Archives for April 2010

April 2010 - Page 2 of 10 - Money Morning - Only the News You Can Profit From

Question of the Week: Readers Respond to Money Morning's Financial Reform Query

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A vote on financial reform Monday failed to produce the 60 votes needed to move ahead, as Republicans said they felt the bill was rushed and not ready to take the floor.

The Senate's second attempt at bringing the reform bill to debate occurred yesterday (Tuesday) on the same day as Goldman Sachs Group, Inc (NYSE: GS) executives – including vice president Fabrice Tourre, the only individual named in the suit – faced the Senate Permanent Subcommittee on Investigations in Washington. Tourre denied the Securities and Exchange Commission's charges and said the product in question "was not designed to fail."

Goldman was the recipient of $10 billion in bailout funds – one of the most contested topics halting financial reform progress.

The uproar over taxpayer-funded financial institution aid along with the looming financial regulation overhaul prompted our fifth installment of Money Morning "Question of the Week:" How do you feel about the status of financial reform? Has it gone far enough – will too much regulation crimp our free market system? Or does it need to go much further – and can the powers-that-be create an effective reform proposal?

Here is a collection of reader responses showing concern for the future, questions over government spending, and ideas for improvement.

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We Want to Hear From You: Do You Think Booming Corporate Profits Are the Sign of a Strengthening U.S. Economy?

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The past few weeks have pulled in one earnings report after another for 2010's first quarter, allowing a better look at the status of corporate profits. Most companies hoped for marked improvements after restructuring and cutting costs in the wake of the financial meltdown that gave balance sheets a beating. And they weren't disappointed: JPMorgan […]

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The Only U.S. Automaker on Track, Ford Posts $2.1 Billion First-Quarter Earnings

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Ford Motor Co. (NYSE: F) beat Wall Street estimates by posting first-quarter earnings of $2.1 billion and said it will deliver a "solid profit" for all of 2010, a year earlier than Chief Executive Officer Alan Mulally had projected previously.

Reaping the benefits from a recovering auto market and higher prices for cars and trucks, Ford chalked up its fourth consecutive quarter of net income, the longest streak since 2005.

Ford's U.S. deliveries surged by 37%, more than twice the industry wide average through March, boosting domestic market share at the fastest pace in 33 years. Ford was the only U.S. automaker to avoid bankruptcy in 2009.

First-quarter revenue rose 15% to $28.1 billion, and net income after one-time charges was 50 cents a share, handily beating the projected adjusted earnings of 31 cents a share compiled by Bloomberg . The Dearborn, Michigan based company posted a net loss of $1.43 billion, or 60 cents, a year earlier.

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Eyjafjallajokull's Economic Impact Goes Beyond Flight Delays

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I've been looking for an excuse to get the name Eyjafjallajokull into an article, and now I finally have something special to say about the mighty Icelandic volcano that has wreaked havoc with European air traffic.

It's mostly science and history, which appeals to my finely honed annotation instinct, but there is most definitely an investment point, which you will have to wait to the end to see.

First, I learned today from some hedge-fund sources that scientists believe the real threat from the relatively small Eyjafjallajokull volcano is that it could trigger an eruption in its much larger neighbor, which is called Katla. I was told there's a better than even chance that this would happen.

This would be troublesome. University of Iceland geologist Andy Hooper told Reuters that an eruption of Katla would make the ash cloud from Eyjafjallajokull look trivial. Hooper further declared that increased volcano action in Iceland might be inevitable if our planet continues to warm.

"At the end of the last ice age, the rate of eruption in Iceland was some 30 times higher than historic rates. This is because the reduction in the ice load reduced the pressure in the mantle, leading to decompression melting there," he said. "Since the late 19th century the ice caps in Iceland have been shrinking yet further, due to changing climate. This will lead to additional magma generation, so we should expect more frequent and more voluminous eruptions in the future."

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Greece's Action on Aid Package Fails to Quiet Threat of Debt Contagion

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A request by Greece to trigger a $60 billion rescue package has failed to quell turmoil surrounding the country's bonds – heightening concerns that the debt contagion will force the European Union (EU) to bail out the region's other heavily indebted nations.

Greece on Friday asked the International Monetary Fund (IMF) and European governments to fund the emergency aid package to help fend off default when debt payments come due next month.

But instead of stabilizing the markets, uncertainty about Germany's willingness to fund its portion of the package, along with the potential for more bailouts, raised the cost of insuring Greek debt against default to a new record.

The euro plummeted after briefly bouncing off a 12-month low of $1.32 against the dollar Friday.

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Ride Wall Street's "Great Global Commodities Grab" for Potential 10-Bagger Returns

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Virtually every investor has heard about how the emergence of China and India promise to send commodity prices skyward in the months and years to come. The promised run-up has yet to begin in earnest, but prognosticators say it's merely a matter of time and just the "right" catalyst.

Money Morning Contributing Editor Peter Krauth – a noted commodities expert and editor of the Global Resource Alert advisory service – says he's found that "just right" catalyst. He's calling it the "Great Global Commodities Grab," and says it's being engineered by some of Wall Street's biggest investment banks.

But here's the key point: Because Wall Street is essentially "gaming" the system, this commodities grab is a chance for investors to reap bigger returns than they would get with the leverage afforded through options and futures – but without the risk.

Investors have reached the point where this physical commodities grab "gets really interesting," Krauth said in an interview with Money Morning. "JPMorgan Chase & Co. (NYSE: JPM) now owns ships overseas and storage tanks in Canada, Asia and Europe [that hold] millions of barrels of oil. And it's far from being the only one. Back in December, one report stated that if all the tankers being used as offshore storage tanks were placed end to end, that string of ships would stretch 26 miles."

Added Krauth: "We're talking about oil supplies being physically taken off the market… that can't help but affect market prices. And that's just with oil – Wall Street investment banks are taking major physical stakes in such commodities as gold and other precious metals, too."

Krauth – a highly regarded market analyst and expert in metals, mining and energy stocks – recently sat down with Money Morning Executive Editor William Patalon III to talk about how the "Great Global Commodities Grab" is going to ignite a rally in the prices of oil, gold, other precious metals and even agricultural commodities. During the question-and-answer session, Krauth also:

  • Detailed how two leading investment banks just spent more than $2 billion to buy precious-metals-storage companies.
  • Talked about how gold, throughout history, always ends up taking over for fiat (paper) currencies.
  • Explained how the aggressive price forecasts Wall Street investment banks have made for both oil and gold are certain to become self-fulfilling prophecies.
  • And described two companies – one an energy player and the other a junior miner – that he recently recommended to his advisory service, using them as illustrations to underscore his commodity-price predictions.

To understand what kinds of companies are poised to profit from the "Great Global Commodities Grab," please read on...

U.S. Treasury To Sell Citigroup Shares to Reduce the Bank's Government Reliance

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The U.S. Treasury Department today (Monday) announced it would start selling up to 1.5 billion shares of Citigroup Inc. (NYSE: C) – a big step in removing government support for bailed out banks.

The Treasury owns 7.7 billion shares of Citigroup common stock, giving it 27% ownership of the bank. The sale will leave the government holding just under 22% of shares outstanding, with the rest of the shares being sold later this year.

The move brings the government closer to completely exiting the controversial and publicly criticized $700 billion Troubled Asset Relief Program (TARP).

"We're putting TARP out of its misery," Treasury Secretary Timothy F. Geithner said in an interview with CNN.

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Buy, Sell or Hold: Bank of America Corp. Could Offer Investors a "Double Play"

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On October 6, 2008, I recommended readers buy shares of Bank of America Corp. (NYSE: BAC). 

Bank of America at the time had just agreed to acquire Merrill Lynch and Co. The strategy I recommended called for taking a prudent position in the bank by buying increasing amounts of shares on any market pullbacks.

The strategy appeared to go as planned at the very beginning as the shares dropped in value as predicted, improving the average buying price.  But Bank of America subsequently revealed large amounts of troubled assets that had not been evident in prior releases.  The company's president and chairman lost his job as a result, and the stock continued to drop.  Today, after a very strong recovery BofA stock is still trading some 30% below our initial recommended entry price.  So, depending on how one executed the entry strategy, one would be some 10-15% down even today.

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A V-Shaped Recovery? Don't Bet On It

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Corporate profits appear to have returned in full, manufacturing is picking up around the world, commodities prices have rallied and the Standard & Poor's 500 Index is up about 60% since last March.

That makes a pretty compelling case for what some analysts are calling a "V-shaped" recovery. But even with all the momentum the economic recovery has accrued, that kind of talk may be a bit premature.

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Stocks - Led by Apple Inc. - On a Hot Bull Run No Investor Should Miss

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Stocks flipped out late Friday morning following an announcement of Greece's decision to seek help from the European Union and International Monetary Fund. But by the end of the session, cooler heads began to prevail and the major indexes ended well into the black, continuing the bull run.

The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq all closed about 1.1% lower for the session, but the week's results were a lot better: flat for the Dow and S&P 500, up 0.75% for the S&P Midcap 400 and up 1.7% for the S&P Smallcap 600. 

Overseas large-caps ended the week flat, though China sank another 1%. Our own top choice overseas fared better, as Market Vectors Indonesia Index (NYSE: IDX) closed the week up 4%.  Another star off the week overseas was iShares MSCI Turkey Index Fund (NYSE: TUR), up 3%.

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