Archives for July 2010

July 2010 - Page 5 of 11 - Money Morning - Only the News You Can Profit From

"A New Age in the History of Energy" as China Tops the U.S. in Consumption

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China, powered by years of surging economic growth, is now the world's largest energy consumer, bumping the United States from the top spot for the first time in more than a century, according to new data from the International Energy Agency (IEA).

China consumed 2.25 billion tons of oil equivalent last year, or about 4% more than the United States, which burned through 2.17 billion tons of oil equivalent. China's total energy consumption was just half that of the United States a decade ago.

"The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy," IEA chief economist Fatih Birol told The Wall Street Journal. The United States had been the world's biggest overall energy consumer since the early 1900s, he said.

China was expected to become the biggest energy consumer in 2015, but the economic meltdown and green energy programs in the United States accelerated the transition, Birol said.

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Farnborough Air Show Highlights Robust Recovery in Aviation Industry

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The Boeing Co. (NYSE: BA) and its European rival Airbus SAS, got off to a confident start at the Farnborough Air Show yesterday (Monday), receiving billions in orders that highlight a commercial aviation industry on the rebound.

The aerospace industry's biggest annual air show is being held this week outside of London, where it holds court every other year, alternating hosting duties with Paris. The show is expected to be a profitable one for Boeing and Airbus as leasing companies and airlines place orders to expand and upgrade their fleet.

The industry giants were upbeat entering the show, expecting orders to showcase a healthy post-crisis aircraft market.

"You'll be surprised by some of the announcements we'll make," Airbus Chief Operating Officer John Leahy said at a press conference in London on July 17. "The world economy is turning around. I would have told you maybe four, five months ago that maybe we wouldn't have announced many orders, if any, at the air show. Now we're going to announce quite a number."

Since the show kicked off, Emirates Airline of Dubai – the largest major airline in the Middle East – ordered 30 of Boeing's 777 jets in a deal worth nearly $7 billion.

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Buy, Sell or Hold: Siemens AG (NYSE: SI) Will Benefit from Germany's Strength and the Euro's Weakness

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The euro has suffered from the Greek debt crisis, and Spain and Portugal also are under closer scrutiny.  But there are still significant opportunities for profit in the Eurozone.

Germany, for example, has the lowest debt to gross domestic product (GDP) ratio of all the major advanced industrial economies.  And right now, it is taking measures to bring its budget deficit quickly into line.  Despite a very rigid labor system, Germany is the second-largest exporter in the world, right after China. And the recent euro sell-off has given an extra "subsidy" of some 25% to German exporters.

This "subsidy" is likely to last for quite a while, since the structural situations of weaker European Union (EU) member countries will take time to resolve.  It goes way beyond just having European banks pass some stress tests.  So we are going to take advantage of a prudently managed exporting powerhouse with Siemens AG (NYSE ADR: SI).

Siemens is a conservatively run firm.  It has very low levels of debt, which is rated in the middle of the investment grade scale (A).  And despite the weakness in Europe, it has managed to increase its bottom line by 50% from last year's levels. 

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Why Upbeat Earnings Reports Mean Caution to Investors

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While earnings reports continue to pour out each day, investors should be careful before being excitedly swayed by strong financials – there is much more of the big picture to consider.

Stocks failed to get traction in the middle of last week after Alcoa (NYSE: AA) and Intel (Nasdaq: INTC) earnings reports underwhelmed investors, and Friday they spun off the road. The culprit: Fears that recent earnings gains represented a peak, and that weak readings on the economy were more representative of current conditions.

Retail sales disappointed and the Federal Reserve cut its 2010 growth forecast. Even word that Singapore grew at a record pace of 19.3% in the second quarter couldn't lift the air of despondency on Wall Street. 

To read why there's a cloud over Wall Street, click here.

How to Profit From a Slowing U.S. Economy In the Second Half of 2010

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As much as the architects of the U.S. stimulus might otherwise wish, it's becoming increasingly apparent that the U.S. economy won't be hot-rodding its way into a higher gear in the year's second half.

At best, the U.S. economy will chug along in low gear – managing only minimal overall growth, while bouncing over economic speed bumps that exist in more than a few key sectors. At worst, the engine of economic recovery will sputter, or stall completely – leaving Americans stranded alongside the fiscal roadside, or to roll backward into a double-dip recession.

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$13 Trillion in Obligations Show Shadow Banks Still Threat to Financial System

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A report issued by the Federal Reserve Bank of New York shows that so-called "shadow banks" still hold more obligations than regular banks, representing a continuing threat to the financial system.

Three years after the beginning of the financial crisis, the shadow banking system had about $16 trillion of obligations in the first quarter, compared with $13 trillion for banks, the report said. The gap has narrowed from 2008, when obligations were $20 trillion and $11 trillion, respectively.

Throughout the early part of the decade, shadow banks grew in importance as they acted as intermediaries between investors and borrowers.   Familiar examples of shadow institutions include Bear Stearns and Lehman Brothers, which were swallowed by the financial crisis, as well as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

While this system became a huge and vital source of money to fuel the housing market and the rest of the U.S. economy, the subprime mortgage crisis and ensuing credit crunch exposed a major flaw.

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The Baltic Dry Index is Shouting "Danger, Will Robinson!" But Are Investors Listening?

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Back in May 2008, when global investors still expected economic growth to continue, a thinly followed index began to broadcast a "red-alert" warning to those few who were watching.

The index proceeded to drop by more than 90% in the next six months.

Had you been watching – and heeded its warning – this index would have saved you from the fallout of the biggest financial crisis since the Great Depression.

And here's the thing. This index is updated five days a week and is readily available to anyone who wants to track it.

The index in question is called the "Baltic Dry Index," or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days.

Is this another economic red alert, or merely a statistical red herring, like so many of the other economic reports that have appeared during the often-contradictory, whipsaw markets we've seen of late?

Let's take a closer look…

For advice on how to protectively position yourself, please read on...

Money Morning Mailbag: Jaded Investors Cast Wary Eye On Scope of Bank Stress Tests

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The results of Europe's bank stress tests are due July 23. But the question remains whether the tests will shed enough light on the banking sector to restore investor confidence.

"All these stress tests mean that we are peeling away layers of the onions, but chances are we are not going to get the full clarity that we as investors deserve," Neil Dwane, chief investment officer for Europe at equities specialist firm RCM, told The New York Times.

Readers who are already on guard from Wall Street manipulation and stalled financial reform have pulled back from volatile markets and are skeptical about the effectiveness of bank stress tests:

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State Budget Crises Threaten U.S. Economic Recovery

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Across the country state budget crises are threatening to undermine the U.S. economic recovery.

Some 48 states are emerging from a round of painful budget cuts for their 2010 fiscal budgets, and at least 46 states face shortfalls for the upcoming 2011 fiscal year, which in most states began July 1.

The recession has caused the steepest decline in state tax receipts on record – and states will continue to struggle to find the revenue needed to support critical public services for a number of years as a result.

Since virtually all states are required to balance their operating budgets each year they cannot maintain services during an economic downturn by running a deficit, as the federal government does.

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