Archives for September 2011

September 2011 - Page 6 of 10 - Money Morning - Only the News You Can Profit From

China Fears Much Ado About Nothing

Markets in Hong Kong, Vietnam, Taiwan and Korea were closed last week as people across Asia celebrated Moon Festival, one of the culture's most beloved holidays along with Chinese New Year. Moon Festival's origins center around a husband (Houyi) and wife (Chang'e), who were sentenced to live eternally separated on the sun and the moon.

Chang'e, representing "Yin," lives on the moon and Houyi, representing "Yang," lives on the sun. Once a year, on the night of the Mid-Autumn Festival, Houyi visits his wife and that is the reason why the full moon burns brightly on this night.

For many, the yin and the yang illustrate the importance of having balance in life. Investors must find the right risk/reward balance. Businesses must find the right capital spending/revenues balance. And, we all must strive to find the right work/life balance.

China's Economy Finds Balance

Balance is also a crucial goal for China's economy – the economy must not grow too quickly or risk a sharp correction. Just this year, China has weathered an epic battle with inflation, drought and floods, poor global macroeconomic conditions, massive accounting/corruption scandals and a tragic accident on one of its marquee achievements-the country's high speed rail system.

We've discussed the tremendous build-out of China's high-speed rail system before. And earlier this month, I was lucky enough to see what traveling at the speed of China feels like firsthand. I was on a train that averaged 185 miles per hour during the 923-mile trip from Shanghai to Beijing. I've traveled to all corners of the world and have seen many things during my travels, but viewing China's explosive growth as it flies by you is something I will never forget.

China remains the beacon of hope for the global economy, the largest and, many times, the "sole engine of the world economy," BCA Research says. China's real gross domestic product (GDP) is forecasted to grow 8.9% in 2011 and 7.8% in 2012, according to ISI Group. This is a slower rate of growth compared to recent years but "doesn't look like an economy struggling under tighter credit conditions," GaveKal research says.

The key to China's economic growth isn't "how fast?" or "how much?" The most critical question is "what's driving it?"

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These Money Manager Stocks Will See Pay Day, Not Pain, from Market Turmoil

Recent market volatility has scared mutual fund investors out of stock funds and into more diversified investments – opening the door for you to profit from a rebound in the top money manager stocks.

Anxious mutual fund investors pulled a net $21.4 billion from U.S. stock mutual funds in August after the Dow Jones Industrial Average had two of its top-10 worst days ever on Aug. 4 and Aug. 8, according to industry consultant Strategic Insight.

These recent single-day plunges erased billions in retirement holdings' value – and fund investors are tired of the quick losses.

"You can't keep having bombs, so to speak, go off," Andrew Goldberg, a market strategist at JPMorgan Funds, told Bloomberg. "If the second you walk outside another one goes off, you're going to stay inside for longer, and that's what's going on."

Now mutual fund investors are looking for more globally diversified funds and a broader range of asset classes, meaning companies offering those will be able to cash in on the changing fund-investing environment.

Not only that, these companies' share prices have hit new lows, meaning now's the time to get the top money manager stocks at a steep discount.

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Analysts Botched 2011 Market Forecasts - We Didn't

With much of the damage already done, several major financial institutions recently have scrambled to lower their stock market forecasts. The reduced expectations contrast with the optimistic projections the same analysts made back at the beginning of the year. But Money Morning readers knew better. Our experts warned you about the market downturn months ago […]

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Mainstream Media Finally Recognizes Zombie Threat

An article on TIME magazine's Website currently poses the question: Is Bank of America a Zombie?

Well Money Morning Global Investment Strategist Martin Hutchinson told readers two years ago that it was.

And more recently, on June 13 of this year, Global Macro Trends Specialist Jack Barnes issued a "Sell" call on the company, citing its poor prospects. That was three months before the U.S. Federal Housing Finance Agency sued BofA and 16 other banks over the lousy mortgage securities these institutions created in the run-up to the financial crisis.

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Proposal Would Eliminate 401(k) Tax Deduction

The U.S. Senate Finance Committee will hear a proposal today (Thursday) that would eliminate the 401(k) tax deduction in favor of a tax credit.

The presentation by the Brookings Institution will be one of several at a hearing intended to explore ways to encourage workers to save more money for retirement.

Getting people to save more on their own is a goal that's taken on greater importance as Congress has considers reforms to the Social Security program, which is projected to run out of money in 2036.

Most of the possible changes Congress makes to Social Security to keep the program solvent will reduce benefits to future retirees, which means workers will need to start saving more now.

It's clear that U.S. workers are not saving enough – Boston College's Center for Retirement Research has estimated the gap between what Americans have squirrelled away for their golden years and what they'll need at $6.6 trillion.

"Consideration of reforms to strengthen the private retirement system would be appropriate and constructive, especially since any plausible long-term fiscal plan will involve some reductions in Social Security and Medicare benefits," William Gale, a senior fellow at the Brookings Institution, said a briefing last week.

The Brookings proposal eliminates the 401(k) tax deduction, which it says favors high-wage workers, and replaces it with a tax credit that would put money directly into workers' retirement accounts.

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What Are Silver Half Dollars Worth

Right now, Silver investment prices are on a major tear. They are poised to break even higher by the end of the year.

And this report shows why that's not about to end any time soon – and exactly how far silver is expected to run.

In fact, silver could be the most lucrative precious metal of 2011.

Here's why...

How To Buy Silver Dollars

Right now, Silver investment prices are on a major tear. They are poised to break even higher by the end of the year.

And this report shows why that's not about to end any time soon – and exactly how far silver is expected to run.

In fact, silver could be the most lucrative precious metal of 2011.

Here's why...

As Greek Debt Default Nears, Investors Need to Take Cover

At this point a Greek debt default is virtually unavoidable, and it could happen in a matter of weeks.

The ensuing chain reaction will upend markets around the world and will almost surely lead to more defaults among the European Union's (EU) other debt-plagued nations, collectively known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

The bond markets have already passed sentence, with the yield on two-year Greek bonds spiking to an astronomical 76% yesterday (Tuesday). Yields on 10-year Greek bonds rose to 24%.

By comparison, the 10-year bond yields of another PIIGS nation, Italy, rose to 5.74%. Meanwhile, bond yields for the EU's strongest economy, Germany, have dropped below 2%.

The credit default swap (CDS) markets, where investors can insure their bond purchases against default, agree with the bond markets' verdict. As of Monday it cost $5.8 million and $100,000 annually to insure $10 million worth of Greek debt for five years, which means the CDS market now considers default a 98% probability.

Most European stock markets have been hammered over the past several weeks, with some dropping as much as 25%.

"Default is inevitable," said Money Morning Global Investment Strategist Martin Hutchinson. "Greeks are paid about twice as much as they should be, and that gap can't be solved by austerity."

How Soon is Now

In recent weeks Germany has shown more reluctance to dig deeper into its own pockets to bail out Greece and the other PIIGS. At the same time, Greece has struggled to implement the austerity measures that are required if it is to continue receiving aid from the European Central Bank (ECB) and the International Monetary Fund (IMF).

Greece's budget deficit has increased 22% this year, while its economy is projected to shrink more than 5%.

Every new development appears to bring Greece closer to the brink of default – and some see that happening in the very near future.

"My guess is there will be a Greek debt default by the end of this fiscal quarter – yeah, that means very soon," said Money Morning Capital Waves Strategist Shah Gilani.

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A Warning for Poland's Shale Gas Developers

I am leaving for Krakow, Poland, early this morning.

During this trip, I will present what we have learned thus far in North American shale gas development before a meeting organized by the Polish government and chaired by President Bronisław Komorowski.

What will take place in that room, however, is more than a simple exchange of data.

The Shale Gas Revolution Has Hit Eastern Europe

It began only a few years ago, in places like Texas, Arkansas, British Columbia, Alberta, and Pennsylvania… but the shale gas revolution is now sweeping the world.

To date, 142 basins and more than 680 shale plays have been discovered worldwide. In them are sitting a mind-boggling 6.6 quadrillion cubic feet of natural gas. Even if only 10% of that can be lifted, we are still looking at huge new reserves.

Europe has its fair share of these basins, with five major ones located in Poland alone. And that is the reason for the meetings this week.

The government in Warsaw is about to open up these shale plays to major investment.
Before they do so, however, the authorities must set regulations for drilling, determine what environmental impact will take place, weigh the potential economic benefits and problems, and discuss how this newfound energy wealth is going to change lives.

Turns out that's pretty much my job in Krakow; I will be advising on the policy challenges in each of these areas.

Still, they are not likely to expect my first comment…

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