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Archives for June 2011

June 2011 - Page 3 of 9 - Money Morning - Only the News You Can Profit From

The New Global Gambling Hotspot That's Set to Overtake Las Vegas

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First it was Macau that leapfrogged Las Vegas as the No. 1 global gambling destination in 2006.

Now another Asian powerhouse is set to push Sin City down to third on the list of global gambling hotspots.

We're talking about Singapore – the Southeast Asian city-state that has a red-hot economy and a new reputation as a tourist mecca.

Singapore, with just two casinos, is set to pass Las Vegas as the world's No. 2 gambling hub, according to Frank Fahrenkopf, president of the American Gaming Association.

"Now more than a year old, the two integrated resorts in Singapore have exceeded all expectations and turned the nation into Asia's second global gaming superpower," Fahrenkopf told the AFP on the sidelines of a recent gaming conference in Macau. "The country's gaming market will likely overtake Las Vegas as the world's second-largest gaming center as early as this year."

Singapore's Resorts World Sentosa and Marina Bay Sands casinos will rake in $6.4 billion of combined revenue this year, Fahrenkopf predicted. That would be a sizeable increase over 2010's $5.1 billion take.

Las Vegas brought in $5.8 billion last year, after stumbling in the wake of the financial crisis and housing collapse. A report citing research by the Royal Bank of Scotland Group PLC (NYSE ADR: RBS) indicated that Las Vegas would earn $6.2 billion this year, according to Agence France-Presse.

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"Stealth QE3" Comes to Fruition – Soaring Inflation is Next

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U.S. Federal Reserve Chairman Ben Bernanke did what most everyone expected yesterday (Wednesday) at the culmination of the Federal Open Market Committee's (FOMC) two-day meeting – he left average Americans vulnerable to the pangs of higher prices and soaring inflation.

Indeed, as yet another FOMC meeting drew to a close without any significant policy changes, the central bank, as many predicted, kept interest rates at 0% to 0.25%, where they've been since December 2008.

And citing weaker than expected economic growth, the FOMC vowed to remain in an "accommodative stance" by retaining its huge $2.832 trillion portfolio of securities and loans.

The Fed will do this by using the money from maturing bonds and principal payments from its securities holdings to buy more bonds "according to a distribution that is nearly identical to that executed under the Treasury purchase program," according to the New York Fed statement – an extension of the quantitative easing (QE2) program in all but name.

Money Morning Chief Investment Strategist Keith Fitz-Gerald saw this "stealth mode" QE3 coming.

"Instead of printing more money, the Fed is likely to start reinvesting the proceeds of maturing debt," Fitz-Gerald said. "Ultimately, that won't reduce our government's bloated, toxic balance sheet. But it will change the makeup of that balance sheet – and not for the better."

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Hot Stocks: Toyota Motor Corp. (NYSE: TM) Won't Be Back on Track Any Time Soon

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Don't count on Toyota Motor Corp. (NYSE ADR: TM) to regain its place as the leader in global auto sales any time soon.

Because even though the company is ahead of schedule as it looks to bounce back from the horrible wave of disasters that engulfed Japan in the spring, it now faces another roadblock in the strengthening yen.

Indeed, the good news for Toyota is that it now expects full production in Japan to resume by September, two months earlier than originally predicted. But the bad news for the company is that the dollar has slid from over 90 yen a year ago to about 80 yen now, making all Japanese exports increasingly expensive. The break-even point for Toyota is around 85 yen to the dollar.

For every yen of appreciation, Toyota would need to raise the price of its autos in the United States by 1.25% to maintain the same profit, an unappealing alternative in a challenging economy.

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Expect Bernanke, Fed to Again Downplay Threat of Inflation

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Caught between a weak economy and the threat of inflation – two problems that argue for opposite solutions – the Federal Open Market Committee (FOMC) has little choice but to essentially stand pat at the culmination of its meeting today (Wednesday).

Faced with that challenge, it's likely that U.S. Federal Reserve Chairman Ben S. Bernanke will maintain his established course of downplaying the growing threat of inflation and making only minor policy adjustments.

Most economists expect the Fed to maintain its historically low federal-funds rate at the 0% to 0.25% level where it has been since December 2008 and end of the $600 billion bond-buying stimulus program known as quantitative easing (QE2) as planned.

Meanwhile, the prospects for a third round – QE3 – appear very dim, at least through the rest of 2011.

"I expect the Fed to maintain the low interest-rate environment, with no hint of any change to policy either," Frank Lesh, broker and futures analyst with FuturePath Trading, told Forbes.

Despite $2.79 trillion in various Fed stimulus programs over the past two years, U.S. unemployment has ticked back up above 9%, and gross domestic product (GDP) growth slumped to 1.8% growth in the first quarter.

Meanwhile, the massive infusion of money into the economy has jump-started inflation. The consumer price index rose 3.6% year-over-year in May – its fastest pace since 2008.

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The U.S. Federal Reserve Plan For QE3 – And Why It's a Done Deal

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When U.S. central bank policymakers conclude their two-day meeting today (Wednesday), there's really only one question investors want an answer to: What's the U.S. Federal Reserve plan for QE3?

Let me answer that for you: QE3 is a done deal – although Fed Chairman Ben Bernanke & Co. might well give it another name.

Let me explain …

$2.3 Trillion … And Counting

Since December 2008, when a worldwide credit crisis threatened to take down the global financial system, the U.S. Federal Reserve has had a starring role. It has held the benchmark Federal Funds rate at historic lows between zero and 0.25% to keep the U.S. economy from stalling. And it's pumped more than $2.3 trillion into the American financial system, mostly by purchasing securities on the open market.

The key to these asset purchases has been two "quantitative easing" plans. The second of the two, known as "QE2," was a $600 billion initiative that was rolled out in November. It's supposed to wind down when the second quarter ends next week – which is what the Fed promised at the end of its last FOMC meeting in late April.

When the Fed's policymaking Federal Open Market Committee (FOMC) meeting breaks up at around noon today, pundits are expecting Team Bernanke to announce that it's holding rates steady, and is winding down QE2 as promised.

But I'm just not buying this.

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Don't Get Suckered by Wall Street's Wimpy Gold Price Forecasts

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I was scanning the news wires in search of a particular item late last week when a story caught my eye: It seems that Newmont Mining Corp. (NYSE: NEM), the world's No.2 gold producer, believes that the burgeoning demand from Asia's newly minted middle class will send the yellow metal up to $1,600 this year and even higher in 2011.

The Newmont story reminded me of another news item that I'd read just days before – a news-service poll of analysts that said that the current Wall Street consensus was for gold prices to reach $1,700 an ounce in 2015.

What a joke.

You see, just a few months back, when gold and silver prices seemed like they were jumping every day, Wall Street and the other Big Boys were blitzing us with messages explaining why we "had to" buy gold.

You heard it on the radio. You read it online. You saw it on the nightly news. We were even inundated with those late-night infomercials or "junk-mail" packets that detailed the benefits of those funky "collector coins" (including some that were "individually hand painted," no less!).

Gold was going to $2,500, $5,000 or even $10,000. And only fools weren't in gold – or so they claimed.

But when gold prices stopped running, so did Wall Street's aggressive forecasts. In fact, we've basically seen an about-face – as if the Big Boys are now low-balling their gold price forecasts.

Don't get suckered.

If you buy what Wall Street is selling right now, you'll lose in a big way – twice. You'll miss out on the major profits that will come when gold prices run up to their inevitable new highs. And – perhaps even worse – you'll get left behind and find your buying power eroded in a big way when the inevitable harsh inflationary pressures ultimately take hold.

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Predict the Dow Contest Update: Where Do You Think the Dow Will Close?

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The Dow Jones Industrial Average ended its six-week losing streak last week as fears of debt defaults eased and the global economy appeared to improve.

The blue-chip bellwether rose for the third straight day yesterday (Monday) to close at 12,080.38 as bargain-hunters moved in and investor concerns about a Greek debt default continued to ease.

But where does the Dow go from here?

That's what we're asking Money Morning's readers as part of our "Predict the Dow/Win an iPad2" contest, which started last week. We're asking readers to predict where the Dow will be when the second quarter comes to a close on June 30. Deadline for entries is June 26.

Margaret Riddagh of Wilmington isn't sanguine about the market's outlook. She sees a second-quarter Dow close of 11,489.25 – a drop of more than 500 points, or about 5%, from present levels.

"I believe that the market will reflect more closely how the economy is really doing," she wrote with her entry. "The decline will start slow but continue as people realize that bad times are ahead, due to governmental policies."

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Agriculture's Impending 'Storm' Will Send Corn Prices Soaring

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Don't let the recent slip fool you: Corn prices are ready to soar.

Worldwide demand for corn has surged, and shrinking stockpiles are unlikely to be replaced due to extreme weather conditions that have destroyed millions of acres of farmland.

Even as corn production rises to record levels this year, it won't be enough to keep up with demand, and prices will climb.

"There is a storm developing in agriculture," Jean Bourlot, global head of commodities at UBS AG (NYSE: UBS), told Bloomberg News. "If we have the slightest disruption in any part of the world, the effect on the price will be considerable."

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Don't Get Burned by the New Tech Bubble

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Is there still any doubt about whether or not we're seeing a new tech bubble?

LinkedIn Corp. (NYSE: LNKD) is down some more than 30% from since its initial public offering (IPO) and Pandora Media Inc. (NYSE: P), which had a strong debut just last week, has dropped 35%.

Indeed, billion-dollar valuations for companies like Pandora and online coupon site Groupon Inc. have lured tech-hungry investors into buying what they think is the next big Internet stock. But the reality is that these companies are driving demand through low-float IPOs and undeliverable growth promises.

Investors need to understand that despite the excitement surrounding Internet and social media companies, the chance that these businesses will deliver on profitability promises is slim to none.

The fact that these companies were able to garner as much investor interest as they did raises a red flag that suggests a new tech bubble has formed – and is ready to burst.

"It's 1999; I wouldn't touch any of them," said Money Morning Contributing Editor Martin Hutchinson. "Every possible warning bell is telling me this is a bubble and we're close to its maximum inflation."

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After 100 Years of Service, IBM Corp. (NYSE: IBM) Is Still a 'Buy'

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IBM Corp. (NYSE: IBM) has provided information technology (IT) products and services worldwide for 100 years, making it the very definition of a blue-chip stock.

And when the market gets weak and starts to show signs of volatility, it usually is the blue-chip stocks that are the strongest in the pack.

So with the markets going through a bit of a rough patch, let's look for an opportunity to pick up shares of IBM during any pullbacks (**).

Four Reasons to Buy IBM

There are four big reasons why I like IBM right now:

  • It's 100 years old, so you know it's stable.
  • The company generates $100 billion in sales, which is a level few companies ever reach.
  • IBM has an unleveraged balance sheet with $40 billion in gross profits.
  • And the stock is relatively strong, as it's currently trading near its 52-week high, even as the greater market declines.

When I think about IBM, I think about stability. The company has never been accused of trying to be sexy from a marketing point of view. Yet, IBM has grown into one of the largest companies on the planet and has built a good reputation for being conservative.

In high growth periods, stocks like IBM fail to keep up – but in uncertain times, they really shine.

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