Archives for November 2010

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

How to Predict - And Profit From - the Bursting of the Gold Bubble

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Gold last week careened to a record high $1,414.85 an ounce in a surge that was sparked by the U.S. Federal Reserve's plan to purchase $600 billion of U.S. Treasuries in a second phase of quantitative easing (QE2).

The yellow metal may have yet more room to run, as uncertainty in the marketplace remains high and the dollar low.

Still, at this pace gold is increasing too quickly to account for inflationary concerns.

That's saying a lot, because there are some pretty serious reasons to be concerned about inflation. With these new rounds of quantitative easing, the massive debt loads the U.S. has incurred, and Treasury Inflation-Protected Securities (TIPS) going into a negative yield structure, you'd have to be a little off to expect stable growth.

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How the Dollar and Europe's Ireland Moves Will Steer Fate of U.S. Stocks

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Stocks retreated over the past week following an earnings warning from tech giant Cisco Systems Inc. (Nasdaq: CSCO), renewed tensions in Europe over the ability of Ireland to pay its debts and a surge in the U.S. dollar.

Overlaying the action was word out of South Korea that the G-20 meeting of leaders of the world's largest economies was not going well, with European and Asian leaders expressing exasperation with U.S. monetary stimulus and a distaste for U.S. President Barack Obama's scolding tone on export targets.

In prior decades American trade policy makers did not have to pay much more than lip service to overseas financial leaders because we held an unparalleled position atop the global dog pile. But now we are deeply, deeply in debt to China, Japan and Germany, and these creditors feel increasingly entitled to look down their nose at us with a mixture of disbelief and distrust.

To read more about what's in store for the United States and its global economic partners, click here

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Deficit Reduction Plan Promises Painful Prescription For U.S.

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A bipartisan White House commission this week announced a sweeping proposal to slash the federal deficit by hundreds of billions of dollars a year by taking aim at virtually every sacrosanct area of U.S tax and spending policy, including Social Security and Medicare, middle-class tax breaks and defense spending.

But while the proposal has enough teeth to put a real dent in the mushrooming deficit, the political reality is that it has virtually no chance of passing through a divided Congress without major changes.

"Mathematically it apparently works…[but] politcally, it is going to have a lot of trouble getting support from more than just the two co-chairs," Stan Collender, a former Democratic House and Senate budget analyst and managing director of Qorvis Communications in Washington told Bloomberg News.

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Money Morning Mailbag: Mortgage Rates Slip But U.S. Housing Market Still Unfriendly for Some Seeking Refinancing

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U.S. mortgage rates dropped to a record low this week as the U.S. Federal Reserve started its second round of quantitative easing (QE2).

The 30-year fixed loan rate fell to 4.17% from 4.24%, Freddie Mac (OTC: FMCC) said yesterday (Thursday). The average 15-year rate fell to 3.57% from 3.63%.

Lower rates pushed up refinancing applications by 6%, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending Nov. 5. The refinancing gauge has more than doubled since the beginning of 2010.

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Grading the Deficit Commission: Although New Proposal Cuts Billions in Federal Spending, The Shortfall Remains

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The two leaders of U.S. President Barack Obama's Deficit Commission Wednesday produced a proposal for deficit cuts that slaughtered a lot of budgetary "sacred cows" and cut $3.8 trillion off the deficit over the next 10 years.

And the cuts were even made in just the right ratio – with $3 of spending cuts for every $1 of tax increases.

But if there was ever a proposal that exemplified that saying "the devil is in the details," this surely is it – for everyone will find something in here that they hate.

Let's take a look at the bits that I hate – after which I'll point out the proposal's strong points, before giving the commission leaders my final grade for their work.

To fully understand the proposal's strengths – and weaknesses – please read on...

With Kickbacks on Force Placed Insurance, the U.S. Mortgagegate Scandal Just Gets Deeper

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I thought that I'd seen it all with the "Mortgagegate" scandal, but the story that American Banker broke yesterday (Wednesday) underscores why the U.S. housing market has been host to the biggest and most-profitable scam the world has ever seen.

According to the article, the newest development in the American mortgage saga has to do with "force-placed" insurance policies: When mortgage borrowers don't pay their homeowner insurance premiums, are in default or in the foreclosure pipeline, mortgage-pool servicers make sure homeowner properties remain insured by requiring the purchase of a force placed insurance policy.

That makes sense. After all, the collateral that underlies the mortgage has to be protected from damage or total loss.

As it turns out, force-placed insurance policies are aptly named.

The American Banker article disclosed that the force placed policies that servicers are making homeowners buy can cost as much as 10 times more than standard policies. And servicers are making homeowners buy policies from preferred vendors.

In return for delivering these new insurance customers, mortgage-pool servicers are getting commissions – "reinsurance fees," in insurance-industry parlance, reinsurance fees.

I call these "fees" what they really are – kickbacks.

To understand the breadth of this latest scandal development, please read on...

China's Continued Failure to Rebalance Growth Threatens Global Economic Stability

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China announced yesterday (Wednesday) that its trade surplus grew 60.7% in October from the month before as efforts to rebalance its economic growth this year have failed. Furthermore, recent policy tightening measures mean domestic demand is unlikely to pick up in the near future.

"The rebalancing of China's economy has an awfully long way to go – in fact it's hardly even got started," Mark Williams, an economist at Capital Economics Ltd. who previously worked at the U.K. Treasury as an adviser to China, told Bloomberg. "In normal circumstances, the world might be willing to wait, but not when the likes of the U.S. are struggling with very high unemployment."

In a sign China's export-driven growth has not shifted to an increase in domestic consumption, China's trade surplus hit $27.15 billion last month, up from $16.9 billion in September. Exports rose 22.9% in October from the year before and imports climbed 25.3%. The trade surplus was slightly higher than expectations of $26.4 billion, according to a poll reported by Dow Jones Newswires.

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Will the G-20 Finally Dump the Dollar as the World's Main Reserve Currency?

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The Group of 20 (G-20) is meeting today (Thursday) and tomorrow (Friday) in Seoul, South Korea, and one of the main topics of discussion will be the role of the U.S. dollar in the post-crisis global economy.

Debate over the dollar's role as the world's main reserve currency rose to a fevered pitch in 2008 when the financial crisis, which began in the United States, first roiled global markets.

Emerging markets – particularly China, which holds some $2 trillion of foreign reserves – bemoaned the dollar's decline as it drained their dollar-denominated assets of value. Food and energy prices have climbed to record highs, as have many foreign currencies, further exacerbating the issue.

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Energy Investing Strategies: Three Ways to Profit From the Rebound in Natural Gas Prices

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I love autumn.  The leaves start to turn color, and the first hint of winter is invigorating. It is also a great time to peruse each of the financial markets for the shorter-term, seasonal trades that are always lurking – if you know where to look, that is.

One place that's worth looking at right now is the global currency markets, where a major war is currently being waged. As part of the so-called "race to the bottom," the U.S. dollar is down 14% since June. This drop in the greenback has come at a time when a major bull market in commodities has broken out everywhere in the world. 

Gold, silver, wheat and corn have all recently achieved multi-year highs. Cotton just hit its highest price in 140 years.

There has been an exception, however – a headline commodity that's been left behind. Indeed, this particular commodity has been in decline for six months, dropping almost daily. But that's about to change.

As we move deep into fall, the leaves on the trees will change color, die, and then fall to the ground. But the commodity in question will return to the land of the living, and will head for high ground – generating windfall profits for those with the courage to make their move right now.

I'm talking about natural gas.

For three strategies that will enable investors to profit from the rebound in natural gas prices, please read on...