Archives for January 2011

January 2011 - Money Morning - Only the News You Can Profit From

Egyptian Oil Operations Abandoned as Protests Disrupt Energy Industry

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Several large oil companies are shutting down operations in Egypt as six days of protests against President Hosni Mubarak's regime have disrupted the oil and gas industry.

The nation's military closed ranks with the government leadership but allowed protestors to continue mass demonstrations in defiance of a curfew as further unrest spread through the streets of Cairo. Mohamed ElBaradei, the former head of the United Nations' nuclear watchdog agency, has emerged as the favorite among opposition leaders to replace Mubarak.

Statoil ASA (NYSE ADR: STO), Norway's largest oil company, halted drilling in Egypt as other companies, including Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) and BP PLC (NYSE ADR: BP), shut down local offices and started evacuating the families of expatriate workers as well as non-essential staff.

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Buy, Sell or Hold: Be Prepared for a Market Pullback with Cisco Systems Inc. (Nasdaq: CSCO)

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The market moves in mysterious ways. After months of a bullish run, signs of a pullback are showing up everywhere – the most obvious being the move from momentum stocks into defensive stocks.

Portfolio managers rarely make large shifts in their core holdings, but they adjust the bias inside of a portfolio fairly frequently. That is, they shift the percentage of the fund's holding to prioritize growth or value weighting or momentum stocks and defensive stocks.

Basically, the "risk on" trade is rotating into a "risk off" trade. Fund managers are preparing, and investors should be as well. If you're not, a good way to start would be to pick up a stock like Cisco Systems Inc. (Nasdaq: CSCO).

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State of the Union: How to Profit From President Obama's New Clean Energy Challenge

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In last week's State of the Union address, U.S. President Barack Obama issued a national challenge: Take the 11.5% of the U.S. electricity that emanates from clean-energy sources and boost it to 80% by 2035.

As with any game-changing direction – landing a man on the moon in a decade, bringing an end to the Cold War, curing cancer, or weaning our economy off of coal and crude oil – leaders such as President Obama provide the enticement.

But the market has to figure out how to get it done.

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Continued U.S. GDP Growth Will Require Strong Consumer Spending

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The U.S. economy grew at a 3.2% rate last quarter, reaching a pace economists expect to be maintained through the year – but only if consumer spending remains strong.

The U.S. Commerce Department's advance estimate of gross domestic product (GDP) cited consumer spending and rising exports as key drivers of the economy's growth. A sharp slowdown in inventories stunted the increase. Excluding stockpiles, GDP grew at a 7.1% pace – its biggest increase since 1984.

U.S. GDP growth for all of 2010 grew by 2.9%, the biggest increase in five years. Last year's growth turned around 2009's struggling economy, which shrunk by 2.6%.

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Moodys Warns U.S. May Get Credit Downgrade in "Coming Two Years"

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The United States' AAA credit rating may be at risk sooner than previously thought as the nation fails to deal with its growing debt, Moody's Investors Service warned last week.

Moody's said December's extension of the Bush-era tax cuts, combined with results from the November elections, may lead to further gridlock in Congress, increasing its doubts about the federal government's determination to reduce its debt.

The credit ratings agency said it might put a "negative" outlook on the AAA rating of U.S. debt sooner than anticipated as the country's budget deficit expands.

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Consumer Spending Will Be the Key to Continued U.S. GDP Growth

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The U.S. economy grew at a 3.2% rate last quarter, reaching a pace economists expect to be maintained through the year – but only if consumer spending remains strong.

The U.S. Commerce Department's advance estimate of gross domestic product (GDP) cited consumer spending and rising exports as key drivers of the economy's growth. A sharp slowdown in inventories stunted the increase. Excluding stockpiles, GDP grew at a 7.1% pace – its biggest increase since 1984.

U.S. GDP growth for all of 2010 grew by 2.9%, the biggest increase in five years. Last year's growth turned around 2009's struggling economy, which shrunk by 2.6%.

"The consumer really drove the economy in the fourth quarter," Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, told Bloomberg News. "The economy has moved beyond recovery to a stable state of growth."

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U.S. Credit Downgrade Possible, Moody's Warns

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The United States' AAA credit rating may be at risk sooner than previously thought as the nation fails to deal with its growing debt, Moody's Investors Service warned last week.

Moody's said December's extension of the Bush-era tax cuts, combined with results from the November elections, may lead to further gridlock in Congress, increasing its doubts about the federal government's determination to reduce its debt.

The credit ratings agency said it might put a "negative" outlook on the AAA rating of U.S. debt sooner than anticipated as the country's budget deficit expands.

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Goodbye, Steve Jobs: "Leave of Absence" Could Drop Apple Stock 50%

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Steve Jobs is sick, again. And his latest "leave of absence" from Apple could drop the stock more than 50%. During Jobs' last illness, Apple stock plummeted from $176 to $83. Could it do the same again? Or is Apple strong enough to survive without its creator? Steve Jobs runs the most valuable technology company […]

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U.S. Clean Energy Investment Puts Upward Pressure on Rising Food Prices

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In U.S. President Barack Obama's State of the Union address Tuesday, he highlighted clean energy investment as a key component of America's future, one that will be reflected in his budget proposal for fiscal 2012.

"With more research and incentives, we can break our dependence on oil with biofuels, and become the first country to have a million electric vehicles on the road by 2015," the president said in his speech to members of Congress. "[I]nstead of subsidizing yesterday's energy, let's invest in tomorrow's."

This commitment to clean energy investment increases the importance of biofuels like ethanol, made from corn and other agricultural products. About 40% of U.S. corn is used to make ethanol, and increased ethanol production leads to higher corn and food prices.

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The Real State of the Union: A Rescue Plan for the U.S. Economy

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If Money Morning's Keith Fitz-Gerald were granted an audience with U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke, the one message he'd deliver is this: It's time to stop the gravy train and reform the U.S. financial system once and for all.

In fact, this may be our last chance.

"If I had the chance to sit down with President Obama and Fed Chairman Bernanke, I would offer [them an] eight-point plan that's designed to increase growth, provide jobs and increase America's international competitiveness," says Fitz-Gerald, a well-known commentator and bestselling author who is Money Morning's chief investment strategist.

In this second installment of a two-part interview with Money Morning Executive Editor William Patalon III, Fitz-Gerald took the time to outline that eight-point rescue plan for the U.S. economy. In that plan, the changes Fitz-Gerald calls for include:

  • Cuts in federal spending.
  • Pension reforms at all levels.
  • A halt to weak-dollar policies.
  • And a realization by Washington that it's time to take China much more seriously.

In Part I of this interview, which appeared yesterday (Thursday), Fitz-Gerald assessed the health of the U.S. and global economies, provided his outlook for the U.S. stock market and for commodity prices, and even offered an investment strategy for 2011.
The highlights of Part II follow below. And if you missed Part I, you can access yesterday's story by clicking here.

To read Keith Fitz-Gerald's fix-it plan for the U.S. economy, please read on…

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