Archives for August 2010

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

Gold Will Shine No Matter What the U.S. Economy Does

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More analysts and investors are increasing their bets on gold with some forecasters saying the rally in the yellow metal will continue no matter what happens with the U.S. economy.

"Either a swift economic recovery or further dismal economic performance should bring new buyers into the market," Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who expects gold to rise as high as $1,400 next year, told Bloomberg News. "A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven."

Gold will continue its longest rally in at least nine decades and may rise as high as $1,500 next year, about 21% higher than current levels.

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We Want to Hear From You: Should the U.S. Government Offer More Incentives to Help the Housing Market?

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Experts fear that the already-battered U.S. housing market is getting ready to stall again, leaving the Obama administration to decide what – if anything – it should do next.

Standard & Poor's Case-Shiller Home Price Indices yesterday (Tuesday) reported that home prices rose 3.6% in the second quarter from a year earlier – but the boost came from the homebuyer tax credit that expired in April. And that doesn't bode well for the housing market's near-term outlook.

"The numbers were inflated by the homebuyer tax credit," David Sloan, a senior economist at 4Cast Inc. in New York, told Bloomberg. "The numbers will be going down in the coming months. We could see some significant declines."

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Little Hope for the Housing Market

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Just when you thought the housing market couldn't get worse, it did.

New single-family home sales slumped 12.4% in July to a record-low annual rate of 276,000 units, as homebuyers shunned their realtors in the absence of government support. The consensus expectation was for a slight up-tick to a 333,000 unit annual rate, so I suppose it's time to throw out the models. Sales over the prior three months were also revised lower by 9,000 units.

No section of the country was spared, though the West led the parade with a 25.4% plunge. On a year-over-year basis, sales were down 32.4%, the fastest decline since April 2009.

New home inventories held steady at 210,000 units, the lowest level in 42 years, according to Ned Davis Research analysts. Low-to-medium-priced homes were in the most demand. Only properties in the $150,000 – $300,000 price range rose as a share of total sales. So median prices fell to the lowest level since 2003.

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Let's Make a Deal: How the Mergers-and-Acquisitions Boom Will Hurt the U.S. Economy

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With its $39 billion hostile bid for Canada's Potash Corp. (NYSE: POT), mining giant BHP Billiton Ltd. (NYSE ADR: BHP) capped an active August in the mergers-and-acquisitions market.

With the moribund growth prospects of the U.S. economy, there would seem to be no great urgency for companies to go on an M&A spree, yet the total value of announced buyout deals for August alone has topped $175 billion.

Cynics are reaching only one conclusion: With interest rates so low and corporations so cash-rich, it seems that company management teams would rather do anything with that cash than to give it back to shareholders via stock buybacks or boosted dividends.

And those deals signal additional trouble ahead for the U.S. economy.

To understand the problems that this rampant dealmaking figures to cause, please read on...

Can the Obama Administration's New Stimulus Plan Revive the Housing Market?

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Worries about the sorry state of the U.S. economy have officials from the Obama administration digging deep into their bag of tricks to stop the skid before it slips into a double-dip recession.

Their latest move was announced Sunday when Housing and Urban Development Secretary Shaun Donovan said the White House plans in the next few weeks to set up an emergency loan program for the unemployed and a government mortgage refinancing effort.

Despite all the monetary and fiscal firepower the U.S. Federal Reserve and the Treasury have deployed, economic growth has slowed to an agonizing pace. The slowdown has hit the housing market particularly hard, as evidenced by home sales that dropped to record lows in July.

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Japan Stimulus Not Enough to Ensure Economic Recovery

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Japan yesterday (Monday) attempted to halt the surging yen by outlining stimulus measures and easing its monetary policy, but markets failed to respond.

Prime Minister Naoto Kan detailed a plan to implement a new stimulus program by the end of September, and the Bank of Japan announced after an emergency meeting that it would introduce new loan programs to encourage bank lending to consumers.

The yen has climbed more than 10% against the dollar since May, last week hitting a 15-year high of 83.60 per dollar and threatening Japan's export-driven economic recovery. Analysts were skeptical that the moves would do anything to change the currency value or stimulate the stagnant recovery, and said the measures are largely a political attempt to pacify Japanese consumers instead of actually halting the yen's rise.

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There's Reason to be Pessimistic about the U.S. Economy, but Never Panic

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Pessimism increased again among investors last week, as a slew of economic data stoked fears of a double-dip recession.

Indeed, housing and unemployment continue to weigh on the U.S. economy. But don't panic. Remember that the prospects for a full economic recovery are much better outside the United States, and that it's often good to be greedy when others are fearful.

To find out more about the precarious state of the U.S. economy read on…

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Buy, Sell or Hold: AT&T Inc. (NYSE: T) Offers a Stable Dividend With Room to Grow

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Last week we recommended BCE Inc. (NYSE: BCE) as a way to stabilize your portfolio amid market volatility. We chose a superb company that's a leader in Canada's telecommunications field and has a consistent history of generating ample cashflow. This cashflow allows the company to keep increasing its safe, high dividends and to repurchase shares.

Now, don't get me wrong – I'm not pushing you into a defensive investment cocoon. I still love the opportunity to make huge profits from the advent of new technologies that are revolutionizing both computing and communications in a way not thought possible only a few years ago. Assuming you have measured your risk appetite and incorporated many high-potential return opportunities in your portfolio, adding low-Beta, dividend-rich winners such as last week's and today's (Monday) will improve your portfolio diversification, reduce volatility and add some serious income.

Today's stable dividend winner is in the skyrocketing world of mobile computing. Powerful smartphones are giving us brand new capabilities, which greatly improve productivity. And the growing variety and availability of cloud computing services are already impressive. From mobile e-mail to mobile web-browsing and even mobile video and geo-location-based services, there's a myriad of applications now available to consumers. These services are only possible thanks to large technological improvements and investments in wireless networks.

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Can High-Speed Rail Stay On Track in the United States?

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President Barack Obama last year outlined an ambitious initiative to get high-speed rail on track in the United States. But while the government's high-speed rail initiative looked good on paper, it runs the risk of being derailed by high costs and political opposition.

"Railroads were always the pride of America, and stitched us together. Now Japan, China, all of Europe have high-speed rail systems that put ours to shame," Obama said last year announcing his plan.

While most passenger trains in the United States travel at the maximum allowable speed of 79mph, trains in Europe and Asia typically travel in excess of 125mph. In France, for example, the Train Ga Grande Vitesse (TGV) travels at an average speed of 133 mph. Another French train actually reached 357.2mph in 2007, setting a new world record.

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