Archives for March 2011

March 2011 - Page 7 of 10 - Money Morning - Only the News You Can Profit From

Economic Aftershocks of the Japan Earthquake 

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The 8.9 magnitude earthquake and resulting tsunami that hit northeastern Japan today (Friday) had an immediate impact on financial markets all over the world. However, the effects of the damage and rebuilding will reverberate through the Japanese economy for months, if not years.

In the immediate aftermath of the earthquake, which struck in midafternoon, factories shut down, railways stopped running and roads, ports and airports closed. Markets remained open, but a lack of power and a disruption of the mobile networks curtailed trading after the temblor struck.

Some of Japan's biggest companies were affected:

  • Nissan Motor Co., Ltd. (PINK: NSANY) halted production at four factories in the area hit.
  • Toyota Motor Corporation (NYSE ADR: TM) closed two assembly plants and a parts factory.
  • And Sony Corporation (NYSE ADR: SNE) closed six factories.

"This is certainly the worst thing that can happen in Japan at the worst time," economist Nouriel Roubini told BloombergTelevision, noting that Japan's deficit is 10% of its gross domestic product (GDP) and repairing the damage from the quake will cost the country tens of billions, if not hundreds of billions of dollars.

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American International Group Inc. (NYSE: AIG) Continues Bailout Repayment Offers

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American International Group Inc. (NYSE: AIG) on Thursday offered to pay $15.7 billion for a portfolio of mortgage-backed securities the Federal Reserve Bank of New York acquired when it bailed out the collapsing insurer during the financial crisis.

The New York Fed set up the fund, named Maiden Lane II, in 2008 to buy from AIG about 800 securities that were backed by subprime home loans.

"The conditions that necessitated Maiden Lane II in the first place have been resolved," AIG said in a letter Thursday to the New York Fed. The company said it is now more stable and can match the assets with "appropriate longer-term insurance liabilities, not shorter-term liabilities."

AIG originally purchased the mortgage-backed securities with collateral from Wall Street banks in securities-lending deals. When the housing market collapsed, AIG couldn't reimburse banks that wanted their collateral back. The Fed bought the bonds at a deep discount for about $22.5 billion to remove the assets from AIG's balance sheet.

AIG has been preparing the offer for more than a year, as bond values have rallied since market lows in April 2009. The Maiden Lane II bond values have partially recovered, but are still trading at around 53 cents on the dollar. AIG plans to use cash from its life-insurance units and other insurance businesses to fund the deal.

"It certainly does strike me as an unexpected use of AIG's cash," Clark Troy, a senior analyst for research and advisory firm Aite Group, told Bloomberg News. "AIG wouldn't be doing this if the valuation wasn't conservative."

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Libya Civil War: Saudi Oil Surplus Won't Stop $300 Oil Prices

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As the autocratic rule that has dominated the Middle East for decades continues to unravel, volatility in the global oil markets points toward one overriding concern: How can we maintain an oil-flow balance in the face of this escalating uncertainty? Global oil prices are posting their highest levels since the speculative frenzy of 2008 drove […]

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Mideast Crisis and Higher Oil Prices Could Pour Profit into Venezuela's Economy

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Libya turmoil continued this week as Col. Moammar Gadhafi's troops tried to chase rebel forces out of cities housing key oil facilities. The pro-government regime wants to regain cities with oil operations, many of which rebels took over in the first days of fighting.

Attacks Wednesday also destroyed one oil facility's diesel oil storage tank and pipeline. Shukri Ghanem, Libya's de facto oil minister and the chairman of Libya's National Oil Corp., said no major oil installations were damaged in the explosion, but the fighting has disrupted a number of oil and natural gas facilities around the country.

Libya's oil exports have fallen to 500 million barrels a day from 1.6 billion since the country's conflict erupted, according to Ghanem. Libya hopes to resume fulfilling its oil contracts as soon as the political crisis subsides.

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Sales Tax Dilemma Threatens Amazon.com Inc. (Nasdaq: AMZN)

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If state legislatures across the country get their way, Amazon.com Inc.'s (Nasdaq: AMZN) 16-year holiday from collecting sales tax will come to an end – with unpleasant consequences for the online retailer.

The U.S. Supreme Court in 1992 established that only retailers with a physical presence (called "nexus") in a given state are required to collect a sales tax from their patrons. But with state budgets being squeezed, more and more legislatures are trying to rope in online retailers – especially Amazon, a company that was specifically engineered to profit from the Supreme Court's ruling.

"[Amazon CEO] Jeff Bezos has built a company strategically around avoiding sales tax. But they're going to have to deal with this," retail analystDavid Strasser, a managing director at Janney Montgomery Scott,told Forbes.

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Currency Investing: Where to Turn When the Dollar, Euro and Pound Let You Down

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Currency investing is something of hustler's shell game right now. No matter which of the Big Three developed-market currencies you choose, you're setting yourself up to be swindled.

Here's how it works.

First, traders use the U.S. budget deficit and on the U.S. Federal Reserve's expansive monetary stimulus program to push down the U.S. dollar.

Then they focus on Europe's sovereign debt troubles – Moody's Corp.'s (NYSE: MCO) junky B1 rating for Greek bonds, for example – and tank the European euro.

And occasionally, just for kicks, they turn their ire on Britain's rapidly rising inflation, which is now above 4%, and the strident opposition to the U.K. Prime Minister David Cameron's fairly modest budget cuts and knock down the British pound.

So far, the only major, developed-market currency traders haven't torpedoed is the Japanese yen – even though Japan has more government debt than Greece, in terms of its gross domestic product (GDP).

All this bearish activity illustrates the currency markets' fundamental problem: If all the major currencies are weak and deserve to be shorted, against what do you short them?

To find out how to turn the tables on currency speculators, read on...

Money Morning's Fitz-Gerald On PIMCO Bond Sell-Off and Stock Market Drop

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Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Company (PIMCO), rattled bond investors when he announced yesterday (Wednesday) the fund has eliminated its holdings in U.S. government debt. PIMCO's $237 billion Total Return Fund said it is increasing its holdings in debt of corporations and of emerging markets like Brazil […]

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Oil Patch Outlook: Oil's March Madness a Boost for Refiners

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March Madness is still a few weeks away for college basketball fans, but the madness of March is in full swing for the oil sector. Turmoil in the Middle East sent oil prices up more than 6% last week – following a 5.2% gain in February. We also happen to be entering a time of year that has historically been good for energy prices and energy equities in recent decades.

Going back nearly 30 years – as the preceding graphic illustrates – March has been the best month for crude oil. By the end of the month, the price of oil is nearly 4% higher on average than the closing price on the last trading day of February.

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What My Mother Taught Me About the Global M&A Market

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When PPL Corp. (NYSE: PPL) agreed to buy British power distributor Central Networks from German owner E.On AG (PINK ADR: EONGY) last week, the $5.6 billion bid by the Allentown, Pa.-based utility highlighted a key advantage that U.S. firms have when it comes to corporate-takeover battles in the international arena: In most countries, the staff and customers of the target company prefer a U.S. suitor to those from most other nations.

How do I know this? Simple … my mother told me.