Archives for August 2010

August 2010 - Page 7 of 10 - Money Morning - Only the News You Can Profit From

The Fed's Treasury Purchase Plan is Just Further Proof That It's in the Denial About the Dollar

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This week's decision by the U.S. Federal Reserve to buy Treasuries in an effort to prop up borrowing is further proof that the economy is worse off than policymakers would have us believe. But more than that, the Fed's Treasury purchase plan is just one more reason for investors to anticipate inflation and take steps to protect their money from it.

In case you missed the news, here's what happened…

The Federal Reserve on Tuesday announced that instead of allowing proceeds from maturing mortgage bonds to disappear from its balance sheet, the central bank would take the "modest" step of using them to invest in new Treasuries.

In plain English, that means that the Fed is reinvesting into U.S. Treasuries the money it would otherwise bank from maturing mortgages.

Its goal is very simple: to keep long term interest rates from rising.

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Question of the Week: Investors Preparing for Double-Dip Recession

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The "pause" button has been hit on the U.S. economic recovery, fueling worries that we're headed for a double-dip recession.

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," Former U.S. Federal Reserve Chairman Alan Greenspan said in an interview on NBC's "Meet the Press" broadcast last Sunday.

Greenspan touched off speculator interest in a double-dip downturn when he announced that a further decline in home prices could push the economy into a new recession.

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Defensive Investing: Use Dollar-Cost Averaging to Reduce Volatility Risks

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Dollar-cost averaging has long been a strategic staple among mutual fund buyers. Longer-term investors use it to smooth out the effects of short-term price fluctuations, but the tactic seldom has been practical for purchasers of individual stocks – that is until now.

For those unfamiliar with the strategy, dollar-cost averaging – also known as constant-dollar investing – involves the regular purchase of a smaller fixed-dollar amount worth of shares over time, as opposed to the lump-sum purchase of a large number of shares at once. For example, rather than buy $1,200 worth of shares of fictitious company XYZ in January, you might buy $100 worth of XYZ shares each month for the full year.

The technique offers several advantages for fund investors:

  • Because you are investing a fixed-dollar amount at regular intervals, you don't have to be concerned with trying to time the markets.
  • Since the fixed-dollar amount you invest buys more shares when prices are low and fewer when they are high, your average cost basis levels out over time. This reduces the risk that you might pay too high a price by making a lump-sum purchase at the wrong time.
  • The lower average cost basis mutes the impact of short-term volatility on your existing holdings.
  • You can build a sizable position in a single fund, even if you never have a large sum of money to invest at any one time.

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Gasoline-Price Forecasting: What Sam the Gas Station Owner Knows That We Don't

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What started out as a routine fill-up at the service station that I frequent has turned into a solid gasoline-price-forecasting model that should spotlight the most-imminent profit opportunities.

Of course, it wouldn't have happened without Sam.

Sam runs a gasoline station 12 miles from my house, in a little, out-of-the-way, suburban town. We have formed a friendship, of sorts, through the years. He's one of the few people I run into on a regular basis who does not ask me where gasoline prices are headed.

He already knows.

To find out how Sam's pricing prescience can mean profits for you, please read on...

An Anemic Economic Recovery Keeps the Fed From Focusing on Inflation

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With interest rates near zero and a balance sheet that's in excess of $2 trillion, U.S. Federal Reserve Chairman Ben Bernanke would be very glad to offload some of the Fed's obligations. But so far he's has been unable to do so, as an anemic economic recovery continues to monopolize his attention.

The central bank yesterday (Tuesday) announced that it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasuries. The move should help a weakening economy by keeping mortgage rates low. And while it also may boost inflationary pressures, the central bank feels it had little choice.

"Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months," the Federal Open Market Committee said.

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A Tale of Two Investments: U.S. Steel Scenario Illustrates the Power of Dollar-Cost-Averaging

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To understand the potential defensive-investing benefits of dollar-cost averaging, let's take a look at two scenarios involving United States Steel Corp. (NYSE: X).

Thanks to the general downtrend in the market, the May 6 "flash crash," and the rapid subsequent rebound, U.S. Steel shares fell from a 52-week high of $70.95 on April 6 to just $52.81 at the market close on Friday, May 14.

Indications of some new life in the construction sector and an uptick in autos would seem to indicate that steel demand could rise – which would be especially good for U.S. Steel, which supplies both businesses.

You've got $10,000 to work with.

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How to Slash Risk and Avoid Losses With a "Stress Test" of Your Personal Investment Portfolio

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Back when I was a portfolio manager, I was always looking at ways to "stress test" my portfolio. In other words, I was on the constant lookout for ways to hedge my holdings, guard against risk, and to anticipate anything the market could throw at the stocks, bonds, options and other investments contained in my portfolio.

Hedging involves much more than just anticipating the movements on individual stocks. The financial markets are so deeply interconnected that – to the distant observer – they might appear to be seamless.

To show you what I mean, let's look at oil: It's a great real-world example, ripped right from the daily headlines, and there's a strong emotional component to it, too, since the "black-gold" commodity touches the lives of investors and consumers alike. I'll demonstrate how even retail-level investors can apply this "portfolio-stress-test," risk-management technique to their own portfolios.

To find out how to 'stress test' your own portfolio to slash risk, please read on...

Hot Stocks: TECO Energy Inc. (NYSE: TE) Is Turning Investors On to Profit

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TECO Energy Inc. (NYSE: TE) over the past year has been one of the best performing stocks in my Strategic Advantage StrataGem portfolio.

The stock has jumped 7.75% in just the past month, is up more than 30% in the past year, and it pays a generous 4.7% annual dividend.

So here's what it is all about.

TECO, which is based in Tampa, provides electricity to 667,000 customers and natural gas to 330,000 individuals in west central Florida. It also operates a coal mining operation in Kentucky and a small utility in Guatemala.

Since 2003, TECO – formerly called Tampa Electric – has reshaped itself into a regulated utility from a diversified energy company. It sold $4 billion of assets and reinvested the proceeds in regulated utility projects with attractive returns. The regulated units, Tampa Electric and Peoples Gas, now generate 90% of TECO's profits. TECO's $3.52 billion market cap and $3.40 billion in annual sales make the company one of the smaller utilities in the United States.

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Will the Fed Opt For More Stimulus as the Economic Recovery Founders?

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Weaker-than-expected job growth is fueling speculation that the Federal Open Market Committee (FOMC) will unveil new stimulus measures to prop up the economic recovery when it meets today (Tuesday) for its regular rate-setting session.

Friday's July unemployment report was by most measures a disaster, providing the latest indication the economic recovery is running out of steam with 14.6 million Americans still searching for work.

The economy shed 131,000 jobs, as 143,000 temporary census workers fell off federal payrolls. Private-sector employment grew by 71,000 in July after a downwardly revised June increase of 31,000 workers.

The private sector so far this year has added 90,000 jobs a month on average, well below the 125,000 needed to keep up with population growth – let alone recover the eight million jobs lost during the recession.

"It's a double whammy because it causes people to take a psychological step back," Tig Gilliam, chief executive of staffing firm Adecco Group North America, told The Wall Street Journal. "Now, it looks like not only has the economy slowed, but maybe it wasn't as good when it was originally reported as we thought."

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Google-Verizon Deal Could Spell the End of "Net Neutrality"

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A proposed agreement between Google Inc. (Nasdaq: GOOG) and Verizon Communications Inc. (NYSE: VZ) could spell the end of "net neutrality," and have smartphone users seeing red instead of their favorite videos.

The arrangement, which has yet to be unveiled, would allow Verizon to charge content providers more to give their services priority on its network, the Financial Times reported, citing people familiar with the plan.

News of the agreement spread like a virus on Thursday, when the Federal Communications Commission (FCC) called off industry-wide talks, saying it had failed to reach an agreement on a "robust framework to preserve the openness and freedom of the Internet."

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