Archives for June 2011

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

Looming Loss of Federal Incentives Darkens Future of Solar Power Stocks

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The reduction or elimination of several federal energy subsidy programs later this year could further dim prospects for solar power stocks – bad news for a sector already in a months-long slump.

The goal of the programs, which include loan guarantees and grants, was to support the early stage growth of renewable energy companies until they became viable enough to attract conventional investors.

But several of the federal programs created as part of the 2009 stimulus package have expiration dates that assumed the economic woes of the recession would have eased by now.

Instead you have a solar power industry worried about what happens after the programs begin to expire – the first as soon as Sept. 30.

"Is the solar industry going to die if we lose these programs? No, but we're going to stall," Roger Efird, managing director of Suntech America, a subsidiary of Suntech Power Holdings Co. Ltd. (NYSE ADR: STP) told USA Today.

Helped by such programs, the solar industry grew 67% last year, but could see that growth flatten as cash-strapped governments both in the United States and Europe begin to cut back.

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Three Ways to Slash Your Risk Despite the Negative Investing Outlook

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With everything from the Greek debt crisis to worries about China's growth roiling the markets these days, the investing outlook seems to get shakier by the minute. And that means the same old tricks won't work any longer.

It's not going to be enough, for example, to simply pick stocks or spread your risk among large-cap, small-cap and a blend of domestic and international stocks and bonds thrown in for good measure.

Those things don't work when everything goes down at the same time – a painful reality that investors experienced during the financial crises of 2000-2003 and 2007-2009.

If we've all learned one thing from those crises, it's that stability matters when it comes to producing higher, more consistent returns – especially in a world in which the investing outlook is clouded by uncertainty.

But there are three strategies that can bolster your personal investing outlook and help you even out the rough sailing I see ahead.

Let me show you what I mean.

Three Strategies You Can't Ignore

The three strategies I'm talking about represent a break with the so-called "tried-and-true" approaches that were once in every investor's playbook, but don't seem to work so well in today's markets. So I'm recommending that you replace those old tactics with these three new ones, which will have you:

  • Build your own "hedge fund."
  • Adopt a "long/short" bond strategy.
  • And consider a solid "alternative" to alternative investments.

Let's take a look at each one – starting with the personal hedge fund.

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Looming Loss of Federal Incentives Darkens Future of Solar Power Stocks

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The reduction or elimination of several federal energy subsidy programs later this year could further dim prospects for solar power stocks – bad news for a sector already in a months-long slump.

The goal of the programs, which include loan guarantees and grants, was to support the early stage growth of renewable energy companies until they became viable enough to attract conventional investors.

But several of the federal programs created as part of the 2009 stimulus package have expiration dates that assumed the economic woes of the recession would have eased by now.

Instead you have a solar power industry worried about what happens after the programs begin to expire – the first as soon as Sept. 30.

"Is the solar industry going to die if we lose these programs? No, but we're going to stall," Roger Efird, managing director of Suntech America, a subsidiary of Suntech Power Holdings Co. Ltd. (NYSE ADR: STP) told USA Today.

Helped by such programs, the solar industry grew 67% last year, but could see that growth flatten as cash-strapped governments both in the United States and Europe begin to cut back.

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Chinese Homebuyers Throw a Life Raft to the U.S. Housing Market

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From New York to Honolulu, Chinese homebuyers are swooping in to help salvage the U.S. housing market.

Indeed, California, Florida, New York, and even Hawaii have seen a marked up-tick in home sales to Chinese buyers who are exporting their country's real estate boom to the United States, according to Bloomberg News.

Increased regulation at home and education and investment opportunities are chief among the reasons real estate in the United States – as well as the United Kingdom, Australia, and Canada – has piqued Chinese interest.

According to a survey by the National Association of Realtors, Chinese buyers accounted for 9% of foreign home purchases in the 12 months ended in March of both 2010 and 2011. That's up from 5% in 2009.

"The purchase restrictions in China drove them overseas, while they look for investments to counter the inflation," Mo Tianquan, founder and chairman of Beijing-based SouFun Holdings Ltd. – a company that runs China's biggest real estate Website and organizes buying excursions abroad – told Bloomberg. "Some of them will buy homes considering better education opportunities for their kids, while others look for immigration options."

Take Cupertino, Calif., for example. Sales of existing single-family homes in Cupertino rose 21% in the first quarter from a year earlier, largely due to an influx of Chinese shoppers who are making huge cash purchases.

"We're seeing a huge number of all-cash transactions, and most of those are from mainland China," Nina Yamaguchi, managing broker at Coldwell Banker's residential office in Cupertino, told Bloomberg. "The thing that draws the Asians here is the schools are so highly touted. Cupertino is certainly not beautiful. It doesn't have wonderful architecture."

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Strong Commodity Prices: My Four Favorite Ways to Profit From the Rebound

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If you're like me, you've been invested in mining companies or oil producers the last couple of months because you expected a return to the strong commodity prices of early 2011.

But if that's the case, like me, you're hurting. Commodity prices are well below the high levels we saw in early May – in fact, they've dropped more than the rest of the market.

The temptation to sell out before things get worse is very strong.

But don't do it …

The preconditions for strong commodity prices are still in place. And at present levels, a number of commodity and energy-producing shares are stone-cold bargains.

Let me tell you why …

Don't Be Fooled by the Price Declines

Against a backdrop of strong commodity prices, these companies had an excellent 2010.

I'm sure you were surprised to see that these same companies didn't do all that well in the first few months of the New Year – even though oil, gold, silver and copper prices were climbing and rare earth prices were going though the roof. The market seems to have believed that these strong commodity prices were actually peak commodity prices – and that producers wouldn't get much benefit from those peaks because they would receive the high revenue for only a short period.

Then when commodities prices dropped from their peaks – oil by about 20%, silver by about 35%, but gold by only 8%, even at the bottom – share prices of commodity producers fell even more. The investor sentiment was very clear: Commodity producers hadn't benefited all that much from peak prices, and now that prices were likely headed down, producers were looking at a stretch in which they would be much less profitable.

But here's what I want you to know: This bearish theory on commodity producers becomes flawed if, in fact, we have not yet seen the peaks that commodities will actually achieve. If that's the case, the benefit to producers from high prices would become much greater, as we would expect the prices to rise further and the high-price period to last longer.

And I would argue that this is precisely where we are today.

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Hot Stocks: Star-Crossed Sony Corp. (NYSE ADR: SNE) Will Continue to be Bad Luck for Investors

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What else can go wrong for Sony Corp. (NYSE ADR: SNE)?

After years of struggling to invigorate its turnaround strategy, Sony got slammed with Japan's March 11 earthquake and a devastating hacker attack on its PlayStation network in April.

The quake forced Sony to take tax credit provisions in its March quarter that resulted in a $3.2 billion loss for its 2011 fiscal year – the once-dominant consumer electronics company's third consecutive annual loss.

Investors have grown increasing disenchanted with Sony, sending the stock down about 30% this year. It has made several new 52-week lows in the past few months, most recently touching $24.21 on June 24. In 2008, the stock was trading at more than $50 a share.

"Sony said this was going to be its year but it looks like it then got a smack in the eye," saidShiro Mikoshiba, an analyst at Nomura Holdings Inc. (NYSE ADR: NMR) in Tokyo.

Sony said last month that the combination of the March 11 disasters and the hacker attack would erase $2 billion from its operating profit in the current fiscal year, though it still forecast a net profit of just under $1 billion.

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Why the New IMF Chief Will Cost U.S. Taxpayers Billions

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The International Monetary Fund (IMF) has made another mistake – a mistake that'll cost U.S. taxpayers a lot of money.

The organization's executive board yesterday (Tuesday) selected French Finance Minister Christine Lagarde as its new leader. A U.S. pledge of support Tuesday morning secured Lagarde's approval. She already had backing from European countries and major emerging markets Brazil, Russia, and China.

But with Lagarde in the driver's seat, the IMF is likely to continue lending billions of dollars to struggling European countries that are drowning in debt.

Those billions come from member countries that hold a financial stake in the IMF – and the United States is the single-biggest stakeholder.

This means that thanks to the IMF, U.S. taxpayers will keep funding countries that contribute little to the global economy.

"The IMF is a waste of money – your money," said Money Morning Contributing Editor Martin Hutchinson. "We'd be better off without the IMF and its terrible record of funneling resources down ratholes."

Here's why Lagarde will perpetuate that terrible track record.

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Bernankenstein's Monster

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Introduction by Ilene

Elliott, of PSW's Stock World Weekly, and I began a series of interviews with Lee Adler, chief editor and market analyst at the Wall Street Examiner, on May 11, 2011. This is part 2. Lee's Wall Street Examiner is a unique, comprehensive investment newsletter that covers subjects such as the Fed's open market operations, the impact of the Fed and the US Treasury on the markets, the housing market, and investment strategies. We often cite Lee's analysis in Stock World Weekly and on Phil's Stock World–his research provides invaluable information for formulating an overall market outlook.

(Here's part 1: The Blinking Idiot & the Banking System.)

Part 2: Bernankenstein's Monster

Elliott: How should we invest in this environment – when we take into account the Fed's huge interference in the markets?

Lee: Think like a criminal. Look, it's a matter of knowing what the Fed's next move is going to be, and knowing the investment implications. You have to stay with the trend until the Fed sends signals that it is going to reverse. We're at that inflection point. The issue is how much front running will there be? You definitely have to be out of your longs by now. When support fails after having succeeded, succeeded, succeeded, and every other previous retracement has held, then suddenly one doesn't, it's a huge signal.

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A Blinking Idiot & The Banking System

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Interview with Lee Adler of Wall Street Examiner

Introduction by Ilene

Elliott, writer of PSW's Stock World Weekly, and I recently began a series of interviews with Lee Adler, chief editor and market analyst at the Wall Street Examiner. (The interview was on May 11, 2011.) The Wall Street Examiner is a unique and very comprehensive investment newsletter. Lee Adler's work covers subjects such as the Fed's open market operations, the impact of the Fed and the US Treasury on the markets, the housing market, and investment strategies. We often cite Lee's analysis in Stock World Weekly and on Phil's Stock World – his research into the Fed's and the Treasury's activities – the money flows – provides invaluable information for formulating an overall market outlook.  

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Credit Default Swaps:
Why Washington Ignored Our Warning

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Three years ago, I told you that Wall Street's newest invention – credit default swaps – would cause a major financial crash.

Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor – which is why I also warned that credit default swaps should be banned.

Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries – and not just banks – defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.

Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.

If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.

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