If you track the markets, then you know the Standard & Poor's 500 Index has been on a merry-go-round since Aug. 4. Since that date , the S&P 500 has been stuck in a 10% trading range – between about 1,100 and 1,200. In other words, the index goes down 100 points, then goes up […]
Archives for October 12, 2011
October 2011 - Money Morning - Only the News You Can Profit From
Seven Prospective Corporate Bankruptcies
Ten companies with at least $100 million in assets filed for Chapter 11 bankruptcy last month – the most since April when 17 such companies filed. So far in October five more big companies have filed, including Friendly Ice Cream Corp. and Open Range Communications Inc.
They join a list this year that includes Borders Group Inc. (PINK: BGPIQ), paper manufacturer NewPage Corp., skin-cream maker Graceway Pharmaceuticals and the notorious solar panel manufacturer Solyndra Inc.
In fact, 2011 has been the worst year for corporate bankruptcies since 2009, when the financial crisis touched off by the Lehman Brothers' collapse caused a record number of filings.
"It's getting busier for everyone I know," Jay Goffman, co-head of the Global Restructuring Group at law firm Skadden Arps, Slate, Meagher & Flom, told Reuters. "I think 2012 will be a busy year and 2013 and 2014 will be extraordinarily busy years in restructuring."
With many companies already struggling and experts warning that the U.S. economy is headed for another recession, odds are that the pace of corporate bankruptcies will accelerate.
Of course, when a publicly traded company goes bankrupt, the stock becomes essentially worthless, with bondholders and other creditors splitting up whatever is left of the company.
That's what happened to shareholders of General Motors Co. (NYSE: GM) when it declared bankruptcy in 2009. The old stock lost all value, while the reborn GM held an initial public offering (IPO) for a new stock trading with the former symbol.
While the mess angered those left holding old GM stock, that's one of the risks of buying equities. You don't want to be an investor who holds on to a dying company too long, or worse, buys a company expecting a turnaround that instead turns south.
So as an investor it behooves you know which companies are endangered. And while there may still be time for these companies to change course, right now they're on the road to bankruptcy.
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Derivatives: The $600 Trillion Time Bomb That's Set to Explode
Do you want to know the real reason banks aren't lending and the PIIGS have control of the barnyard in Europe?
It's because risk in the $600 trillion derivatives market isn't evening out. To the contrary, it's growing increasingly concentrated among a select few banks, especially here in the United States.
In 2009, five banks held 80% of derivatives in America. Now, just four banks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now – but they haven't.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I'm exaggerating?
The notional value of the world's derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position's assets. This distinction is necessary because when you're talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
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world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.
Energy Investors Pocket Profit on Oil Price Rally - And It's Just the Beginning
Investors in energy stocks are enjoying an oil price rally that continued for a fifth trading session yesterday (Tuesday), pulling many oil-related investments up with it.
U.S. oil futures rose 40 cents to $85.81 a barrel on the New York Mercantile Exchange (NYMEX). Black gold has climbed 12% since hitting a 52-week low of $76 a barrel last week – a 37% fall from its April high near $120 a barrel.
Brent crude oil futures rose 1.6% to $110.73 a barrel for a five-day gain of 11% — the biggest since August 2009.
This week's gains follow on the heels of a recent slump – but subscribers to our Private Briefing service knew this would be the case.
We forecast the oil markets short-term pullback in our early Private Briefing columns and told investors to take advantage of the crude oil sell-off while energy stock prices were low.
Sure enough, these recommended stocks are climbing as oil prices are once again on the rise:
- The oil-related stock we highlighted it Aug. 12 in "How to Profit From $120-a-Barrel Oil …" is up 2.7% from that day's closing price.
- The high-return energy play our Global Macro Trends Specialist Jack Barnes detailed on Aug. 19 in "The Energy Stock to Buy Now…", is up 14% this week.
- And the favorite low-risk natural gas stock that resources specialist Peter Krauth shared Sept. 15 in "A "Dream Pick' in the U.S. Energy Sector", has gained 4.2% during the oil futures five-day price rally.
Executive Editor William Patalon III checked in this week with global energy expert Dr. Kent Moors, who gave an update on the latest profit opportunities and oil price outlook – as well as a juicy new stock pick.
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