Archives for June 2010

June 2010 - Page 11 of 11 - Money Morning - Only the News You Can Profit From

Question of the Week: Readers Respond to Money Morning's Market Volatility Query

The Dow Jones Industrial Average last week dipped below 10,000 for the first time since February as a month of market volatility and price declines continued. Analysts predicted volatility to continue into June as government exit strategies begin and liquidity dwindles.

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

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

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The 50-40-10 Investment Strategy Pays Off in Profits, Protection & Potential

What's more important: Having an investment strategy that performs strongly when the overall market is up, or having an investment strategy that guards against downside risk when the overall market is trending down, while keeping you in the hunt for inflation-beating, long-term profits?

Before you answer, consider the following:

  • If you invested $1,000 in the Standard & Poor's 500 Index in 1950, it would have grown to $613,013 by December 2007.
  • If you had tried to "time" the market and missed the 30 best months in that 57-year period, the value of your initial $1,000 investment would have risen to just $35,404 – a difference of $577,609.
  • But if you tried to time the market and missed the 30 worst months in that time, your $1,000 would have grown to $9,509,094!

That's right – more than $9.5 million! (Obviously the study is a little dated given recent events but the net effect isn't all that different)

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We Want to Hear From You: How Do You Feel About the U.S. Housing Market?

Housing market reports released last week showed that prices and sales are up from a year ago. The Standard & Poor's Case-Shiller Home Price Index showed a 2.3% increase in prices for March on a year-over-year basis, and the National Association of Realtors said sales of previously owned homes rose 7.6% from March to April – a five-month high – and were up 22.8% from April 2009.

The median existing single-family home price was $173,400 in April, up 4.5% from a year ago.

Government-incentive programs offering tax credits to buyers have helped bolster the U.S. housing market in recent months. First time homebuyers were eligible for an $8,000 tax credit if they signed a contract by April 30.

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Canada Leads Developed Nations in Emerging From the Great Recession

The Bank of Canada (BOC) today (Tuesday) raised its key interest rate, becoming the first Group of Seven (G7) central bank to raise rates since the global recession started in 2007.

Indeed, Canada with its rich cache of commodities is ahead of most other developed economies still struggling to emerge from the economic downturn. In fact, it is one of the "winners" in the "commodities new world order" recently outlined by Money Morning Contributing Editor Martin Hutchinson.

"The principal winners among the world's 'rich' economies are Canada and Australia – each of them well-managed, financially wealthy countries with abundant commodity resources," said Hutchinson. "Australia has particular strategic importance as supplier of iron ore and coal to China, while Canada is even more crucial to U.S. oil security through the Athabasca tar sands.

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With Economic Turmoil and Inflation on the Horizon, Higher Gold Prices Lie Ahead

The gold bull is unstoppable.

Gold prices are up fourfold since 2001 and hit a new record high near $1,250 an ounce on May 14. But they're still nowhere close to finished.

In fact, another four-fold increase could be in the cards.

"It sounds like a gold bug's dream," Money Morning Contributing Editor, Martin O. Hutchinson said in a May 13 Reuters BreakingViews column. "But looking back to the last inflation-adjusted peak price in 1980, it's far from impossible that the gold price could soon go above $5,000."

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

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

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

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

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

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

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

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Buy Sell or Hold: DryShips Inc. (Nasdaq: DRYS) is a Stock that Offers Major Upside on the Global Commodity Recovery

High risk translates into high returns when you hit it right. But that same high risk translates into horrible returns when you miss. This week's "Buy, Sell or Hold" stock – DryShips Inc. (Nasdaq: DRYS) – is a perfect case in point.

If you want to see the dismal picture of what can go wrong on a stock when you miss, consider how DryShips' shares have performed since the company first listed its shares five years ago.

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