Archives for July 2011

July 2011 - Page 6 of 8 - Money Morning - Only the News You Can Profit From

Why the U.S. Should Return to the Gold Standard - Even Though it Won't

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Should the U.S. return to the gold standard?

It's a question that has taken on new relevance during a time of soaring deficits and sky-high national debt.

Many of the world's most successful governments, from ancient Rome to the British Empire, enjoyed centuries of economic stability by adhering to a gold standard. And some economists credit the period of prosperity at the end of the 19th century to a global gold standard.

"The period of 1870 to 1914 recorded the highest real growth rates worldwide and was

among the most peaceful ones in history," says a report on gold released earlier this month

by European bank Erste Group. "Most of the budgets were balanced, and there was a free flow of capital across borders. The only job of the central banks was to exchange gold for paper or vice versa."

Even former Federal Reserve Chairman Alan Greenspan has noted the historical benefits of the gold standard.

"Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity," Greenspan told Fox Business Network in January. "There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard."

Money Morning Contributing Editor Martin Hutchinson agrees, and he is one of a growing number that believe the U.S. should return to the gold standard – even though he sees such a drastic change as unlikely.

"It would solve the unemployment problem, because expensive capital makes people use more labor," said Hutchinson. "And it would indeed enforce fiscal discipline."

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New Products and Cheap Shares Mean It's Time to Buy Google Inc. (Nasdaq: GOOG)

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Google Inc. (Nasdaq: GOOG) has fumbled some moneymaking initiatives over the past six months, but now it's time I give them credit.

The company finally appears to be on the path toward shaping up its many facets, giving advertisers more reason to promote on the network – and putting more money in Google's fat pockets.

It helps when a company is challenged by a fierce rival or two, and right now Google's getting a motivating push from Facebook Inc. and Microsoft Corp. (Nasdaq: MSFT). I am particularly impressed with Google Plus (Google+), the search giant's new attack on Facebook. It is a rethink of the social web that looks like it could actually gain traction in coming months and years.

There is a huge opportunity in the social web for people who don't quite get Facebook, which is a large percentage of the population over age 25. For my teenage kids, Facebook practically is the Internet. They do all their messaging, e-mailing and photo-sharing there in one great big group hug; what's made available to one friend is made available to all.

But there are hordes of people who would never want to share their lives with all their friends, and compartmentalize their lives between work, neighborhood, old high school buddies and the like. For them, the social media team at Google+ has created the concept of "circles," which allows you to share some photos and links with one group of friends to the exclusion of others. And all of your Google contacts can easily be interwoven into a larger conversation in a way that escapes the confines of instant messaging or e-mail.

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June's Abysmal Jobs Report is Just the Beginning

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The June jobs report was abysmal – bud sadly it's just the beginning.

After just a few months of modest, stimulus-induced improvement the jobs market is again sliding backwards into a "new normal" characterized by even higher rates of unemployment.

"Unfortunately, I expect chronic high unemployment to be with us for years, and to borrow a phrase from Bill Gross of PIMCO, that's the real ‘new normal,'" said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

The dismal job growth boosted the unemployment rate to 9.2% in June from 9.1% the month prior. The labor force declined by 270,000, and the total amount of people out of work, including those who have stopped looking, is up to 16.2%, from 15.8% the month before.

"It is about as bad as anyone could imagine," Nigel Gault, chief U.S. economist for IHS Global Insight, told MarketWatch. "On face value it does suggest we are grinding to a halt," he said.

Indeed, the meager 18,000 jobs added in June actually led some analysts to question the report's accuracy.

"At first, when I heard it, I thought maybe they had announced the wrong numbers, they were so bad," Robert Brusca of Fact and Opinion Economics told CNN.

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Goldcorp Inc. (NYSE: GG) is a Gold Bug's Best Friend

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If gold is the can't-miss investment of the decade – and it is – then Goldcorp Inc. (NYSE: GG) is a can't-miss opportunity for investors.

We're talking about a company with huge, profitable gold reserves and no net debt, which means it's time to buy Goldcorp Inc. (**).

It was only a few short years ago that central bankers were the bane of gold and gold equity investors. This was the era when central banks loved to dump physical gold on the market at cheap prices. In fact, they loved it so much that they had to invent a selling quota system just to give everyone a fair chance to unload their precious metals.

But now things have changed. Non-stop money printing by central banks around the world and fears of sovereign debt contagion continue to drive the price of gold higher.

Indeed, gold has become the go-to investment of the past decade, turning gold producers into profitable growth centers.

And Goldcorp is in the perfect position to profit.

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Prices for Rare Earth Metals Will Continue to Soar with China's Monopoly Intact

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The discovery of a massive trove of rare earth metals at the bottom of the Pacific Ocean last week triggered a fleeting hope that China's monopoly on the materials would be broken.

Unfortunately, the discovery may not have the impact many had hoped, which means prices for rare earth metals will continue to soar. That's bad news for countries like the United States and Japan, which count on the scarce materials for high-tech industries.

Developed countries require rare earths to manufacture a wide range of high-tech products, including flat-panel displays, computers, hybrid car batteries, cell phones, solar panels and some advanced weapons systems.

For instance, there are more than 50 pounds of rare earth metals under the hood of a Toyota Motor Corp. (NYSE ADR: TM) Prius. Terbium can cut the electricity demand of lights by up to 80% and fractions of dysprosium can significantly reduce the weight of magnets in electric motors.

But China, which produces 97% of the world's rare earth metals, has drastically reduced its exports over the past several years, driving prices skyward.

Citing "environmental protection," China cut its rare earth exports to just 30,259 metric tons in 2010 from 67,521 metric tons in 2005.

That has caused runaway price increases for many of the 17 metals.

Over the past year dysprosium, used in specialized magnets, shot up from $300 per kilogram to $1,900 per kilogram and even higher. Neodymium has spiked to $450 per kilogram from $45 per kilogram late last year.

The Market Vectors Rare Earth Metals ETF (NYSE: REMX) is up 7.25% year-to-date and 32% over the past 12 months, as a result.

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When to Invest in Commodities

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Inquiring minds are always wondering when to invest in commodities. Commodities have universal definition and demand. Everybody knows what a meal is, and all of us want it. Most people on the globe know what gold is, and nearly all of them want it. This is also true for oil, steel and copper. In a […]

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The Debt-Ceiling Debate: Three Federal Tax Increases That Could Save the U.S. Economy

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As the debt-ceiling debate escalates, U.S President Barack Obama says federal tax increases are necessary to close the U.S. budget deficit.

Although Republicans then said that tax hikes were "off the table," this statement is reminiscent of a toddler who threatens to hold his breath until he turns blue if you make him eat spinach.

Given that our elected leaders in Congress just can't seem to curb their spending addiction, the unpleasant reality is that some types of tax hikes are essentially inevitable.

Truth be told, I can show you three tax increases that should be enacted.

As a taxpayer, that statement will probably make you wince in anticipated pain.

But once I've made my case, I'm betting that the investor in you will agree that these three federal tax increases could save the U.S. economic recovery.

Let's take a look …

Federal Tax Increases We Don't Want to See

If we ignore the debt-ceiling debate (and the Aug. 2 deadline for increasing the ceiling) for a minute, and just consider the health and welfare of the U.S. economy, we can see that there are a number of federal tax increases that would be highly counterproductive.

One example: boosting the corporate tax rate above 35%.

Except for Japan, the United States already has the highest corporate tax rate in the Organisation for Economic Co-operation and Development (OECD). Corporations don't pay much tax because they are able to keep profits overseas in tax-free jurisdictions and employ leasing and other tax breaks. It would make much more sense to lower the corporate tax rate – perhaps to 30% – and close many of the loopholes so that the "yield" (what's actually collected) is the same or perhaps even a little higher.

Similarly, it makes no sense to increase the 15% tax on dividend income. Dividends are paid by corporations out of their after-tax income. The levy on dividends – paid by the company's shareholders – means those companies actually suffer from a "double-taxation" rate of about 47%.

This encourages companies to fool around with stock options, repurchase agreements and with overpriced acquisitions, thus ripping off ordinary shareholders and reducing the economy's efficiency.

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Netflix Inc. (Nasdaq: NFLX)Chases Hot Profits in Latin America

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Netflix Inc. (Nasdaq: NFLX) delivered big news this week to those doubting its stock can keep up its meteoric rise: It's going global.

The online video service announced Tuesday it will expand into 43 countries in Latin America and the Caribbean, giving investors another reason to bet on its long-term growth.

The move means Netflix has access to a brand new avenue for profit, instead of focusing solely on the developed North American market.

The announcement pushed Netflix shares up about 8% Tuesday. Netflix's phenomenal 1,000% price jump since 2008 – 68% this year alone – has short sellers in a frenzy, thinking the company must be due for a significant pullback.

But as we told you in May, those doubters should reconsider their stance.

Netflix has revolutionized the way people watch movies, and is transforming the way people watch TV. Now it's implementing its media innovations on a worldwide scale.

Netflix joins the growing group of U.S.-based companies like PepsiCo Inc. (NYSE: PEP) and General Motors Co. (NYSE: GM) in targeting emerging-market growth, and analysts say the ventures will pay off.

"I like the fact that Netflix is growing aggressively into emerging economies because that's clearly where the spending patterns show money is going to be," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I think the latest estimates show that there's more than $1 trillion expected to flow into developing economies this year."

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