Archives for July 2011

July 2011 - Page 3 of 8 - Money Morning - Only the News You Can Profit From

Why China's New Futures Market is Bullish for Long-Term Silver Prices

If you're still bearish on long-term silver prices, you'd better reconsider your stance.

Dollar-denominated Chinese silver futures were scheduled to begin trading on the Hong Kong Mercantile Exchange early today (Friday). This development will grant Asian investors direct access to the metal, and will blunt the U.S. dominance in silver-bullion trading.

It's also highly bullish for long-term silver prices.

Let me explain …

A New Catalyst for Silver Prices

The Hong Kong Merc's entry into the silver-futures market is a game-changer – for a number of reasons. For one thing, the emergence of a new market player will effectively neuter U.S. elitists like those at the Chicago Mercantile Exchange (CME).

I specifically mention the CME because that exchange unilaterally raised margin requirements on silver by nearly 100% in a mere eight days this spring – after silver prices had soared more than 160% between late August and the end of April. The CME action helped cause silver prices to plunge by 30% from the just-achieved, new-record highs of more than $50 an ounce.

  • I t hasn't recovered. [ Silver was still trading in the $39-an-ounce range as of yesterday (Thursday), according to Bloomberg LLC .]

Longer-term – and probably even more significantly – this move will help investors in China and India buy into bullion. In fact, this will be the first time Chinese (and many Asians in the surrounding markets) can purchase silver-futures contracts and, by implication, take delivery. Historically, investors in those markets had to purchase CME-based contracts that are standardized and traded through the Hong Kong Futures Exchange – in accordance with the Chicago-based CME.

In case you aren't familiar with them, futures contracts require the buyers to be prepared to take ownership and delivery when the contract comes due. Like any other "contract," futures are legally binding agreements for delivery of the underlying asset (in this case silver) at an agreed-upon future date and at an agreed-upon price. Further, they are standardized by futures exchanges with regard to quantity, quality, time and the place of delivery.

Only the price changes, which is why futures contracts can offer more financial flexibility, leverage and financial integrity than trading the underlying physical assets themselves.

Asia is already becoming a bigger factor in the silver market. From 2008 to 2010, silver demand soared 17% globally – including 67% in China alone (reaching 7,495 metric tons), according to the Hong Kong Merc. In fact, China accounted for nearly 23% of global silver consumption last year …

That makes the new futures contracts an even bigger deal than most investors have yet to realize.

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Suntech Power Holdings (NYSE ADR: STP) Outshines Other Solar Cell Makers

Suntech Power Holdings Co. Ltd (NYSE: ADR STP) is the one company that's best-equipped to withstand the biggest challenge facing the solar cell industry – falling prices and squeezed margins.

Make no mistake: The solar sector has suffered of late.

Several stocks have shed as much as 20%, as a result of margin concerns and a drop-off in generous European government subsidies.

And Suntech has been no exception. It's fallen nearly 25% since April 1.

But China-based Suntech Power has advantages its rivals do not – and that makes it more of a bargain than a flop.

Surprisingly, that advantage is not low labor costs, which accounts for less than 4% of the cost of building solar cells, but rather technical advances in manufacturing.

For years Suntech has scouted out research, such as a two-decade-old project at Australia's University of New South Wales, which it has adapted to enhance its manufacturing process. Those efforts have increased efficiency and beefed up performance of the solar cells themselves.

"They were trying to commercialize [that technology] the entire time," Stuart Wenham, Suntech's Chief Technology Officer, told Technology Review. "It took Suntech to turn those laboratory processes into production processes."

One such process cut solar panel costs by 10% to 20%; another increased manufacturing efficiency by 10%.

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Money Morning's "Deadbeat States" Warning Hits Fed's Radar

Earlier this year, Money Morning Contributing Editor Martin Hutchinson advised muni-bond investors to beware the effects of "deadbeat states" – and now the U.S. government is heeding that warning.

The Federal Reserve Bank of Philadelphia this spring cited Martin Hutchinson in a recent regulatory publication, where it warned financial institutions about the looming danger in municipal bond investing.

"Martin Hutchinson, contributing editor to Money Morning, indicates that the problem facing the municipal bond market is the emergence of ‘deadbeat states,' citing the beating that state and local government finances have taken during this economic downturn in particular," wrote Philadelphia Fed Examiner Becky Goodwin in the Supervision, Regulation and Credit Department second-quarter newsletter. "Making matters worse, Hutchinson cites larger debt loads in states, which cannot be covered due to the reduced property tax stream resulting from record housing defaults."

At mid-year 2010, state budget shortfalls totaled $200 billion – the largest gap in recorded history, according to the Center on Budget and Policy Priorities. These shortfalls could trim to $103 billion by fiscal year 2012, but progress is likely to stall since states face fewer options to adequately address their budget issues.

Worse, the U.S. government will likely implement more spending cuts as it battles over the debt ceiling, which means states planning to turn to federal aid when they need extra funding will be turned away.

"States expecting Congress to authorize more assistance are going to be left with a very large hole to fill," said Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform.

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California Man Wins Inaugural "Predict the Dow" Contest ... With Help From a Surprising Source

Kenneth Alkire, a California man who's working as a Defense Department contract worker in the Middle East, is the winner of Money Morning's inaugural "Predict the Dow" contest.

Alkire, 60, predicted a second-quarter close of 12,414.27 for the Dow Jones Industrial Average – a stunning guess that was only seven-hundredths of a percentage point (0.07) away from the actual second-quarter adjusted close of 12,414.34. For this near-perfect guess, Alkire wins a top-of-the-line Apple Inc. (Nasdaq: AAPL) iPad2 (MSRP $829).

When posting his prediction on the "Predict the Dow" Website (, the San Diego County resident said he believed U.S. stocks "would go up a little – and then down," and noted somewhat grimly that "it is not a pretty picture for the future with the debt ceiling rising."

In a telephone interview, Alkire's wife Diane – the family's actual investing aficionado – revealed that her husband's guess was more sentimental than scientific. He figured the market would go up in the near term, so he predicted a second-quarter Dow close north of 12,000. But he filled out the rest of his prediction in a manner that was intended to honor his late daughter, Nicole, who passed away in 2000, Diane said.

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New Poll Says Washington Has Done a Lousy Job During the Debt-Ceiling Debate - But What Do You Think?

It looks like America has finally had it with Washington.

In fact, for many Americans, the debt-ceiling debate has literally become the last straw.

Half of the people surveyed in a new poll say that our elected leaders in the nation's capital – U.S. President Barack Obama and Congress – are doing a worse job than their predecessors in attacking the country's problems.

But out of all the survey results, here's the one factoid that really grabbed my attention: Four in 10 of those respondents are rating it as the very worst job they've seen in their lifetimes.


The USA Today/Gallup Poll – released this week – focuses on the debt-ceiling debate. Respondents said that congressional representatives on both sides of the aisle are putting their own political interests first. In fact, in one other sobering revelation, just 7% believe both sides are even negotiating in good faith.

"Unfortunately, results like these underscore what we've been telling Money Morning readers for years – that our legislators haven't got a clue, that our regulators are a sham and that Wall Street truly does rule the roost," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, a columnist and commentator who has been addressing these very same issues. "What saddens me most about all this is the fact that the specific fixes are actually not that difficult to understand or implement – if we only had the political willpower to do something about a crisis that's sold Main Street down the river."

Strong words, indeed. And some sobering poll results.

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The Bank of America Settlement: The Latest Travesty in the U.S. Banking System

If there's one thing the recent Bank of America Corp. (NYSE: BAC) settlement proposal demonstrates, it's this: Calling the easy treatment that big banks have been enjoying in recent court and regulatory actions "a travesty of justice" is like calling the Grand Canyon a ditch.

In fact, the truth is this: Given the activities U.S. banks have been involved in during the past two decades, and the actions they've taken, we'd be justified in labeling these institutions as "criminal enterprises." The billions of dollars in penalties the banks have had to pay during this stretch are evidence of such activities, but are really only token payments given the magnitude of the damage these enterprises have caused.

And until banks stop acting as criminal enterprises, and outside agencies thoroughly investigate and fully prosecute banks and their executives for criminal activity, we will continue to move towards a government of the banks, by the banks and for the bankers.

The Bank of America Settlement

The Bank of America settlement offers us a real-life illustration of what I'm referring to.

BofA is close to settling with 22 large investors over failed mortgage-backed securities (MBS). But it may only have to pay $8.5 billion to investors who claim that Countrywide Financial Corp. – which BofA acquired in 2008 – lied to them about the value of the mortgage-backed securities they purchased.

If you do the math, the Bank of America settlement would result in payments of less than 5 cents on the dollar. But what's even more grotesque about this proposal is that it would "wall off" the bank from any other suits or losses on the pools in question – even though hundreds of other investors were also harmed by the sunken securities.

We'll soon see if a court approves the settlement. All hell will break lose if that happens.

And it should. But that's just one case.

The big picture is downright ugly.

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Don't Miss Your Chance to Profit from the Best Coal Stocks

U.S. and European debt concerns have triggered some dismal market performances – but there is still one energy sector that's moving up.

And that's coal.

The Dow Jones U.S. Coal Index, which tracks 69 energy and coal-related companies, has climbed 60% in the past year and 13% in the past month.

So what's the key motivating factor moving the world's best coal stocks higher?

Simply put, it's a combination of shrinking supplies and rising demand.

Indeed, Coal prices are up more than 20% in the past year and many experts say increasing consumption from emerging economies like China – the world's biggest coal consumer – and India will push prices even higher.

China's rapid growth has been the main driver behind an average 3.8% annual increase in global coal demand since 2000. In fact, the country accounted for about half of the world's coal consumption in 2009. And a China Energy Research Institute report recently estimated that country's economic growth, urbanization, and rising middle class would increase coal demand by 700 million tons to 1 billion tons by 2020.

India's coal imports are expected to double to 100 million tons by 2012. And Japan also will boost demand attempts to rebound from the tragic March 11 earthquake and tsunami.

Growing demand isn't the only reason to believe prices will soar, either. Because as worldwide demand surges, global coal supplies are rapidly falling.

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The No. 1 Way to Profit as the Price of Gold Soars Into Record Territory

On Monday, debt fears on both sides of the Atlantic sent gold above the $1,600 level for the first time ever.

The yellow metal has risen steadily since the start of 2009, when it was trading at a bit less than $900 an ounce.

And gold's advance has accelerated of late. The price of gold increased 21% in the year's first half. And even with the decline to $1,587.30 yesterday (Tuesday), the yellow metal is up 7% since July 1.

Many investors and investment pundits are claiming this gold-plated party is destined to end: When the Eurozone gets its house in order and our elected leaders in Washington finally reach a federal budget accord, these gloom-and-doomers say the price of gold will plummet.

But I say they're wrong.

Gold isn't going to crash. In fact, it isn't even going to hold steady at current levels.

The price of gold is destined to soar during the next six months to nine months.

And I'm going to show you the best way to hitch a ride on this rocket.

The Bright Side to Global Debt Fears

I've been analyzing gold miners and other natural-resources investments for a long time. Now, when I'm analyzing precious-metals-related investments for a Money Morning column, or for the subscribers of my "Global Resource Alert" trading service, there are certain financial indices that I like to study. And I especially like to see how each of these indices behaves against one another.

price of gold

One of the most valuable – and telling – of these relationships is the one that compares the price of gold to the U.S. Standard & Poor's 500 Index. To make this comparison, I use two exchange-traded funds (ETFs) as "proxies" – stand-ins – for each of these investments. The SPDR Gold Trust (NYSE: GLD) represents the price of gold and the SPDR S&P 500 (NYSE: SPY) serves as a proxy for the broad stock market.

If we look at what has happened over the past six years, the trend is undeniable: Thanks to the U.S. Federal Reserve – first because of aggressive rate-cutting by former Fed Chairman Alan Greenspan, and then due to the massive debt expansion engineered by successor and current Fed honcho Ben S. Bernanke – gold is in a clear uptrend.

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The Oil Supply Constriction Is Fast Approaching

Shortly I'll be off to Victoria Station, the train to Gatwick, and a welcome flight home to Pittsburgh. However, there is an accelerating development I need to tell you about before getting on the plane.

As you know, last month, the Paris-based International Energy Agency (IEA) and the U.S. government announced they were releasing 60 million barrels of crude oil into the international market, 30 million of which coming from the U.S. Strategic Petroleum Reserve (SPR).

I said at the time that this would only make matters worse. The market has already confirmed my conclusion.

The move hit an unprepared market while I was in Athens on the first leg of this five-week trip. And from the outset, neither the rationale provided by Paris nor Washington rang true.

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