Archives for August 2010

August 2010 - Page 3 of 10 - Money Morning - Only the News You Can Profit From

Question of the Week: Readers See Failures in Fed's Policies During U.S. Economic Recovery

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The U.S. Federal Reserve last week said it would take a small "easing" step – what Fed watchers described as a largely symbolic move designed to show the central bank is "concerned" with the nation's economic outlook. The central bank's policymaking Federal Open Market Committee (FOMC) said it would hold interest rates at record-low levels and announced it would reinvest maturing mortgage-backed securities back into the market so that its balance sheet does not shrink.

However, Analysts think the Fed will have to do more to help the economy move along, and are expecting more announcements of policy easing in coming weeks.

"I suspect that the Fed will, within time, purchase more longer-dated government securities" than is required by reinvesting the principal payments from agency debt and agency mortgage-backed securities in the Fed's portfolio, said veteran Wall Street economist Henry Kaufman to Reuters.

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Moribund Housing Market Threatens to Kill Economic Recovery

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The weak housing market, which has traditionally led the U.S. economy out of recent recessions, this time may put an end to the economic recovery.

Existing home sales plummeted by a record 27% to their lowest level in 15 years in July and inventories soared, the National Association of Realtors (NAR) reported yesterday (Tuesday). Home re-sales, which account for 90% of the total market, dropped to an annual rate of 3.83 million in July. And inventories rose to 12.5 months from 8.9 months in June, putting them at their highest level in more than a decade.

"Historically, July is the peak inventory month in any given year," NAR Chief Economist Lawrence Yun told The Wall Street Journal. "The question is whether this pause is a temporary pause."

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We Want to Hear From You: Are You Seeking 'Safe Haven' Shelter in the U.S. Bond Market?

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Ongoing stock market worries and a string of discouraging economic reports have imbued the U.S. bond market with "safe-haven" status. The upshot: Investors have poured record amounts of money into bond funds.

"It is hard to pick up the newspaper and see anyone optimistic," Francis Kinniry from The Vanguard Group Inc., told Bloomberg News. "The problem is there is not a lot of good news on the recovery front and that translates in people's mind to poor capital markets."

Bond funds for the past two years have seen inflows almost as high as stock funds did during the Internet bubble, according to the Investment Company Institute (ICI). From January 2008 through June 2010, outflows from equity funds totaled $232 billion, while inflows to bond funds hit a staggering $559 billion.

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How to Profit From the Russian Wheat Shortage

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Russian wheat farmers have a tough life.

Having grown up on a working farm in Oregon, I understand this all too well. Those days taught me a lot about hard work and patience. Four decades later, as I read news stories about the current travails of Russian wheat farmers, the memories of getting up on wet winter mornings for the pre-dawn goat milking – or having to drive a tractor when I was only six years old – engender a lot of empathy for the difficult challenges the wheat farmers face.

Wild fires are racing through unharvested wheat fields, the result of a Russian heat wave that has destroyed more than one-fifth of that country's wheat crop. In addition to causing the farmers considerable pain, the crop losses have caused wheat prices to double this summer.

This has spawned an export ban in Russia, which effectively removes the third-largest exporter in the world from the market. It's also created a major profit opportunity for U.S. investors.

Let me explain.

For strategies that will help you profit from the Russian wheat shortage, please read on....

HSBC Pursues South African Bank to Claim Key Spot in African Trade Financing

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European banking leader HSBC Holdings PLC (NYSE ADR: HBC) yesterday (Monday) announced it's in talks to gain a controlling stake of South Africa's Nedbank Group Ltd. (PINK ADR: NDBKY). The acquisition would expand HSBC's presence in Africa's trade growing financing market.

Europe's largest bank aims to gain 70% of Nedbank's shares and plans to bid on insurer Old Mutual PLC's (PINK ADR: ODMTY) 52% stake, worth $7 billion. Nedbank is South Africa's fourth largest bank and focuses on commercial banking services, operating in 33 African countries.

The hot pursuit of South Africa's banking industry is fueled by the rapid trade growth the country is experiencing with Asia – especially China.

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Investors' Hopes Riding on Surge in M&A Activity

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Global mergers and acquisitions (M&A) activity is at its highest level since late 2009, providing a glimmer of hope to investors struggling to decipher stock and bond markets roiled by a weakening U.S. economy.

Global takeovers announced so far this year have totaled $1.29 trillion, up 23% from the same time last year, according to Bloomberg News.

Last week a flurry of bleak economic news headlined by larger than expected unemployment claims spurred a 280-point drop in the Dow Jones Industrial Average.

But, investors took some solace from a flurry of M&A activity and an initial public offering (IPO) from General Motors Co., because acquisitions are seen as a sign companies are confident the economy will grow and business will improve.

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Investing In A "Bond Bubble?"

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$33 billion has flowed out of the U.S. stock market since the beginning of this year… Where has that money gone? Watch this clip of Money Morning's own Keith Fitz-Gerald as he sheds some light on the situation on Fox Business … and, he shows investors where they should look for real growth in the […]

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Cold-Weather Investing: Coal, Natural-Gas and Heating-Oil Investments Will Pack a Punch in January

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The irony about cold-weather investing is that the biggest profits come to those who position their money during the hottest months of the year – even during the record heatwave Americans have been experiencing this year.

In short, now's the time to start thinking about such winter-related topics as heating bills, and such cold-weather investments as natural gas, heating oil and coal.

According to the American Petroleum Institute (API), natural gas provides heat for 55% of homes in the United States, followed by electricity, which warms 39%. Heating oil, propane and coal play only minor direct roles, although coal is used to fire 49% of America's electric generating plants, with another 20% fueled by natural gas.

That means natural gas is the natural choice of investors looking for winter-related profits – although Dr. Kent Moors, editor of Oil & Energy Investor newsletter and a frequent contributor to Money Morning, cautions that factors other than routine home-heating demand play a major role in setting prices.

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Buy, Sell or Hold: BCE Inc. (NYSE: BCE) Has Canada Covered

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The market right now is torn between data that suggests the U.S. is waning and reports that many companies are increasing guidance and beating earnings estimates.

This has created a lot of volatility, and if you already have enough strong growth plays in your portfolio, adding some large, established companies with stable cashflows and hefty dividend yields could ease some of the anxiety you may be feeling.

Such an approach in my opinion is superior to bonds, since bond yields are just too low at these levels. That means you actually risk capital losses if they go up. In addition, safe dividends paid by leading companies are higher than bond yields. And unlike bonds, big companies usually can adjust prices in accordance with inflation.

There are a lot of companies for an investor to choose from, but BCE Inc. (NYSE: BCE) jumps out at me immediately. It is a dominant, well-managed company, and it has strong upside potential.

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What to Expect on Wall Street as Nervous Investors Navigate a Slowing Economic Recovery

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Wall Street was hit hard last week with gloomy data that has kept buying interest stalled and investors spooked over a slow economic recovery.

Stocks slipped over the past week after investors learned from government reports that jobs are getting scarcer than straw hats in a wind tunnel, and it isn't always sunny in Philadelphia. 

The big-cap indexes lost around 1%, while safe haven assets like gold and the U.S. dollar were buoyant. The best investment around for the week was the U.S. long bond, up 2%.

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To read what’s in store after last week’s gloomy data, click here