most of his presidency.

  4. What the President Said About Government Regulations:
    In fact, I've approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his.

    5. What the President Didn't Tell You:
    True enough, President Obama approved 613 regulations in his first 33 months in office - 30 fewer than President Bush. But what he didn't say was that the regulations he approved were generally more costly. President Obama approved 129 regulations that will cost more than $100 million, compared to just 90 for President Bush.

  5. What the President Said About Chinese Tire Imports:
    Over a thousand Americans are working today because we stopped a surge in Chinese tires.

    6. What the President Didn't Tell You:
     The cause and effect for the increase in U.S. tire manufacturing jobs is unclear. Although a tariff enacted in 2009 did slow imports of Chinese tires, other nations -- such as Mexico, Thailand and Indonesia -- quickly filled the gap. "So far as saving American jobs, it just isn't working," Roy Littlefield of the 6,000 member Tire Industry Association, told The Wall Street Journal. "And it really hurt a lot of people in the industry-smaller businesses that geared up to bring these tires in from China."

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]]> http://moneymorning.com/2012/01/25/five-things-obama-didnt-want-you-to-hear-in-his-state-of-the-union/feed/ 35 Obama's Trade Enforcement Unit and the Looming Trade War with China http://moneymorning.com/2012/01/25/obamas-trade-enforcement-unit-and-the-looming-trade-war-with-china/ http://moneymorning.com/2012/01/25/obamas-trade-enforcement-unit-and-the-looming-trade-war-with-china/#comments Wed, 25 Jan 2012 22:17:59 +0000 Kerri Shannon http://moneymorning.com/?p=62319
U.S. President Barack Obama in Tuesday's State of the Union speech called for the creation of a Trade Enforcement Unit to end unfair practices hindering U.S. trade growth - especially tactics employed by China.

"I will go anywhere in the world to open new markets for American products," the president said in his annual address to the nation. "And I will not stand by when our competitors don't play by the rules."

President Obama hopes this new initiative will help bolster a U.S. manufacturing revival, create jobs, and meet his exports goal. The president vowed in 2010 to double U.S. exports by 2015.

To enforce fair global trade, the Trade Enforcement Unit will:

  • Organize a global team of investigators and resources.
  • Conduct more import inspections to prevent counterfeit/unsafe goods from coming to America.
  • Ensure no foreign company has a financing advantage over American manufacturers.
President Obama also wants to develop a program that provides credit to U.S. companies that struggle against foreign competitors receiving government financial aid.

In order for the new trade unit to make headway in U.S. export growth, China will have to be its primary focus - but that could provoke a dangerous global trade war.

Trade enforcement unit"This trade goal is not a good goal," said Money Morning Global Investing Strategist Martin Hutchinson. "It's protectionist, and invites retaliation."

Trade Enforcement Unit Would Focus On China

For years, the United States has pointed fingers at China's currency manipulation and unfair subsidies as limitations to U.S. trade growth. U.S. manufacturing groups have pushed the government to take a stronger stance against Chinese trade practices.

"It's long overdue," Scott Paul, executive director for the Alliance for American Manufacturing (AAM) told Bloomberg News. "We have seen 10 years of China gaming the system and I think the president has a very good record with China."

The Economic Policy Institute released a study last September showing that the trade deficit with China - expected to hit $300 billion for 2011 - had cost America 2.8 million jobs over the past decade. The computer and electronics industry suffered the most job losses, due to increasing imports of products like semiconductors and audio-video equipment.

"We urgently need a national strategy for restoring America's global leadership in manufacturing," said AAM's Paul after the report's release. "Challenging China's currency manipulation would be an important first step toward developing such a strategy.It would not only cut unemployment, it would result in a much-needed increase in federal revenue."

Earlier attempts to fight China on valuing its currency have failed to get through Congress due to fear of retaliation. A currency bill proposed in October imposed tariffs on goods from countries with undervalued currencies - namely, China. The bill got through the Senate with a 63-35 vote, but has since stalled in the House.

"I'm concerned about the Chinese currency situation," House Speaker John Boehner, R-OH, told reporters at the Capitol after the Senate passed the bill. "But I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency."

U.S.-China Tense Trade History

President Obama stated his administration has brought at least twice as many trade cases against China than did former President George W. Bush's administration. The U.S. Trade Representative's office has filed five cases against China with the World Trade Organization since President Obama took office in 2009.

Most recent cases the U.S. Commerce Department has been investigating involve Chinese alternative energy companies.

The U.S. Commerce Department in November started an investigation into Chinese solar cells that were priced about 50% - 250% below American-made products. Just last week the Commerce Department launched an investigation into low-cost wind towers shipped to the United States from China and Vietnam.

One of the president's first Chinese-product tariffs was a 35% duty on imported tires in September 2009. The U.S. International Trade Commission declared a China tire import surge had led to the loss of thousands of U.S. tire manufacturing jobs.

China's government fought the tariffs, which were upheld by the World Trade Organization in 2010.

President Obama cited the move in Tuesday's State of the Union address, saying thousands of Americans are now working due to the halting of Chinese tire imports. Analysts have said those tire imports didn't create as many jobs as implied, because they were replaced by tires from other countries including Thailand, Indonesia, and Mexico.

President Obama will meet with Xi Jinping, who is set to lead China's Communist Party at the end of this year, in a few weeks in Washington. The new trade enforcement unit as well as security concerns are expected to be among the main topics discussed.

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