Archives for October 2011

October 2011 - Page 4 of 9 - Money Morning - Only the News You Can Profit From

Seven Potential Employment - And Profit - Opportunities

by

With the U.S. unemployment rate steady at 9.1% and President Obama's jobs plan creating more conflict than opportunity, it's hard to believe there are U.S. companies that are hiring.

But there are.

Even taking into account the gloomy economic outlook, these companies project growth into next year that will increase revenue and require more employees.

That's good news for job seekers, but it benefits investors as well, since they will have the opportunity to profit from the higher share prices that come as a result.

So here are the sectors the most hiring right now, as well as seven companies that could parlay employment opportunities into higher profits.

Real Job Growth vs. Temp Hires

Some of the biggest hiring increases are coming from the U.S. auto industry.

Ford Motor Co. (NYSE: F) recently announced plans to hire as many as 7,000 new workers by the end of 2012. Many of the new positions will help develop new battery-powered cars, but they also reflect the company's improved earnings. After losing $30.1 billion in the period from 2006 through 2008 and borrowing $23.4 billion to survive, Ford earned $9.28 billion over the past two years.

Ford's improvement spilled into the rest of the auto sector, with both General Motors Co. (NYSE: GM) and Chrysler Group LLC (which is now partnered with Italy's Fiat SpA) ramping up hiring over the past year.

Healthcare, medical, and drug companies also have picked up hiring in a trend that is expected to continue into 2012. According to human resources publication Benefits Pro, healthcare jobs now account for 10.8% of the total U.S. workforce, including 30,000 new positions created in August when overall U.S. job growth was flat.

Healthcare stocks have responded to the sector's growth. MSN Money on Oct. 4 posted the top performing stocks so far this year, which included five companies in the medical/healthcare sector boasting gains of 30% or more.

Still, you must be aware of potential traps when searching for the job-adding sectors. Some companies are only hiring seasonal or temporary workers, and their short-term payroll increases won't translate into stock-price gains.

To continue reading, please click here...

Four Moves to Make Before Greece Defaults

by

The very austerity measures that Greece implemented to remedy its sovereign debt crisis have crippled its economy so badly the country is actually sinking deeper into the red, making default all but inevitable.

Already suffering from a four-year-old recession, the Greek economy has been dragged down further by the series of austerity measures – tax increases combined with cuts in pensions and wages. As a result, the Greek economy is expected to contract 5.5% this year and 2.5% in 2012.

The Greek government announced this week that unemployment soared to 16.5% in July, up from 12% a year earlier. It's expected to rise to 17.5% before the end of this year.

With its gross domestic product (GDP) shrinking, Greece has less money to repay its debts, and worse, it must continue borrowing at higher interest rates.

Greece's debt-to-GDP ratio is expected to rise to 162% this year and 181% in 2012.

"Without drastic action, [Greece's] debt-to-GDP ratio will rise to even more alarming levels," a Milken Institute report on the Greek debt crisis said earlier this month. "The ratio is reaching levels at which it becomes extremely difficult, if not impossible, for a country to avoid default on its debt."

Even the "troika" of Greek lenders – the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) – concluded in a report released yesterday (Thursday) that the troubled country's "debt dynamics remain extremely worrying."

"When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatization plan," the report said.

The report also expressed concern that Greece's budget deficit for 2011 will fall between 8.5% and 9% of GDP, which exceeds the target of 7.75% of GDP set by the troika as a condition for granting the most recent batch of bailout loans.

What's Next

To continue to meet the troika's criteria for still more bailout loans – which Greece must have to avoid default – even more austerity measures will be needed.

But the Greek public, as well as many politicians, has displayed more resistance with each new set of austerity measures.

To continue reading, please click here...

A Nobel Prize for Steve Jobs?

by

The Nobel Prize in Economics was awarded Oct. 10. It went to Christopher Sims and Thomas Sargent – two fairly obscure economists whose main work was on rational expectations theory.

That followed by five days the death of Steve Jobs, whom the Nobel Prize committee never recognized in any way.

That hardly seems fair, to me.

Jobs made billions of dollars, built the most recognizable global brand since The Coca-Cola Co. (NYSE: KO), and revolutionized the way we consume media. Sims and Sargent, though certainly brilliant, hardly contributed as much.

So why don't the Nobel Prize committee award a Nobel Business Prize annually?

The Nobel Foundation wouldn't even have to offer up very much prize money, since presumably any businessman worthy of the prize would already be rich.

You may think the Financial Times has got ahead of me on this, since it recently discussed a Nobel Prize in management. But no, a Nobel Prize in business is absolutely not the same thing as a Nobel Prize in management.

Here's the difference, as well as some other truly deserving Nobel candidates.

Business vs. Management

Nobel prizewinners in management would be sharks – people like "Neutron Jack" Welch, the long-time head of General Electric Co. (NYSE: GE). Welch achieved enormous wealth for himself and spectacular stock price growth with a combination of ruthless cost cutting, short-term profit maximizing, crony capitalist deals with the government, and dodgy accounting of pension liabilities.

As we now know, 10 years after he left, the U.S. economy is not better off for Welch's work at GE, and GE shareholders have found themselves locked into a dull, slow-growth conglomerate that suffers intermittent profit explosions from its unmanageable and low-quality finance side.

Welch was management. Jobs was business.

That's the difference.

To continue reading, please click here...

Don't Worry: Apple Stock Will Bounce Back

by

Suddenly, Apple Inc. (Nasdaq: AAPL) appears mortal.

With Apple stock falling 5.59% yesterday (Wednesday) to close at $398.62 following an uncharacteristic earnings miss Tuesday, the company has lost its aura of invincibility.

Apple delivered $7.03 a share on $28.27 billion in revenue but analysts had expected earnings of $7.28 a share on revenue of $29.45 billion.

"The implications of an Apple miss means more than is typical, given the importance of its auraof brilliance in sustaining premium price points and product loyalty," Alex Gauna of JMP Securities wrote in a research note. "This will likely also add to well-placed investor anxiety around how the company sustains its momentum under new leadership."

The earnings disappointment – Apple's first since the second quarter of 2002 – was just one of several recent bruises suffered by the Cupertino, CA-based tech giant.

Concern started brewing in August when Steve Jobs resigned as CEO, but Jobs' death from pancreatic cancer earlier this month seemed to rob Apple of some of its magic.

Then the Oct. 4 introduction of the iPhone 4S was met with disappointment because it wasn't the much-rumored iPhone 5.

The series of stumbles has Apple investors wondering whether their days of huge gains are over. But the emotional reaction to Apple's earnings is a mistake.

"While the Q4 miss – following management transition – may restrain near-term investor sentiment, we think the new management team should be given its opportunity to show what it can do," RBC Wealth Management analyst Mike Abramsky said in a research note.

Abramsky also pointed out several strengths that show why abandoning Apple stock now would be premature: "Apple's key franchises (iPad, iPhone) remain early and underpenetrated, with significant growth drivers (4G, China, emerging markets, enterprise, etc.) ahead," he said.

In fact, a comprehensive look at the company's fundamentals as well as its prospects shows that there's still tremendous potential for growth.

To continue reading, please click here...

The Gilded Age of Wall Street Remains Intact

by

For decades, Wall Street offered the allure of big league paydays and behind-the-scenes power.

But since the 2008 financial crisis there's been a growing sense – or even hope – that The Street's stride had been broken. After all, demand for a financial system overhaul, regulatory reform, and a crackdown on Wall Street pay must take some toll.

Not hardly. Wall Street hasn't changed its ways and it never will.

Take it from a man who has spent decades on The Street, seeing everything firsthand.

Money Morning Capital Wave Strategist and retired hedge-fund manager Shah Gilani says that in the short-term, firms will have to deal with new rules and slimmer paychecks, but ultimately, they will still find a way to prosper.

"The bloom is off the rose and Wall Street is showing its thornier side, but the Street is still paved with gold," said Gilani. "On any relative basis, unless you're a rock star, star athlete or Hollywood heavy, there's no place like Wall Street to make your fortune. That's not going to change any time soon."

To continue reading, please click here…

M&A Heating Up in the MLP Sector

by

The announcement Saturday by Kinder Morgan Energy Partners LP (NYSE: KMP) that it would acquire El Paso Corp. (NYSE: EP) is shaking up the pipeline picture.

The $38 billion deal involves cash, stock, and warrants (with KMP also absorbing about $17 billion in EP debt).

It will create the largest pipeline holding in the United States, the fourth-largest company in the country, and by far the largest midstream service company.

It is this last factor that will have the biggest impact – for two reasons.

First, the merger puts renewed focus on other similar actions among midst reams. These are the companies that connect producing fields (upstream) with refineries, distribution, and retail sales (downstream). Midstream services include gathering, initial processing, feeder pipelines, transport (certainly by larger intrastate and interstate pipelines, but also by tanker and barge), terminals, and storage.

Storage is especially important in this era of surplus production in natural gas, and excess crude oil volume sitting in Cushing, OK (where the daily West Texas Intermediate (WTI) benchmark price is determined for NYMEX trade).

You see, m idstream companies that control storage (which usually includes a large percentage of available pipeline capacity, as well as underground stockpiling sites) generate revenue whether product is moving or staying put.

However, another element in this transaction may be even more important and, in the process, may telegraph where we should expect to see the sector move with further mergers and acquisitions (M&A) action.

What M&A Means for the MLP Sector

This newly announced merger brings together two Master Limited Partnerships (MLPs).

MLPs are designed to move all profits to the partners, avoiding corporate taxes altogether. They act the same way an "S" corporation does for individual taxpayers. When an MLP decides to spin off an equity issue, the portion of profits reflected by the stock must be passed through to the shareowners.

That means an MLP equity issue provides genuine potential for both price appreciation and a dividend well above market averages.

Among the El Paso assets included in the merger is El Paso Pipeline Partners LP (NYSE: EPB), which primarily controls interstate regulated pipelines (and provides a nice complement to KMP assets).

All told, the new $94 billion giant will control more than 80,000 miles of pipeline.
Typically, the initial announcement results in the acquiring company's share price declining and the acquired company's share price moving up.

That's why traders' reactions to this mega-announcement were most unusual. In this case, both were up strongly early this week.

The KMP-EP announcement will be followed by others as the sector continues to consolidate.

That will only create more opportunities for the individual investor.

To continue reading, please click here...

Poll Misses Point: Washington and Wall Street Partners in Blame for Bad U.S. Economy

by

"Who do you blame more for the bad U.S. economy, Washington or Wall Street?" asked a recent USA Today/Gallup poll.

Wrong question.

In fact, it's the sordid relationship between the U.S. government and the big financial institutions that plunged the U.S. economy into turmoil in 2008 and has hampered its recovery ever since.

"They are brothers-in-arms against the greater good of the American public. They are conspirators," said Money Morning Capital Waves Strategist Shah Gilani. "Who is to blame, is it Wall Street for giving money to Washington to clear a path for their schemes, or is it Washington pandering to Wall Street for money to wage their campaign battles to put themselves in place to repay their paymasters?"

In the USA Today/Gallup poll, 64% of Americans blamed the federal government more for the bad U.S. economy, with just 30% pointing a finger at big financial institutions.

But the poll also indicated that the American public is extremely unhappy with both groups, with 78% saying that Wall Street bears a great deal or fair amount of the blame for the bad U.S. economy; 87% say that of Washington.

"You see the frustration that there's some serious things wrong with capitalism in America, but you also see the conundrum – how do we change it?" Terry Madonna, a political analyst and polling expert at Franklin and Marshall College told USA Today.

Close to half of Americans – 44% – also see the system as unfair to them, with some groups, such as people without a college degree (49%), feeling more mistreated than others.

Gilani couldn't agree more.

"Calling the "system' unfair is like calling the Grand Canyon a ditch," he said. "It's massively, incomprehensively unfair. It's unfair first and foremost on the macro level. The system favors the few at the expense of the masses. If there is class warfare stress in this country, it's because the nexus of Wall Street Washington manufactured it."

That Washington's efforts to fix the bad U.S. economy – very loose monetary policy on the part of the U.S. Federal Reserve and billions in stimulus spending from U.S. President Barack Obama and the U.S. Congress – have changed little is no doubt part of the reason why people remain disgruntled with government.

"The Fed is part of the problem, not part of the solution," Gilani said. "They did what they had to do to save us from going over the financial chasm, but they also helped us get there."

How to Fix It

Gilani had several suggestions on what should be done to make the system more fair as well as to prevent another financial crisis like we had in 2008:

  • Break up all the "too- big-to-fail" banks.
  • Regulate derivatives and determine what limitations need to be put on their use, by who, and when.

To continue reading, please click here...

Cyber Warfare Growing on a Global Scale - And We Have the Best Way to Profit

by

In the Internet era, cyber warfare is growing on a global scale.

Corporations, governments, armies, and anonymous groups of thrill-seeking hackers are playing a perpetual game of cat and mouse.

For that reason, worldwide spending on network and data-security technology will rise to more than $10 billion by 2016 from about $6 billion last year, according to a market-outlook report by technology-forecaster ABI Research.

Another recent study, by Forrester Research Inc. (Nasdaq: FORR), found that the share of business IT budgets devoted to security nearly doubled from 7% in 2007 to an estimated 14% last year.

If you're wondering what's behind this growth, you need look no further than some recent newspaper headlines.

Earlier this year, hackers infiltrated Sony Corp.'s (NYSE ADR: SNE) PlayStation Network and accessed the personal information of 77 million accounts in what's considered the biggest such security breach in history.

That was followed this summer by phone-hacking scandal at British tabloid The Daily Mirror that wreaked havoc on News International, media mogul Rupert Murdoch's British newspaper arm.

And finally, this past weekend Sesame Street's YouTube channel was compromised, and hardcore pornography videos displaced the likes of Elmo and Cookie Monster.

Of course, all of this is harmless troublemaking in the grand scheme of cyber warfare.

Indeed, a well-coordinated cyber attack on U.S. military installations or the country's power grid poses an even greater threat to stability.

And it's clear that that threat comes primarily from China.

Chinese "Cyber Militias" Conducting Cyber Warfare

U.S. officials blame China's government, or agents acting on its behalf, for the theft of neutron bomb designs, the defense secretary's e-mails, and private sector intellectual property worth billions of dollars.

Indeed, the Financial Times recently reported that the People's Liberation Army (PLA) already has partnered with China's private sector to form "cyber militias," units of young computer programmers tasked with cyber attacks and cyber defense.

To continue reading, please click here...

The Day the U.S. Treasury Rejected My Advice - And Doomed America

by

In the mid 1990s, when I was working as a U.S. Treasury advisor to Croatia, I met with the managers of the U.S. Treasury's debt.

In what would turn out to be terrific advice, the Treasury officials suggested that we extend Croatia's debt maturities so the Central European country wouldn't have to refinance too often.

So in gratitude, I offered the U.S. officials some counsel of my own.

I told them they should follow their own counsel and lengthen the U.S. Treasury's average debt maturities, then about six years.

The Treasury officials should have taken my advice. But instead they ignored me and did the exact opposite.

The upshot: Today the United States' debt maturities are among the shortest in the Organization of Economic Cooperation and Development (OECD), and U.S. refinancing costs are exceptionally large.

So if you're already worried about soaring budget deficits and the solvency of the United States, brace yourself – it's only going to get worse.

Refinancing Risks

The U.S. Treasury had more than one opportunity to follow my advice. At the time we opted to extend Croatia's debt maturities, other countries went the other way – with devastating fallout.

For instance, the Ukrainian hryvnia Treasury bill program – where the vast public deficit was financed with 18-month T-bills sold to greedy Merrill Lynch and other foreigners at interest rates above 15% – was one of the major disasters of the 1997-98 crash.

In spite of that outcome, and despite my advice, the U.S. Treasury took the opposite tact by abolishing the 30-year bond issue in 2001. The belief at the time was that Treasury surpluses were so assured that there was no longer any need for 30-year money.

There are two problems with this: First, when interest rates rise, their additional cost will feed through to the budget remarkably quickly, making the financing problem even worse. Second, it increases the risk that at some stage, the U.S. Treasury may not be able to raise the money.

Average Treasury bond maturities reached a low of 50 months in 2009. They've since been lengthened a bit to 62 months, but that still leaves the U.S. Treasury with a major refinancing risk. The Treasury will have to refinance some $2 trillion of outstanding debt in the next year – and that's in addition to the $1.5 trillion of new debt it's going to have to issue in that time.

To continue reading, please click here...

These Four Dividend Stock ETFs Can Add Pop to Your Portfolio

by

Investors who like dividend-paying stocks should love exchange-traded funds (ETFs) that focus on dividend stocks – they provide the same benefits but with diluted risks.

With the stock markets gyrating and traditionally "safe haven" investments like U.S. Treasuries offering historically low yields, dividend stocks offer the lure of a reliable income stream.

"Dividends provide you with an income far better than you can get in bonds and with considerable protection against a down market," said Martin Hutchinson, Money Morning's Global Investing Strategist.

Yet dividend stock ETFs also provide some measure of protection from a financial crisis at an individual company.

"Dividend ETFs mitigate the risk a company might commit the ultimate sin: suspend or cut a dividend," Matt Krantz writes for USA Today. "By owning one ETF, which owns shares of hundreds of dividend-paying stocks, if just one company halts its dividend, the impact to the investor will be relatively small."

ETFs own stocks like mutual funds, but are traded on the markets in "units" just like stocks. The units can be created (requiring the fund to buy more shares of the underlying stocks) or destroyed (requiring the fund to sell shares) to accommodate investor demand.

The Power of Dividends

Many investors underestimate the power of dividends. Hutchinson pointed to a study by Yale economist Robert Shiller that showed that dividends accounted for 67% of the average real return on common stocks from 1889 to 1998.

"While stock prices have been plunging, dividend payments are rising," Hutchinson said. "Through Aug. 31, 243 companies in the Standard and Poor's 500 Index increased or initiated a dividend payment. In fact, dividend payments are expected to end 2011 up 18% from 2010."

Companies that manage ETF funds have created an increasing number of dividend stock ETFs to serve investors hungry for ways to add more dividend income to their portfolios.

The Four Best Dividend Stock ETFs

Standard & Poor's Capital IQ Equity Research recently analyzed 1,100 ETFs to see which of the funds that focused on dividends had the best yields and excelled in several other criteria, including performance, risk, credit rating and volatility (based on its standard deviation).

That narrowed the list to 13 funds, of which most were general funds. Four of those ETFs, however, are specifically focused on dividend stocks.

They are:

To continue reading, please click here...