Archives for July 2010

July 2010 - Money Morning - Only the News You Can Profit From

The CIVETS: Windfall Wealth From the 'New' BRIC Economies

Forget the BRICs. There's a brand new set of emerging market economies set to make investors windfall profits… but only if you know which ones to pick – and which to avoid completely! Read on to find out which new emerging market is worthy of your investing dollar…

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Special Report: New CEO Dudley Isn't the Long-Term Answer at BP, Expert Says

When readers ask me how Dr. Kent Moors could be up nearly 60% on a portfolio that he only launched July 6, I don't give them an answer.

I tell them a story.

When the BP PLC (NYSE ADR: BP) CEO-replacement saga began to unfold earlier this week, and the Money Morning news team was working the story, I contacted Dr. Moors to ask him if he knew anything about anointed successor Robert Dudley.

With that response, Dr. Moors underscored, yet again, why he's the ultimate energy-sector insider: He doesn't just know about Dudley – he actually knows him.

In fact, Dr. Moors went on to give me an analysis of the new CEO's managerial style, including Dudley's strengths and weaknesses. Dr. Moors even went as far as highlighting the elements of Dudley's managerial proclivities – and the elements of BP's strategy – that pose the biggest risks to the Big Oil company's turnaround.

For the full story on BP’s new CEO, please read on…

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Money Morning Mailbag: U.S. Drilling Ban Could Be Permanent for BP

The U.S. government's deepwater oil drilling ban, which resulted from the BP PLC (NYSE ADR: BP) Gulf oil spill, prompted some readers to question how far U.S. authority reaches regarding offshore business, and what kind of international repercussions could result.

Q: Where do international waters begin for the Gulf of Mexico? I read somewhere if we didn't drill for oil in the Gulf that China was going to do so. When you are talking international business, does U.S. President Barack Obama have the authority to shut it all down?

John M.

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Fighting to Feed the Dragon: McDonald's Vs. Yum!

Speed kills. And in the fast food industry, it's imperative.

The speed of service and the ability to quickly adapt menus, packaging and advertising are what makes a market leader. And right now, the speed at which fast food companies make the transition into foreign markets, particularly China, is what matters most of all.

The industry's two biggest players, McDonald's Corp. (NYSE: MCD) and Yum! Brands Inc. (NYSE: YUM) – the parent company of KFC, Pizza Hut, and Taco Bell – know that.

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The End of the Cap-and-Trade Masquerade Opens New Doors For Investors

When U.S. Sen. Harry Reid, D-NV, last week disclosed that the so-called "cap-and-trade' energy proposal that passed the U.S. House of Representatives last year would not be taken up by the Senate, climate-bill proponents were deeply dismayed.

Indeed, Financial Times columnist Clive Crook even said that the United States "has let the world down on climate."

But here's the irony. With the Senate's refusal, we may just have moved a step closer to a climate change policy that will actually work. And that's good news for U.S. taxpayers. And it opens new doors for U.S. investors.

To see the sectors that will benefit from the likely direction of climate reform, please read on...

How to Pick Stocks in the 'New Normal' Economy

In today's potentially ultra-slow-growth "New Normal" economy, old stock market multiples do not apply.

In fact, investors who rely on long-held rules about Price/Earnings (P/E) ratios when they buy and sell stocks are risking a pretty big "haircut:" They may be overvaluing some of their stocks – and the stock market in general – by 17% to 20%.

Let's take a closer look…

To understand how to value stocks in the "New Normal" economy, please read on...

History Gives a Reason to Be Hopeful about U.S. Stocks

Volatility has hamstrung U.S. stocks recently, but history suggests there's a reason for hope on the horizon.

The past week and a half has been a welcome reprieve from the extreme volatility we've seen over the past few months. There have been no fewer than 19 days this year in which up or down volume has accounted for more than 90% of total volume.

The rapid up-and-down, all-or-nothing nature of the stock market has confounded even the most talented, highly paid and well informed traders. The hedge fund industry as a whole has been caught flat-footed – posting losses in each of the last two months.

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World's Largest Steelmaker Warns of Slowing Economic Recovery

Lakshmi Mittal, the chairman of ArcelorMittal (NYSE ADR: MT), the world's largest steel company, yesterday (Wednesday) issued a warning about the slowing pace of the global economic recovery and lowered his company's third-quarter forecast.

ArcelorMittal posted a 146% rise in net profits in the second quarter compared with the same period last year as demand recovered. However, the company warned third quarter results would slump by as much as 30% – hit by a seasonal dip in demand during the European summer, slower growth in China, and higher costs for iron ore.

"The improved performance in the second quarter is in line with our expectations and reflects the continued slow and progressive recovery," Mittal told The Wall Street Journal. "The challenge for the second half of the year will be to pass on the full extent of cost increases to our customers."

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GM Hopes to Lead Budding U.S. Electric Car Market with Chevrolet Volt

General Motors Corp. on Tuesday announced the price tag on its hybrid Chevrolet Volt due out this fall, hoping to blaze the trail for an up-and-coming U.S. electric car industry and entice buyers to take a greener route.

The extended-range electric Volt, running on battery power and a small engine, will be priced at $41,000 and will qualify for a $7,500 tax credit. The price is close to analysts' $40,000 estimate, but significantly higher than the $32,780 cost of its competitor, the Nissan Leaf.

GM justifies the price difference with the Volt's significantly better driving-range benefit: The Volt will run for 40 miles on battery power and then a small gasoline engine will kick in as a generator, powering the vehicle for another 300 – 400 miles.

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Defensive Investing: Beware of Municipal Bonds

Of the speculative excesses that misguided monetary policy and a prolonged recession has caused, the one that poses the most danger to investor wealth is the financial bubble in state and local municipal bonds.

Municipal bonds – usually referred to as "munis" – are very popular portfolio plays because of tax advantages that, in effect, enhance their rates of return. There's also an allure because of their local nature: Investors can invest in specific bond issues that provided the money for projects such as schools, highways, bridges, hospitals or housing that actually affects the community in which the investor lives. That makes them a very tangible investment.

But there's a problem.

State-and-local-government finances have taken a bigger beating during this economic downturn than during any other recession since World War II. Even worse, that beating came after the easy money available during this stretch encouraged those same governments to venture well beyond any reasonable limits in terms of their borrowing. They're now stuck with a bigger-than-warranted debt load – which can't be covered by the property tax stream that's been reduced by record-level housing defaults.

The bottom line: At the present time, "munis" may not be the benign – or even alluring – investment that they've been in the past. In fact, thanks to continued fallout from the worst financial crisis since the Great Depression, some munis may be more akin to bombs than bonds – ticking away and just waiting to blow up your portfolio.

To understand why "muni" bonds may be dangerous, please read on...