Archives for September 2010

September 2010 - Page 5 of 9 - Money Morning - Only the News You Can Profit From

Record Breaking Contango Suggests Higher Oil Prices for 2011

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ConocoPhillips (NYSE: COP) is paying $41,000 a day to keep a storage tanker capable of holding 3 million barrels of oil floating in the Gulf of Mexico, according to international ship- and offshore broking firm RS Platou. And the TI Europe is just one of hundreds of oil tankers sitting idle in waters around the world, as energy companies and investment banks await higher prices for crude.

Oil prices have fallen precipitously since the spring, as optimism about "green shoots" of economic growth gave way to fears of a double-dip recession. Prices have fallen more than 12% to $75.81 a barrel, from a high of $86.54 a barrel in April.

Indeed, with the U.S. economy stuck in the mire, the global outlook for oil demand has diminished – at least in the near-term. Longer-term, however, traders expect prices to surge higher next year as growth solidifies. That's why contracts for crude set to be delivered six months from now are worth more than crude at its current prices – an anomaly known as "contango."

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Japan's Move To Push Down Yen Gives Its Exporters a Boost Against Global Rivals

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Japan yesterday (Wednesday) intervened in the currency market for the first time since 2004 to weaken a surging yen that reached a 15-year high against the U.S. dollar – and the government intervention is expected to continue.

The Japanese yen hit 82.88 against the dollar, alarming the country's officials who are worried that the rising currency would cut into exporters' profits. The yen had risen more than 11% since mid-May.

"We can't overlook these movements that could have a negative effect on the stability of the economy," Finance Minister Yoshihiko Noda said Wednesday. "We will continue to watch developments in the market carefully and we will take bold actions including further intervention if necessary."

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Europe: The Investor Escape Hatch From the U.S. Recession

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When I speak with the U.S. subscribers to my Permanent Wealth Investor advisory service, there's one bit of wisdom that I repeat time and again: Just because you're living through a recession doesn't mean that your money has to.

If that's a high-falutin way of telling folks to invest globally, so be it. The reality is that there are other places to invest than in the U.S. economy – and many of those "other" spots offer much better returns.

Take Europe…

To discover four investments that will let U.S. investors profit from Europe's continued turnaround, please read on...

Question of the Week: U.S. Government Spending the Wrong Way to Fix Job Market

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The U.S. unemployment rate has hovered around 10% for months – with no real signs of improvement. As American workers grow increasingly impatient, the U.S. government is running out of options to help the job market.
But with midterm elections approaching, U.S. President Barack Obama is trying to show voters there's hope in resolving the stubbornly high unemployment rate. Last week he unveiled a six-year infrastructure plan that would invest billions in transportation projects and create a "substantial" number of jobs.

The government would supply $50 billion off the bat to rebuild 150,000 miles of roads, 4,000 miles of rail and 150 miles of runway, plus modernize the air traffic control system. The plan also sets up a government-run infrastructure bank to finance the projects, combining tax dollars with private investment for funding.

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Keeping Tabs on Thailand: An Asian Tiger Lurking Low in the Reeds

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Last week we talked about Singapore and Thailand – two Asian economies that are quietly taking off. Today I want to add to those thoughts with a few more key points that opportunistic U.S. investors should know about Thailand, in particular.

Over the weekend, the Thai currency, the baht, rose to its highest level since 1997 due to an improved outlook for economic growth and expectations of more investor inflows. A current-account surplus of $5.42 billion this year through July and the fact that the Bank of Thailand has raised its benchmark interest rate twice this year have also helped the baht post the second-best performance among Asia's most-traded currencies excluding the yen.

"There has been quite a lot of demand to buy the baht from offshore, probably from foreigners to buy Thai stocks and bonds," Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp., told Bloomberg News. "Money is flowing into Asia on the region's strong economic outlook."

The rise in the currency has coincided with a 30% advance in Thailand's SET Index since May, when government troops smashed anti-government protests.

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Covered Bonds: An Investing Stalwart Through the Centuries

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So-called "covered bonds" are debt securities that are backed by the cash flows from public-sector loans or from real-estate mortgages. Covered bonds resemble other asset-backed securities (ABS) created through the process known as "securitization." But there's one big difference: Covered-bond assets must remain on the issuer's consolidated balance sheet.

Created in Prussia in 1769 by Frederick the Great, covered bonds have a long history and through the centuries have become a very popular investment instrument in Europe. There, known as Pfandbriefs, these mostly AAA-rated debentures make up the third-largest segment of the German bond market (behind public-sector bonds and unsecured bank debt).

"In the past few years, covered bonds have enjoyed a resurgence as investors search for high quality investments with attractive yields and as European banks look to finance the growth in mortgage lending," fixed-income heavyweight PIMCO wrote in a 2006 research note to investors.

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Covered Bonds: The Solution to America's Economic Ills

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When it comes to the global financial crisis and the Great Recession that followed, this could well be the ultimate irony: The Wall Street invention that got us into this mess may well be the only thing that can get us out.

I'm talking about securitization, a masterstroke of financial engineering in which assets are aggregated in order to reduce risk. Once heralded as the greatest financial innovation of modern times, abusive securitization practices instead generated a feeding frenzy of gross excesses that exponentially multiplied risk and drove the world to the brink of financial Armageddon.

Now, a hybrid form of securitization called "covered bonds" may be our only way out.

Here's why….

To understand the saving-grace features of covered bonds, please read on...

AIG and Government Looking to Accelerate Exit Strategy

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Government officials are huddling with executives from American International Group Inc. (NYSE: AIG) to hatch a scheme to accelerate the company's plan to regain its independence and repay in full what the insurer owes U.S. taxpayers, according to a report from The Wall Street Journal.

Under the plan, the Treasury Department is likely to convert $49 billion of AIG preferred shares it holds into common shares, a move that could bring the government's ownership stake in AIG to above 90%, from 79.8% currently, The Journal reported, citing sources familiar with the matter.

The common shares would then be gradually sold off to private investors, a move that would reduce U.S. ownership and potentially earn the government a profit if the shares rise in value.

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GS, RIG and MON: The Three Stocks It's a Mistake to Hate

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When many investors look at Goldman Sachs Group Inc. (NYSE: GS), Transocean Ltd. (NYSE: RIG) and Monsanto Co. (NYSE: MON), they see tainted companies that are probably best avoided.

That's a mistake.

It's no secret that buying beaten-down stocks is the key to maximum gains. But here's what most investors fail to understand: If you want to hit the investment home run, you have to go after the stocks that everybody else hates.

Like Goldman, Transocean and Monsanto.

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To understand the investment case for these three stocks, please read on..