Archives for June 2010

June 2010 - Page 4 of 11 - Money Morning - Only the News You Can Profit From

Why China's Foxconn Will Hurt the Global Economy More Than the BP Oil Spill

Before this month, chances are pretty good that you'd never even heard of Taiwan's Foxconn International Holdings (PINK ADR: FXCNY). And yet, Foxconn is one of the world's most important manufacturers.

Given that the formerly anonymous giant is now at the forefront of the zooming escalation in labor costs that's currently taking place in Mainland China – and given the enormous implications of the inflationary pressures that will result – chances are excellent that Foxconn will have a bigger effect on the world economy this year than even BP PLC (NYSE ADR: BP).

If that weren't enough, China's decision to let the yuan appreciate against the U.S. dollar will actually magnify this impact: If the Chinese currency strengthens, then the yuan-denominated wage increases will have an even-more-inflationary effect on the cost of China-made goods selling at your local Wal-Mart (NYSE: WMT).

To understand the "Foxconn Effect" – and to see how to position your investments – please read on…

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Louisiana Supports Companies' Fight Against Oil Drilling Ban to Save Local Economy

The Louisiana government has asked a U.S. judge to lift a six-month deepwater oil drilling ban to prevent the demolishment of local livelihood and the collapse of the oil industry.

Louisiana Gov. Bobby Jindal and state Attorney General Buddy Caldwell filed papers Sunday in a New Orleans federal court petitioning for the moratorium to be lifted in 30 days. The papers noted that lifting the ban would avoid "turning an environmental disaster into an economic catastrophe."

"Even after the catastrophic events of Sept. 11, the government only shut down the airlines for three days," Caldwell said.

The U.S. government requested to delay a hearing until July, but U.S. District Judge Martin Feldman ordered regulators and offshore companies to appear in court yesterday (Monday).

"The issues presented are of national significance and to delay resolution would be irresponsible," Feldman wrote on the order denying the government's request.

Feldman heard opening statements Monday and promised to rule on the ban by noon on Wednesday – though he could rule as early as today (Tuesday).

"The court has to decide if there is a rational basis for the choice the government has made," Judge Martin Feldman said during the case's opening statements.

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China's Plan For Yuan Appreciation Likely to Boost Inflation in U.S. & Lift Chinese Consumer Stocks

China's plan to let the yuan appreciate against the U.S. dollar is likely to hit U.S. shoppers in the pocketbook, while also making the stocks of companies with goods aimed at Chinese consumers more attractive.
But because of wage pressures, the effects of China's move to introduce more flexibility to its currency policy won't fundamentally change its inflation problems, according to Money Morning Contributing Editor Martin Hutchinson.

"With workers in China demanding huge wage increases to keep up with prices, there's really no economic case for letting the yuan appreciate," Hutchinson said in an interview yesterday (Monday).
But a rising yuan and wage increases in China may gradually spell bad news for U.S. consumers.

"Eventually, the guy shopping at WalMart Stores Inc. (NYSE: WMT) won't like it when he sees prices go up 15% or more…prices of Chinese goods – everything from video games to sweatshirts – are likely to rise in dollar terms," Hutchinson said.

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After a Strong First Half, Is the U.S. Dollar Headed for a Reversal?

In spite of an assortment of economic uncertainties at home, the U.S. dollar has been the star of the currency world for most of 2010. Spooked by persistent and seemingly insurmountable debt problems in the European Union – and the specter of unsustainable growth and potential inflation in China – investors fled European and Asian currencies for the perceived relative safe haven of the dollar.

But the U.S. dollar may have topped out.

Let me explain …

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Four Factors to Consider Before Determining Your Long-Term View on U.S. Stocks

Stocks rose worldwide over the past week — ranging from +2% in U.S. big caps to +6% in gold — as investors swelled with sudden courage in response to positive reports on Chinese economy and glimmers of hope that European governments can get their financial houses in order.  

The week's results erased four weeks of losses, including the despairing session that ensued on June 7 after a disappointing report on U.S. employment.  Meanwhile, the result of the past 35 trading days, or seven calendar weeks, are still largely negative, ranging from a loss of 5.5% for U.S. stocks and -8.5% for Europe. Only gold stocks have eluded the smoke monster, rising 7% in the span.

The variation in one-week and one-month results illustrate perfectly how investors are showing that they are hopeful but unconvinced that recent strength in gross domestic product (GDP) growth and corporate income advances are sustainable, and therefore won't buy stocks heavily until prices are so cheap that they discount worst-case scenarios. In other words, they want a high risk premium before buying — sort of like demanding a 72-month warranty before buying an expensive car.

To read about the four factors you should consider before investing click here.

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Money Morning Mid-Year Forecast: The Dollar Headed for Some Change 

In spite of an assortment of economic uncertainties at home, the U.S. dollar has been the star of the currency world for most of 2010. Spooked by persistent and seemingly insurmountable debt problems east of the Atlantic and the specter of unsustainable growth and potential inflation on the Pacific side of the globe, savers and investors fled European and Asian currencies for the relative safe haven of the dollar.

As Keith Fitz-Gerald, Money Morning's Chief Investment Strategist, pointed out last week (June 10), from January through May, the dollar gained ground against all but two of the world's leading currencies – China's yuan and the Japanese yen – and it retained parity with them. The greenback appreciated by as much as 16% versus the struggling euro, which last week (June 8) briefly dipped to a four-year low below $1.20, and 13% against the British pound.

The InterContinental Exchange's (ICE) U.S. Dollar Index (USDX), which measures the dollar's value versus a trade-weighted basket of six leading foreign currencies, climbed from a low of 76.732 on Jan. 14, 2010, to an intra-day high of 88.586 on June 8.

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Buy, Sell or Hold: Cummins Inc. (NYSE: CMI) is a High-Powered Engine Maker That's Revving Up Its Revenue

Nestled in the heartland of America, Cummins Inc. (NYSE: CMI) is an icon of American manufacturing done right.  And now that it's being powered by new technology, emerging markets growth and new regulatory standards, the company is ready to book serious profits.

Founded almost 100 years ago and publicly traded since 1957, Cummins dominates the diesel truck engine market in the United States and is strongly increasing its international presence.

The high quality, efficiency and durability of the engines Cummins designs and builds are the foundation of the company's leadership. And its strong and disciplined cost controls, inventory, and receivable management are vastly superior to that of its competition.

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Oil Prices Set to Soar in the Second-Half of 2010

Oil prices hit a wall this spring. But don't be fooled. The spring retreat simply set the stage for a second-half rally. Despite lingering fears over the global economy, demand for oil isn't slowing down at all. In fact, it's rising… and oil prices will rise right along with it. Read this report to find out why oil is poised to take off in the next six months… and how you can profit.

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