Archives for May 2010

May 2010 - Page 2 of 9 - Money Morning - Only the News You Can Profit From

Sell in May - But Don't Go Away From the U.S. Stock Market

If you embrace the old Wall Street adage "Sell in May and Go Away" as an investing strategy, you could end up with a bad case of the U.S. stock market summer blues, a new research study has found.

That concept is based on the notion that the May-to-November span provides a weak environment for U.S. stock market investors. According to Jon Markman, a best-selling author and contributing writer to Money Morning, that viewpoint started gaining traction in late April. And why not? The major U.S. indexes were already up a lot more than anyone expected, making that a seemingly convenient point to take profits.

Those who didn't follow that strategy probably now wish that they had.

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Borrowing Costs on the Rise as Banks Cope with Contagion Fears

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

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

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

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We Want to Hear From You: How Are You Responding to Market Volatility?

The Dow Jones Industrial Average dipped below 10,000 Tuesday for the first time since February as a month of market volatility and price declines continued.

The zooming rebound in U.S. stock prices from their March 9, 2009 bottom – the strongest rebound since the Great Depression – has been stymied by concerns over the Eurozone debt contagion, financial reform, the market flash crash and new political sparks in Korea. Data shows that the bulls are still hanging around – on the sidelines – but the bears have been calling the shots during a month that has seen stock prices fall more than 8%.

"I think it's a question of pick your poison," Dan Alpert, managing partner at Westwood Capital, told MarketWatch. "The market was poised for a very severe correction and whether it's southern Mediterranean countries or worries about German banks, you can pick your catalyst."

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

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

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

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

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

Why the Yuan Won't Be an Issue at the U.S. China Summit

The United States rolled out the big guns for the second Strategic and Economic Dialogue (S&ED) with China since the Obama administration took office. The two-day talks began yesterday (Monday) with such luminaries as U.S. Treasury Secretary Timothy F. Geithner, Secretary of State Hillary Clinton, and Federal Reserve Chairman Ben S. Bernanke taking part in the Beijing summit.

The last Strategic and Economic Dialogue between the world's largest and third-largest economies was riddled with bickering over currencies and the placing of blame for the global recession. However, officials on both sides of the Pacific this time around have taken a more tempered approach in the hopes that more productive talks will emerge.

U.S. officials will undoubtedly make addressing the value of the yuan a priority, but if the meeting's cordial opening is any indication, they will do so humbly. That tactic would be well advised, considering the issue of currency valuation has been a major point of consternation between East and West.

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Investors See Caution Flags as Spain Bails Out Struggling Savings Banks

Spain's central bank has decided to bail out regional savings bank CajaSur with $621.75 million (500 million euros), causing investors to worry that Spain's savings banks are in more trouble than the country can handle.

Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.

Now savings banks – often criticized for their lack of accountability – are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.

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Gulf Oil Spill Could Cost BP More Than Half its Net Income

As its engineers struggle to plug an underwater oil leak in the Gulf of Mexico, the total cost of the spill to BP PLC (NYSE ADR: BP) continues to mount, and might even threaten the financial stability of the company.

The total cost to BP to date has reached about $760 million, or $22 million a day, compared with an initial estimate of $6 million a day last month, the London- based oil company said. BP's net income in 2009 was $16.6 billion, or $45.4 million a day, in that time, according to separate data compiled by Bloomberg.

"The longer it takes, more costs are going to be incurred," Greg Smith, managing director of research firm Fat Prophets in London, told Bloomberg in a telephone interview yesterday (Monday).

The final bill, which may not be known for more than six months and will heavily depend on the outcome of pending litigation, may be as much as $10 billion, he said.

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Money Morning Investment Report Update: German Economy Shows Surprising Strength

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

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Will Extreme Volatility Actually Stabilize the Markets?

Stocks tumbled across the board last week like a pair of dice rumbling around a craps table, rocked by extreme volatility.  Just when it looked like they were rolling up the unnerving loss of the critical 200-day average on Thursday, bulls' returned to the fray and pushed the major indexes just barely back into safe territory.

But is the market really safe? It's currently at the bottom of its multi-week range, so this is the time to get bullish again if you think the range will remain in force. The S&P 500 Index actually touched its February 2010 low on Friday before rebounding, which will give all the range-traders a green light.

Click Here to Find Out What Last Week's Extreme Volatility Means for the Markets...

Buy, Sell or Hold: Deere and Co. Thrives on Strong Global Trends and Flawless Execution

Deere & Co. (NYSE: DE) beat earnings estimates by a mile last week. It reported $1.58 earnings per share, beating most analysts' estimates by 50 cents! In addition, the company raised its earnings outlook.

In typical fashion, Deere continues to be conservative in guidance. And as I will explain below, the agricultural cycle this year is poised for a large upside surprise, as it is at the very beginning of a prolonged secular pickup.

The bottom line of Deere's performance last quarter is a prelude of things to come. Agriculture is zooming, and thus machinery in that sector is – and will continue – to command premium pricing. At the same time, global inflation is picking up slightly, but is still very subdued, which will help margins some more.

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