Archives for September 2011

September 2011 - Page 8 of 10 - Money Morning - Only the News You Can Profit From

Three Moves to Make Before the Next FOMC Meeting

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The decisions made at the next Federal Open Market Committee (FOMC) meeting on Sept. 20-21 could affect market performance for years to come.

That's why investors should prepare ahead of time.

Of course, there's no way to predict exactly what U.S. Federal Reserve Chairman Ben S. Bernanke will do, but 20 years of experience in global markets suggest he's considering five alternatives drawn from a rapidly diminishing menu of options:

  • Eliminate interest paid on reserves.
  • Sell short-term securities while buying longer-term debt.
  • Target actual inflation.
  • Buy more assets outright in a program that would be somewhat like the $600 billion worth of Treasuries it bought as part of QE2.
  • And, finally, it could just do nothing.

That being said, I have a pretty good idea which one of these options Bernanke will choose. But more importantly, I can tell you three moves you can make now to safeguard your investments ahead of time.

Let's look at the Fed's options first.

Option #1

First, the Fed could eliminate interest paid on reserves. Banks would hate this, but it would go a long way towards encouraging lending.

Banks right now are borrowing at extremely low rates, building up huge cash stockpiles and investing the spread. By doing this, the banks are earning more than they would from even their best customers at a fraction of the risk.

Customers have become almost irrelevant as a result, which is something our leaders cannot seem to grasp. So while they're ostensibly all about helping Main Street, they're really just selling out to Wall Street.

We have to get the money to the consumer where it can be used to create wealth.

Option #2

The second solution is to sell short-term securities while buying longer-term debt. You may recall that the Fed did this in 1961 as part of something they called "Operation Twist."

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How To Buy Silver ETF

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Right now, Silver ETF 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.

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Here's why

Silver ETF Funds

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Right now, Silver ETF 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.

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Here's why

Classic Cons: 10 Financial Scams Fair-Minded Investors Should Avoid

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Over the past 40 years, only one new entry has been added to the Federal Bureau of Investigation (FBI) roster of "Top 10" investment scams – the very broad category of "Internet fraud."

The other financial rip-offs listed are merely new versions of tried and true swindles that have been around for decades or more – from Ponzi schemes and pyramid systems to phony stock offerings and commodity cons.

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SeaDrill Ltd. (NYSE: SDRL) Offers High Yield, High Growth

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As a high-yield stock with a growing global presence in the oil-and-gas industry, SeaDrill Ltd. (NYSE: SDRL) is just the kind of investment we need in this low interest-rate environment.

Even if investments like U.S. Treasuries and CDs right now offer less risk than stocks, we can't survive on their pathetically low yields. So a company that's reliable, profitable and yielding 10% is quite a find.

Better yet, SeaDrill's share price has dropped significantly due to recent market conditions, making the stock a real bargain. At around $30 it's trading well below its 52-week high of $38.49.

So now's the time to buy SeaDrill Ltd., for a chance to collect cash flow while investing in a growing business model that's already seen substantial global success (**).

SeaDrill Ltd.: A Growing Global Powerhouse

SeaDrill is the world's second-largest ultra-deepwater driller. The company's asset mix is second-to-none, giving investors access to top-of-the-line equipment involved in high yielding contracts.

In addition to its high dividend, SeaDrill Ltd.:

  • Has one of the newest, most diversified drilling equipment fleets in the world.
  • Is headed by famously successful leadership.
  • And has steady cash flow to keep up with debt.

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The Start of an Energy Storage Breakthrough

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Despite soft U.S. economic figures, market gyrations, and the debt ping-pong match going on between Europe and Washington, the American entrepreneurial spirit remains alive and well.

And I have proof.

A tiny upstart company based in Odessa, FL, just made a major move toward revolutionizing energy storage.

In the process, the cost of renewable energies – particularly solar and wind power – could come down dramatically, making them viable competitors in the energy marketplace.

The problem with renewable energy has always been the inability to store large amounts of what is generated – a shortcoming common to any production of electricity.

It's especially true for solar power, which is, of course, only available when the sun is out.

That's why the battery market has become the Holy Grail for the entire energy sector.
Analysts and investors focus on any small improvement in retaining power.

But there hasn't been anything like this before.

And it just might change the way we do, well, just about everything.

The Stuff of Science Fiction

Dais Analytic Corp. (OTC: DLYT) last week finally secured a patent for what it calls a "Nanoparticle Ultracapacitor." (As an indication of how new this area is, the company filed the patent more than five years ago!)

The device uses the company's proprietary nano-structured materials to create an energy storage mechanism projected to have great advantages – both in terms of performance and cost – over existing storage technologies.

The research universe in which this is taking place has been called the most important to emerge in generations.

Nanotechnology.

This is no longer the stuff of science fiction. For well over a decade now, laboratories around the globe have been pushing the envelope in nanotechnology research.

Nanotechnology encompasses a broad range of research with potential applications in areas as diverse as human stem cell therapy, lighter alloys, smaller components of everything… in addition to more powerful lithium and other batteries.

Now here's where it starts to sound like something from Star Trek…

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Don't Expect Any Groundbreaking Proposals in Obama's Jobs Speech

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U.S. President Barack Obama's jobs speech Thursday night will address one of the most critical economic factors affecting the country – but the content is likely to disappoint America's unemployed.

Last week's jobs report showed zero job growth in August, and the unemployment rate held at 9.1%, increasing pressure on Washington to deliver relief for the jobless.

But analysts warn not to expect any revolutionary new developments on how to improve the country's weak employment outlook.

"I don't believe we are going to be slack-jawed by the speech," Larry Sabato, director of the Center of Politics at the University of Virginia, told MarketWatch.

President Obama and the White House have only previewed some of the details. The president is expected to propose a $300 billion job creation plan delivered through tax cuts, infrastructure spending and state and local government aid.

President Obama faces strong opposition from congressional Republicans who vehemently oppose more government spending when the country is already more than $14 trillion in debt. He'll also face many skeptics who see small business hiring as the only way to successfully cut the country's unemployment rate.

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Don't Get Duped by Derivatives

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It recently came out that a $1.2 billion derivatives portfolio that Goldman Sachs Group Inc. (NYSE: GS) managed for the Libyan government lost 98.5% of its value between 2004 and June 2010.

If a firm like Goldman will sit idly by while a client eats about $1 billion on a single investment, where do you think you and your portfolio land on Wall Street's list of priorities?

The message here is simple: You can't trust Wall Street – not with a $10,000 investment, a $100,000 investment, a $1 million investment, and especially not with $1 billion investment.

Goldman Sachs claims that the Libyans were picking the derivatives trades themselves. But that's exactly what they would say.

After all, if it got around that Goldman's ace traders were capable of losing virtually all of their clients' money, bonuses would fly out of the window along with most of the business. I'm sure the Libyan government would have offered a rebuttal if it weren't being toppled in a civil war.

The Libyans no doubt did much of the investment decision-making themselves, but the real problem is that there was no basis of comparison for the prices of the derivatives products they were being given.

And that's where there's a lesson to be learned. As a retail investor, you have to be able to determine a two-way price quote for whatever investment you buy.

The investment landscape is littered with the wreckage of failed structured investments.

Between 2008 and 2010 already-strapped cities and states had to pay Wall Street $4 billion in termination fees to get out of various interest rate products that had gone wrong.

For example, there's the exciting 2007 "Abacus" deal by Goldman Sachs trader "Fabulous Fab" Tourre, which lost European banks a total of $1 billion.

The investors in Fabulous Fab's Abacus deal had no independent means of assessing the value of the subprime mortgages in the pool. These were large, "sophisticated" banks, but they deluded themselves with the risk/reward tradeoff they were taking on.

Losses are not confined to the notoriously murky derivatives investments, either. I would bet that the special Goldman clients who earlier this year bought privately offered shares of Facebook Inc. at a $60 billion valuation will end up losing big on their investment as well.

As investors, most of us are not rich enough to get Wall Street's attention, but we should stay informed about how these firms are luring their clients into spectacularly bad deals.

That way we'll all know what to avoid.

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Prediction: Demand Will Rule the World

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Economic Global Intersection Article of the Week

Markets have been crazy this month, but rather than try to wade through all the news, much of which doesn't seem to have much informational content, I thought I would duck out altogether and instead make a list of things I expect will happen over the next several years. We are so caught up in noise and market volatility – as the market swings first in one direction and then, as regulators react, in the other direction – that it is easy to lose sight of the bigger picture.

Follow up:

End of a Cycle

My basic sense is that we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.

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