Archives for November 2010

November 2010 - Page 8 of 9 - Money Morning - Only the News You Can Profit From

What to Expect from the Federal Reserve's Next Round of Quantitative Easing

The U.S. Federal Reserve today (Wednesday) is all but certain to announce a second round of quantitative easing – "QE2."

Most analysts believe the Fed will pledge to buy another $500 billion in U.S. Treasuries, but I think it will go even further. My expectation is that $500 billion in Treasury purchases over six months will be just a first step, and that the full amount contemplated – as much as $2 trillion – is much larger than consensus.

This view is based on an analysis by Goldman Sachs Group Inc. (NYSE: GS) chief domestic economist Jan Hatzius that suggests current interest rates, at 0% to 0.25%, are 700 basis points too high. In plain English, the Goldman analysis suggests that interest rates would have to be -7% to achieve the Fed's goals.

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GM's $10.6 Billion IPO Could be an Enticing Opportunity For Investors

General Motors in an initial public offering (IPO) this month will price its shares at a level that could regenerate investor interest, and even throw off generous returns over time.

At least that's the hope of the U.S. government, which is likely to see its taxpayer-owned stake fall to less than the symbolically important 50% level when it sells approximately $7 billion of its shares in the IPO.

GM, 61% owned by the U.S. Treasury Department, will offer 365 million shares at $26 to $29 each, people familiar with the matter told The Wall Street Journal. The automaker also will offer $2 billion to $3 billion of preferred shares that later will become common stock, the people said.

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We Want to Hear From You: What Stock Market Moves Will You Make After Midterm Elections?

Now that the hotly contested midterm elections have been decided, U.S. voters will watch to see if newly elected officials will deliver on promises to lift the nation out of its economic morass.

Many voters made their decisions out of frustration over current economic conditions. Government spending, ineffective stimulus measures and stubborn unemployment were the biggest issues among voters this year. And given the potential for change in U.S. economic policy, investors are eager to see what the stock-and-bond markets will do in the months to come.

Although there is unlikely to be any quick decision making in Washington, investors will hope for the status quo in at least one area – a continued market rally, which is the norm for midterm election years.

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Voters Frustrated With U.S. Economy Turn to Republicans in Midterm Elections

Republicans predicted huge gains before today's (Tuesday) midterm elections, as voters fueled by frustration over the struggling U.S. economy are eager for change in Washington.

A poll in The Wall Street Journal asking voters which party they hoped would be in charge gave the GOP a six-point edge of 49% to 43%. About half of the Republican voters said frustration and protest over Democratic policies fueled their election decisions.

"The Democrats are about to feel the full force of a tidal wave, tsunami or a 7.0 earthquake," said Democratic pollster Peter Hart, who co-directed the survey.

Survey co-director and Republican pollster Bill McInturff called the results a "grim set of data that projects a larger election for Republicans than 1994."

In 1994 the GOP regained Congressional power with a gain of 54 seats in the House of Representatives after 40 years in the minority spot. This year they need a net gain of 39 seats to win the House.

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Defensive Investing: A Stock-Option "Insurance Policy" that Can Protect Your Profits

If you don't deal a lot with stock options in your investments, you probably don't realize just how versatile options actually are.

In fact, stock options can be used:

  • As a low-cost way to speculate on expected price movements.
  • To generate some added income on stock holdings.
  • To hedge against market reversals.
  • And even as a form of "insurance" – when used to "lock in" gains on profitable positions, protecting those profits against such stock-market reversals.

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Goldman's 50-Year Bond Deal Shows Why Main Street Investors Should Avoid Wall Street Deals

Last week, Goldman Sachs Group Inc. (NYSE: GS) sold $1.3 billion of 50-year bonds with a 6.125% interest rate. The issue was specially designed – with bonds in denominations as low as $25 – so the securities could be sold to small retail investors.

At last, Goldie's done something for the little guy …

Or did it?

There are entities and currencies in which a 50-year bond at a suitably high interest rate might be a reasonable investment. Switzerland, for example. Maybe Singapore. Maybe even Canada, though there I'd be very worried about both inflation risk and Federation break-up risk.

The United States?

Not so much, quite frankly.

To see why 50 years is an eternity for an investment bank, please read on...

China Increases Domestic Buying as Manufacturing Drives Growth

China's economy continues to rocket ahead, showing evidence of new strength in manufacturing and domestic consumption and easing fears that slower growth there could hamper the global recovery.

Manufacturing in China surged at the fastest pace in six months in October after contracting briefly earlier this year and raising fears the engine of the global recovery was faltering.

China's official Purchasing Managers Index (PMI) increased to 54.7 in October from 53.8 a month earlier, the China Federation of Logistics and Purchasing said Monday. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.

A China PMI index produced by HSBC Holdings plc (NYSE ADR: HBC) jumped to 54.8 from 52.9, one of the largest one-month rises since the bank started tracking it in 2004.

The strong report also showed that China is increasing domestic consumption and is increasingly insulated from the struggle in the world's advanced economies to recover from the Great Recession.

But it also raises the specter of overheating and the possibility of further measures to contain inflation.

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Slow GDP Growth Sets Stage for Fed's Next Round of Quantitative Easing

The U.S. economy continued to struggle to grow in the third quarter, most likely giving government officials enough cover to pump more liquidity into the financial system to stimulate hiring.

Gross domestic product (GDP), the value of all goods and services produced, increased by 2% in the third quarter, the Commerce Department reported Friday. Economists polled by Dow Jones Newswires were expecting GDP to rise by 2.1% in the July to September period, The Wall Street Journal reported.

The gain was slightly more than the second quarter's 1.7% growth but not enough to revive a moribund job market, according to most economists.

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For Beat-the-Market Safety Plays, Consider Investing in These Five 'Cash-Cow' Companies

When it comes to investing, finding a company that has a lot of money in the bank can be, well, money in the bank.

The logic is sound: Especially during times of economic uncertainty, companies that have a lot of cash on hand have the flexibility to do all sorts of things – most of them ultimately beneficial to shareholders because they help increase earnings and lead to higher stock prices.

For example, cash-rich firms can invest in new plants and equipment, fund research-and-development (R&D) initiatives for new products, or finance acquisitions that will increase market share or expand their geographic reach.

So-called "cash-cow" firms can also use their accumulated reserves to pay down or eliminate existing debt, increase annual dividends, buy back stock – or simply hold the money as a cushion against further economic downturns. Excess cash in the vault can transform smaller companies into attractive takeover targets, providing the shareholders of those target companies with quick and sizeable capital gains.

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CFTC Investigates JPMorgan, HSBC as Firms Sued for Silver Market Manipulation

JPMorgan Chase & Co. (NYSE: JPM) and HSBC Holdings Plc (NYSE ADR: HBC) were hit with two lawsuits Wednesday by investors alleging the companies conspired to drive down silver prices and gain hundreds of millions of dollars on short positions.

Two traders, Brian Beatty and Peter Laskaris, are accusing the big banks of attempting to manipulate the market for silver futures and options contracts since 2008. The complaints allege the defendants gained millions "if not billions of dollars in profits" by suppressing silver futures and making their short positions on the metal more lucrative.

The plaintiffs said they traded COMEX silver futures and options contracts and lost money due to the manipulation. Laskaris alleges that the banks informed each other of large trades and flooded the market with a disproportionate number of orders, according to Forbes.

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