Archives for June 2010

June 2010 - Page 7 of 11 - Money Morning - Only the News You Can Profit From

Stock Market Stuck as Investors Demand Risk Premium for Buying

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Stocks rose worldwide over the past week by 2% to 5%, swelling with sudden courage after positive economic reports from China and shaking off some worsening news in the United States about retail sales and jobs.

Yet results in the past month are still heavily negative, ranging from -5.5% for U.S. stocks and -8.5% for Europe. China has suddenly become the most buoyant region, up 1.5% in the past month.

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 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. They want a high risk premium, in other words, before buying — sort of like demanding a 72-month warranty before buying an expensive car.

Click Here to Find Out How the Risk Premium is Holding Back Stocks...

Defensive Investing: Defeat Market Volatility With an Options-Straddle Strategy

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It's often said the stock market can deal with anything but uncertainty, but uncertainty is about all the U.S. stock market has to feed on these days – and that has translated into raging volatility and huge swings in both the major market indexes and the prices of many individual stocks.

Day-to-day swings of 250 or 300 points are becoming almost commonplace – and the direction those swings will take is an ever-growing mystery.

Just look at the Dow Jones Industrial Average as a case in point. Since late February, the Dow has climbed from 10,325.26 to an intraday high of 11,258.01 (on April 26), plummeted to an intraday low of 9,869.62 during the May 6 "flash crash," rallied back to 10,896.91 on May 12, dived to just 9,774.48 during the day on May 25, closed below 10,000 for several days in early June, and vaulted back up above 10,170 at the market's close on Thursday.

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China's Inflation Higher Than Target Rate, Could Be a Sign It's Time to Tame Rapid Growth

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China's inflation rate rose 3.1% in May from a year earlier, exceeding the government's 3% target rate for 2010 and stirring speculation on whether or not Beijing will attempt to slow the nation's rapid growth pace.

The consumer price index climb was the fastest in 19 months and was higher than the 2.8% rate in April. The National Bureau of Statistics also posted increases in industrial production, retail sales, and property prices, which contributed to analysts wondering whether or not China will make moves to tame growth to avoid higher inflation.

"Officials seem confident that price pressures will ease later this year, attributing much of the recent positive trend to base effects, but there are plenty of reasons to think that inflation can keep moving higher," Royal Bank of Canada (NYSE: RY) economist Brian Jackson told The Wall Street Journal.

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Brit Officials Defend BP on Gulf Oil Spill As it Weighs Dividend Cut

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British government officials on Friday took shots at the Obama administration for the barrage of criticism it is leveling at BP PLC (NYSE ADR: BP) over the Gulf oil spill, sparking a rally in its beaten-down shares, even as it weighs cutting or deferring its dividend.

In an apparent swipe at the U.S. President's comments about the British company, Deputy Prime Minister Nick Clegg insisted finger-pointing is unhelpful, "I don't, frankly, think we will reach a solution to stopping release of oil into the ocean any quicker by allowing this to spiral into a tit for tat political diplomatic spat," Clegg told the Daily Mail.

Britain's Chancellor of the Exchequer George Osborne also backed BP with a statement after speaking to BP chief executive Tony Hayward by telephone. "We are all concerned about the human and environmental impact and as the prime minister has said we understand the concerns of the U.S. administration," Osborne told Reuters.

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Unexpected Drop in Retail Sales a Sign of Trouble For Economic Recovery

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Sales at U.S. retailers unexpectedly dropped in May for the first time since September, the Commerce Department said Friday, raising worries that the economy is struggling to recover from the worst financial meltdown since the Great Depression.

Americans slashed spending on everything from cars to clothing to building materials, as retail sales plunged 1.2% last month, following a 0.6% April gain that was larger than previously estimated.  It was the largest decline in eight months.

Retail sales were projected to increase 0.2%, according to the median estimate of 76 economists in a Bloomberg News survey.

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Money Morning Mailbag: BP's Post-Oil-Spill Reputation Leads Readers to Consider Socially Responsible Investing

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BP PLC (NYSE ADR: BP) stock plunged 16% to hit a 14-year low in New York trading Wednesday as some investors panicked over growing liabilities and others worried about socially responsible investing.  

In London trading Thursday BP fell 6.7% to 365.50 pence, its lowest closing price since January 2003 and 44% lower than the day the Deepwater Horizon rig exploded.

"The share price is political and in no way fundamental," said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. "The U.S. needs to realize it needs BP to survive to clean up the mess. Scapegoating has gone too far."

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How to Cure Western Bankers of "Bad-Banker" Behavior

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Masayuki Oku, the new head of the Japan Bankers Association, recently said that Western bankers did not understand self-control the way Asian bankers did, which was a major cause of the 2008 crash and the Great Recession.

I think he has a point.

Oku's main purpose in denouncing Western bankers for their lack of self-control was to object to the tougher proposed capital rules from the Basel Committee, the global body that sets banking regulations.

To understand how to fix the Western banking sector, please read on...

Money Morning Mid-Year Forecast: Oil Prices Down but Not Out

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While it looked like they were headed towards the $90 a barrel level, oil prices hit a wall in the spring. Rattled investors who worried about the direction of the global economy shunned black gold in favor of real gold as a means of preserving capital.

But don't be fooled. The spring retreat simply set the stage for a second-half rally.

After starting the year at about $81 a barrel, prices climbed as high as $86 a barrel before plunging to $64 on May 25.

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AIG Bailout Second-Guessed by Government Watchdog

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A bipartisan Congressional watchdog panel reviewing the government's bailout of American International Group Inc. (NYSE: AIG) has raised doubts about whether U.S. taxpayers "will ever be repaid in full," and concluded that the U.S. Federal Reserve didn't act aggressively enough during the 2008 rescue.

In a lengthy report, the Congressional Oversight Panel also said the bailout had a "poisonous" effect on the U.S. financial system because it demonstrated the government would protect Wall Street firms from their own risk-taking.

The Federal Reserve could have acted earlier to find a privately funded solution for New York-based AIG before deciding on a rescue that transformed banks' financial bets into fully guaranteed government obligations, the panel said.

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Hot Stocks: Wal-Mart Stores Inc. (NYSE WMT) Proves that the Best Defense is an Active Offense

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Wal-Mart Stores Inc. (NYSE WMT) has the reputation of being a defensive stock, but lately the company has gone on the offensive. For that reason, it's a good candidate to break out of its recent slump and head higher.

Wal-Mart has been among the stocks to lose ground in the recent market correction. But with more than $400 billion in annual sales, the world's largest retailer is still one of the soundest plays an investor can make – particularly in times of uncertainty.

In the year and a half stretching from January 2008 to June 2009, Wal-Mart stock managed a 3.45% gain despite being interrupted by one of the worst stock market plunges in history.

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