Archives for August 2011

August 2011 - Page 7 of 10 - Money Morning - Only the News You Can Profit From

U.S. AA+ Credit Rating Downgrade: Here's The Worst-Case Scenario... And How To Protect Your Wealth

If there's a "worst-case scenario" for this whole credit downgrade, this is it.

U.S. stocks have plummeted with the Standard & Poor's downgrade, but the final results of the AA+ credit rating could be much, much worse.

After studying everything that could happen due to the downgrade of the United States' top-tier AAA credit rating, and the potential default on its debt, we found a scenario that would result in forced asset sales so widespread that global stock-and-bond markets would plunge – and economies around the world would crash.

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A Potential "Big Trade" That Will Put George Soros to Shame

Many investors dream of making the "big trade."

Spurred on by stories of fabled investors who accumulated generations of wealth with just one big trade, they talk incessantly about what they could or should have done.

But actually doing something about it pays better.

Consider George Soros, who reportedly made $1.1 billion in a single trade against the Bank of England by shorting the British pound on September 16, 1992. Or Jessie Livermore, who reportedly made $100 million on October 24, 1929 – Black Thursday. Or how about Jay Gould, who tried to corner the gold market on September 24, 1869. Nobody knows exactly how much Gould made but he left his children $77 million when he died in 1892.

Well, if you have the guts, now is the time to make your move, because I think the next "big short" is already out there. In fact, judging from open interest I'm seeing on gold puts and VIX puts, I'd bet on it.

Right now there are literally tens of thousands of contracts open on both at various strike prices, so the odds are good that somebody – perhaps a group, a hedge fund, or another big money player – is placing highly leveraged bets that things will reverse.

With the proper structure, these trades could dwarf the bets made by Soros, Livermore, and Gould.

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How You Can Get a Private Briefing From Our Global-Investing Gurus

It's been four years since we launched Money Morning. And by just about any measure you can think of, this global-investing news service has been a great success.

Every weekday morning, more than 650,000 subscribers receive our e-letter, which details the most important things readers need to know that day – the top news story and what it means, the latest trends, and the greatest profit opportunities.

We have a lot to be proud of. For instance:

  • We predicted the bull markets in both gold and silver – and told you how to profit.
  • We warned readers that the housing crisis and credit-default swaps would bring about a financial crisis that was much deeper and far more damaging than Wall Street or Washington initially admitted – and told you how to protect yourself.
  • And we've highlighted some of the best investment opportunities available in the market – in 2010 alone, our Money Morning picks out-performed the Standard & Poor's 500 Index by a whopping 58% overall … with 117 double-digit gains!

The bottom line is this: We've brought answers – and certainty – to our readers during one of the worst markets most of us have ever seen.

But it's not enough.

A Private Briefing

As most of you know, I spent more than 20 years as a business journalist, and worked for some of the top newspaper publishers in the country. So I have a very reader-centric mindset.

And while I'm incredibly proud of what Money Morning delivers each day, I know there's more that we could do.

That's why we've just introduced a new service called Private Briefing. In my role as the "gatekeeper" of news, insights and investment reports here at Money Map Press, I have daily briefings from our team of global investing gurus – including such top experts as Chief Investment Strategist Keith Fitz-Gerald, global-investing expert Martin Hutchinson, retired hedge-fund manager Shah Gilani, and natural-resources specialist Peter Krauth.

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How I Made 52% Off the Last Stock Crisis

Man, what a week, right?

We all watched the world markets take a pretty bad beating. The Dow Jones Industrial Average plunged a horrific 635 points Monday and another 520 points on Wednesday, taking the blue-chip index to a level it hasn't seen since last September.

Markets in Europe and Asia tumbled as well, leaving investors shell-shocked.

It reminds me of how the markets reacted after the 2008 collapse of Lehman Brothers Holdings Inc. (PINK: LEHMQ).

Investors panicked. They dumped nearly everything. Stocks fell 29% in three months. Commodities fell an incredible 47% that autumn.

At the time, you couldn't turn on even the local news without hearing something negative about the markets.

But I'll let you in on a secret: I loved every minute of it.

I made a nice 52% profit in my personal forex account that fall, all thanks to the increased volatility in the markets.

Yes, the very thing that sunk stock and commodity prices caused my forex trades to soar higher and faster than ever.

It wasn't an isolated event, either. There are plenty of ways you can profit from volatile swings in the stock markets with foreign currencies.

Take now, for instance. As of this week, volatility has emerged in the markets with a vengeance. But that's exactly the kind of volatility that rewards traders. In just a moment, I'm going to show you how to use this volatility to your advantage.

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Why a U.S. Default Will Be a Good Thing

Now that Standard & Poor's has finally slashed its U.S. credit rating, it's more apparent than ever that a U.S. default is imminent.

So if you're at all panicked by S&P's decision to downgrade the country's top-tier credit rating – and the resultant freefall in U.S. stock prices – brace yourself: It's going to get a lot worse before it gets better.

But make no mistake, it will get better.

In fact, at this point, a U.S. default is the only conceivable remedy to our debt affliction.

Here's why …

The Wrong Road

The United States has been able to coast on its top -tier credit rating for far too long. The truth is, this country stopped being a AAA credit risk in early 2007.

That's when the Bush administration's excess spending and military forays into the Middle East sent us down the wrong road and ultimately drove the fiscal 2008 federal deficit to more than $400 billion. That's despite the fact that the economy was at the top of an economic boom at the time.

It's true that our fiscal position has grown substantially worse since then, but that's mainly because of the G reat R ecession of 2008-09.

Even if an imaginary amalgam of Calvin Coolidge and Bill Clinton had been in the White House since 2008, inheriting the overspending already built into the system, the federal deficit still would have reached $700 billion to $800 billion over the last few years.

Just the bailouts of Fannie Mae, Freddie Mac, General Motors Co. (NYSE: GM) and Chrysler would have added enough to the structural costs of recession to push the arithmetic off kilter.

The Bush administration's additional spending in 2008, U.S. President Barack Obama's $800 billion-plus of "stimulus," and the g rotesque addiction that Congress continues to have to subsidies for farmers, ethanol, and idiotic "green" energy projects have all made the position worse. But they only account for about half of the annual deficit.

Of course, while recent political decisions don't bear much responsibility for the current lousy U.S. position, our current crop of politicians have been – and will continue to be – ineffective in their attempts to emerge from it.

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Be a Gold Digger with Compania de Minas Buenaventura SA (NYSE ADR: BVN)

Compania de Minas Buenaventura SA (NYSE ADR: BVN) is the largest publicly traded precious metals company in Peru.

As such, it stands to profit handsomely from the record high gold prices we're now seeing on a daily basis.

Gold prices hit another intraday record yesterday (Wednesday) topping $1,801 on the Comex division of the New York Mercantile Exchange (NYMEX). Gold prices rose to new record highs on both Monday and Tuesday as well.

Indeed, gold has been on a bull-run since 2007, but Standard & Poor's U.S. credit rating downgrade and the escalating sovereign debt crisis in Europe have the yellow metal continually testing new highs.

For instance, the European Central Bank (ECB) on Tuesday was forced to intervene and buy Italian and Spanish bonds as yields ticked higher. The cost for Italy to continue to issue new public debt, or even to roll its current pile, had reached the same levels that caused Greece, Ireland and Portugal to seek government support.

It's important to note that fear stemming from European and U.S. debt isn't just pushing individual investors into precious metals. It's also driving central banks around the world to flee fiat currencies for hard physical assets – especially gold.

Indeed, global gold sales are climbing as more countries stock up on the yellow metal.

South Korea spent more than $1 billion over the past two months on its first gold purchases in more than a decade, doubling its national holdings. The Bank of Korea said even though prices have already hit historic highs, it was the right time to diversify its foreign reserves.

"South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as central bankers around the world are underinvested in the yellow stuff," Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, told Reuters.

You know it's bad out there when central banks are buying gold at record highs, with expectations that other central banks will be adding to their own hoards as the risk of continued devaluation of the U.S. dollar continues.

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Shah Gilani’s Next Big Profit Play

If you're a subscriber to the Capital Wave Forecast, or just an avid Money Morning reader, you already know that Shah Gilani is one of the best in the business.

For proof of that fact, you need look no further than Gilani's performance on Monday. While the Dow Jones Industrial Average tanked with a 635-point loss – its worst one-day decline since 2008 – Gilani racked up not one, but two 455% gains for his subscribers. He also netted gains of 371% and 197% in that time.

Gilani's day was so impressive it caught the attention of the Fox Business Network,which asked him to appear as a guest. His full interview with the Fox Business Network appears below.

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Apple Inc. Surges Ahead of ExxonMobil to Become World's Most Valuable Company

For the second day in a row, Apple Inc. (Nasdaq: AAPL) passed Exxon Mobil Corp. (NYSE: XOM) in market capitalization, making it just the 11th company in history to hold the title of "World's Most Valuable Company."

But although Exxon managed to squeak back ahead of Apple by the end of trading Tuesday, it could not hold on to its lead yesterday. Apple ended the day at $363.69, giving it a market cap of $337.17 billion, while Exxon finished at $68.03, making its market cap $330.77 billion.

It's likely that the two giants will trade places several more times in the days and weeks ahead, but eventually Apple's momentum will make it the undisputed king of market cap.

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Two-Year Extension of Fed's Low Interest Rates Will Deliver Damaging Inflation

With little ammo left in its arsenal, the Federal Open Market Committee (FOMC) yesterday (Tuesday) was unable to offer jittery markets anything more than a two-year extension of the Fed's low interest rates.

Instead of promising to keep rates at their low 0% to 0.25% level for an "extended period" as it has in its past several meetings, the FOMC said it would maintain those rates "at least through mid-2013."

However, Money Morning Contributing Editor Martin Hutchinson thinks that even this minimal action will do more harm than good.

"This is worse than QE3," Hutchinson said, referring to the potential for a third round of quantitative easing, in which the Fed has pumped trillions of dollars into the economy by purchasing Treasury bonds.

"What makes the Fed think it can forecast conditions two years in the future?" Hutchinson continued. "It has already been surprised on both growth and inflation just this year, since its January forecasts, which forecast 2011 growth of 3.4% to 3.9% and inflation of 1.3 to 1.7%. It's notable that three of the five regional Fed presidents – the guys actually in touch with the market – voted against."

Hutchinson has warned repeatedly that the Fed's policies have not only failed to jumpstart the economy, but have spurred inflation and helped keep unemployment high.

"This action has greatly increased the chances of the U.S. economy experiencing hyperinflation, on top of its other woes," Hutchinson said. "It does nothing for growth, the current problem."

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