Gold surged over 60% in 2009, hitting new highs practically every week. But, we haven't seen anything yet. This is just the beginning of one of the biggest gold rallies in history. Find out why gold will easily hit $2,000 this year in this report.
Archives for January 2010
January 2010 - Page 3 of 8 - Money Morning - Only the News You Can Profit From
Goldman Sachs Group Inc. (NYSE: GS) yesterday (Thursday) reported blowout fourth-quarter earnings after dramatically reducing compensation. However, that earnings call was overshadowed by U.S. President Barack Obama's announcement that he will effectively restore some provisions of the Depression-era Glass-Steagall Act.
Obama's plan would prohibit banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds. It also proposes expanding a 10% market-share cap on deposits to include other liabilities such as non-deposit funding to restrict growth and consolidation.
"While the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near collapse," Obama said at the White House. "Never again will the American taxpayer be held hostage by a bank that is too big to fail."
However, many analysts believe the new regulations will have an adverse effect.
I wrote last week that Wall Street bonuses should be cut back by the shareholders, not by the government.
Well, a reader wrote back correctly to remind me that the majority of shareholders are institutions that would not want to antagonize major corporations that gave out fund management mandates for their pension funds and 401(k)s by agitating against top management bonuses.
Good point. Very good point. And it highlights a central flaw in today's capitalism. It's far too controlled by corporate management. And it's time something was done about it.
Many investors are focusing on China's recent moves to curtail lending and cool its economic growth, but in doing so they're forgetting that the Chinese economy has withstood the financial crisis better than any other economy in the world. And it remains investors' best bet.
"When the financial crisis forced the neoliberal economic system into a dead end, the shortcomings of the capitalist system were exposed for all to see," read a Jan. 5 front page editorial in the People's Daily, the central government's official mouthpiece. "But a China that was pushed to a crossroads proved its 'national capabilities' in taking on a crisis by answering with the advantage of the socialist system with Chinese characteristics."
That statement is cavalier almost to the point of tastelessness but Beijing has earned those bragging rights. China's economy expanded by 10.7% year-over-year in the fourth quarter as most of the world continued to struggle with the aftermath of 2008's financial crisis. For the full year, the nation's gross domestic product (GDP) grew 8.7%.
That easily tops the government's 8% target and dwarfs the economic growth posted by other economies around the world.
Stocks worldwide plunged yesterday (Wednesday), commodities sank, and the dollar pushed higher after Chinese authorities demanded domestic banks slowdown lending amid concerns about asset bubbles growing in the economy.
Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.
New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.
That may be understating the situation.
The first rule of successful global investing – to paraphrase the words of New York Times columnist Thomas Friedman – is a simple one.
Never short a country with $2.3 trillion in currency reserves.
I'm well aware that bond king Bill Gross has been sounding the alarm about a China bubble, and that Forbes magazine is predicting a major meltdown by the Asian giant. I've also heard all about noted short-seller James S. Chanos – who made his name by correctly calling the Enron Corp. demise – who recently described China as "Dubai times 1,000 – or worse."
Just yesterday (Wednesday), in fact, U.S. stocks suffered their worst beating of the New Year on fears that new bank lending curbs in China might blunt the worldwide economic rebound. Asian markets also were down yesterday.
So what's really going on here? China is making its banks tighten credit. Some of the biggest banks, I've heard, have actually suspended loans for the rest of January! Many analysts and media pundits believe this is the beginning of the end of the Great China Growth Story.
Don't believe it.
China has been eager to portray itself as the winner in the recent global dustup with Internet-search giant Google Inc. (Nasdaq: GOOG). At the very least, however, China wants it made clear that it wasn't the loser.
Experts quoted in such state-run media outlets as Xinhua and The People's Daily have derided Google for abandoning the largest and fastest-growing online community in the world, and forfeiting $400 million and $600 million in annual revenue.
And while China's top officials have mostly avoided the topic, government spokesmen have defended the country's censorship practices as "consistent with international conventions."
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MetLife is reportedly negotiating to buy the American Life Insurance Co. from its parent American International Group Inc. (NYSE: AIG). The deal would give MetLife more exposure to Japan and assist AIG in paying back the billions of dollars it owes to the government.
Under the terms now being discussed, MetLife would pay $14 billion to $15 billion for American Life, commonly known as Alico, The New York Times reported. At least $9 billion of that sum would immediately go to the Federal Reserve Bank of New York to redeem preferred stock now being held in a special-purpose vehicle. Additional proceeds would go toward paying down part of a separate, $35 billion credit facility from the New York Fed.
Acquiring Alico would give MetLife a strong presence in Japan where an aging population offers fresh growth opportunities. Alico had about 200 offices, 4,600 consultants or employees, and 10,000 agencies in Japan as of March of last year, according to The Wall Street Journal. The company generates about 70% of its revenue from the Pacific island.
As the European Commission holds its regular monthly meeting in Brussels this week, ministers find themselves debating what to do about the Greek debt crisis — the biggest credibility test the Eurozone has faced since the single currency was created.
The question is whether the 16 countries that share the European Union's (EU) currency can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Still in the depths of recession, Greece is plagued by a spending deficit that rose to 12.7% of gross domestic product (GDP) last year, far in excess of the 3% ceiling permitted to countries in the union. It's also saddled with debt amounting to 113% of GDP, which prompted Moody's Corp. (NYSE: MCO) to downgrade its debt to A2 from A1 on December 22.
When it comes to the global financial crisis, many so-called "experts" think the worst is behind us. But I don't buy it.
And I'm not alone.
Just look at what some other big-name investors – each also known for their independent thinking – are saying or doing right now:
- Bond king Bill Gross is nervous and raising cash.
- Author, commentator and global-markets guru Jim Rogers has repeatedly said that he's not investing in stocks anywhere in the world right now.
- Hedge-fund heavyweight John Paulson is moving aggressively into gold.
- And investing icon Warren Buffett – never one known for tipping his hand – is candidly stating that the U.S. financial-crisis cleanup is far from complete. The fact that he's reportedly buying more shares of Korean steel dynamo Posco (NYSE ADR: PKX) would punctuate this point.
Indeed, entire nations – I'm thinking specifically of China, India, Brazil, Chile and one or two others – are adopting similar stances. And they're doing so for the same risk-fearing reasons. They want to grow their money but they don't want to place it at risk any more than we do.
This kind of uncertainty can be paralyzing, making it tough to decide where – or even if – we should deploy our investments.
Fortunately, we've been here before. And what we learned will allow us to profit no matter what the financial future holds for the U.S. marketplace.