Archives for July 2011

July 2011 - Page 7 of 8 - Money Morning - Only the News You Can Profit From

Team Bernanke's QE17: A Glimpse of America in 2015

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At the end of last month, the U.S. Federal Reserve brought down the curtain on its $600 billion "quantitative easing" initiative, a U.S. Treasury-bond-purchase program that investors liked to refer to as "QE2."

Fed Chairman Ben S. Bernanke has indicated that he does not intend to carry out a follow-up "QE3" program.

But here's the reality: The U.S. federal deficit is running at about $1.6 trillion, meaning we need to sell a lot of Treasury bonds to finance the shortfall. So if the Treasury-bond market gets a case of "indigestion" – meaning there aren't enough buyers to fulfill our massive financing needs – many folks believe that Bernanke will have to step in with the-much-talked-about "QE3" bond-buying program.

But Ben, please be forewarned: If you do this, our future is clear …

A Glimpse of Our Future

The year is 2015, and it's late in the month of June. Central bank policymakers have been meeting for two days. Now it's late in the afternoon of that second day, and Bernanke's traditional press conference is set to start at any moment. Investors the world over have stopped everything to hear what the U.S Fed leader has to say.

Bernanke is still not the longest-serving Fed chairman: With only nine years under his belt, he has a decade to go before he'd have more service time than predecessor Alan Greenspan, or the legendary William McChesney Martin.

But as Fed chairmen go, Bernanke is uniquely powerful – perhaps even more so today than he was back in 2011. We all know that he won't change interest rates, which have now been held in a target range of 0.00% to 0.25% for nearly seven years. The real question – and the reason we're waiting for the press conference to start – is whether the former Princeton economist will indulge the financial markets with a further round of quantitative easing.

This round of Treasury bond purchases would be "QE17" – but these days, nobody's counting.

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Chinese Car Companies Racing to Produce a Global Champion

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With Detroit a shadow of its former self and Japanese automakers sidelined by that country's recent disasters, Chinese car companies are racing to produce a global champion capable of competing with Western brands.

It's something that's long been talked about and something that Nissan Motor Co. (PINK: NSANY) Chief Executive Carlos Ghosn says could happen in just five short years.

"The Chinese government says this is a huge industry. We want to have a Chinese champion," Ghosn told Reuters. "It's logical. It's normal. We were expecting this."

Ghosn anticipates such an emergence will take about five years, but could happen even sooner if one of the major Chinese car companies acquires a mass-market auto brand from a foreign rival.

So who will this Chinese auto champion be?

A short-list of serious contenders includes:

SAIC, and Chang'an are state-owned, which makes them difficult to invest in. But Geely, Dongfeng, and BYD are open to U.S. investors, with the latter backed by Warren Buffett. At the very least, these Chinese car companies stand to profit handsomely as China takes its place as the automotive capital of the world.

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Special Report: What is the Greek Debt Crisis, and What Does it Mean for Investors?

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With Greece on the brink of default – and hanging over the global economy like a financial sword of Damocles – investors the world over are asking themselves the very same question, day after day: Just what is the Greek debt crisis, and what does it mean to me?

It means a lot.

In fact, the Greek debt crisis could prove to be the first in a series of sovereign-debt defaults that could even infect the U.S. economy, tipping it into a "double-dip" recession and reprising the bear market of 2009.

In short, this crisis is one you need to watch and understand.

Given the stakes, we decided to work with our panel of global-investing experts and put together this Money Morning special report: "What is the Greek Debt Crisis, and What Does it Mean for Investors?"

Our goal was to provide you with answers to some of the key questions about the Greek debt crisis – how it started, what's actually taking place, how it could affect the U.S. economy, and how we expect it to play out.

And with the help of experts Keith Fitz-Gerald, Shah Gilani and Martin Hutchinson, we also answer the most important debt-crisis question of all: "What should you do about it?"

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The Stock Market Volatility Index: What the VIX is Telling Investors

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In the early ‘80s, when I was running a hedge fund from the floor of the Chicago Board of Options Exchange (CBOE), I was a market maker in OEX options. The OEX is the Standard & Poor's 100 Index. The CBOE Market Volatility Index (VIX) was born from trading options on the OEX and from our desire to more accurately price risk.

The stock market volatility index (VIX) – or "fear gauge," as it's often called – has been giving off unexpectedly low readings in 2011.

But don't be fooled. Things aren't what they seem.

Structural dynamics are currently suppressing the VIX, and are diminishing its predictive power.

If you want to trade this as a speculative investment – or even if you just want to use the VIX to better hedge your portfolio holdings – you need to understand the forces that are working on this stock market volatility index.

Let me explain …

I Was There for the Birth of the VIX

Back during my hedge-fund days, we used Monchik-Weber machines with their built-in Black-Scholes options pricing formula to help us mathematically measure put and call-option values. The computers would provide us with the theoretical value of the options we were trading.

But it wasn't long before a gap between those theoretical values and the actual market prices drove us to find a different way to measure volatility. To calculate "implied volatility" – the estimated volatility extracted directly from bids, offers and actual prices – we looked at real-time prices as opposed to theory.

Simply put, based on actual prices for calls and puts on the OEX, we separated out implied volatility and used it as a measure of what traders were expecting to happen.

This volatility measure is the expectation of price movement over the next 30 days. The higher the reading, the more likely stocks are to move in one direction or another.

Over time, our volatility index became known as the VIX. And eventually, the VIX – not the OEX – became a measure of options-pricing volatility based on the Standard & Poor's 500 Index.

The VIX is called the "fear gauge" for a good reason: As that index rises, it's basically telling us that traders and investors are paying a greater premium to buy options, mostly because they are "paying up" to buy puts.

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Stock-Market Survival Strategies: Why Raytheon is a "Must-Own" Profit Play

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If you want some stock-market-survival advice, pull up a chair and spare us a couple of minutes.

From late April to mid-June, the Dow Jones Industrial Average plummeted more than 900 points. That 7% stock-market decline – which included a six-week losing streak – accelerated talks of a new bear market and a double-dip recession.

But just when it appeared the bottom was going to fall out of the U.S. stock market, the Dow did an about-face: It soared nearly 650 points in just five days and, like a vaudeville magician, seemed to make the bear-market worries disappear.

But don't be too trusting, says Money Morning's Keith Fitz-Gerald. In a market like this, stock-market survival is all about careful research, attention to detail and risk management.

"Like any investor or trader, I'll take a rally however it happens to come – and no matter why it comes," Fitz-Gerald said in an interview yesterday (Tuesday). "But I remain very concerned with what I see. It won't take much to spook this market."

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Antimicrobial Copper Could Save Thousands of Lives, Billions of Dollars

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In less than two hours this material can kill 99.9% of most of the bacteria on its surface, including E.coli, influenza, staphylococcus and H1N1.

A recent four-year trial has shown that using it on such frequently touched hospital items as bed rails, IV poles, tray tables and nurse call buttons reduces infection rates by more than 40%.

With hospital-acquired infections (HAIs) the fourth-leading cause of death in the United States, such a wonder material could have a profound impact on the health care industry.

The Centers for Disease Control and Prevention have estimated that each year HAIs kill more than 100,000 people and inflict costs of $45 billion. Nearly one out of every 20 patients in U.S. hospitals acquires an HAI.

So what is this miraculous material? Is it a technological breakthrough born of years of experimentation and hard work by hundreds of scientists toiling in hidden labs?

Not quite.

In fact, you probably have some in your pocket right now – this magic material is none other than ordinary copper, although its advocates prefer the term "antimicrobial copper."

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Profit From Inflation: These Six Stocks That Will Add Punch to Your Portfolio

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If there's one skill you need to learn, it's how to profit from inflation.

Thanks to the cheap-money policies of Team Bernanke at the U.S. Federal Reserve, the escalating levels of global sovereign debt, and other recent developments in the world economy, it's clear that we're headed for a period of steeply rising prices – inflation. If you know how to navigate this tricky stretch, you'll be fine. But those who don't are going to really feel the squeeze.

Learning how to profit from inflation is actually an easier assignment than you might expect. First, you have to invest in certain classes of stocks that have historically performed exceptionally well when inflation has raged across the land. And, second, you will enjoy maximum profits if you invest in those stocks before inflation really takes hold.

Let me use six specific stocks as examples to show you what I mean.

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Its Recent Pullback Makes Pan American Silver Corp. (Nasdaq: PAAS) a Bargain

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Pan American Silver Corp. (Nasdaq: PAAS) is a silver mining company that has experienced a significant pullback in price since hitting its high in March. That means patient investors have a nice chance to enter at lower prices while the market calms down.

The parabolic move up in silver prices this spring helped provide a real stimulus to the share prices in some of the mining stocks. When silver prices pulled back after the Chicago Mercantile Exchange (Nasdaq: CME) raised margin rates over and over, the share prices of silver producers were negatively impacted.

The hot money has fled the sector and won't be back for a while, with equity prices now trading in the middle of their 52-week range. This gives patient investors, who are not chasing the current money, a chance to add or increase their exposure to silver miners without paying a pretty penny.

Why Pan American Silver is a "Buy"

When I look at a mining company, there are a few things I have learned to look for: Is the company already leveraged to the gills? How leveraged is it to the upside of its sector? Is it operating at a profit? Does it have a track history of operating at a profit?

In the case of Pan American Silver Corp., the company passes the test.

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The Greek Debt Crisis and the Price of Oil

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It is not yet 8:00 in the morning, and already the bullhorns are active. Organizers are chanting out instructions just out of sight, and music is blaring from loudspeakers somewhere in the distance. I notice that there is absolutely no traffic on the streets. Strange for Panepistemiou – normally one of the busiest thoroughfares in […]

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The World's Top 5 Gold Coin Scams: Everything You Need To Know Before Buying

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If you believe those late-night infomercials, radio-talk-show hosts or even those stunning sales figures for Gold Eagles, buying gold coins is a slam-dunk strategy for lasting wealth. Just last month, for instance, U.S. Mint buyers ordered 107,000 ounces of bullion Gold Eagles – the third-best in the series' 25-year history. And this soaring interest in […]

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