October 2011 Archives - 9/9 - Money Morning - Only the News You Can Profit From
This Economist is Forecasting a Recession – And He's Never Been Wrong
The U.S. economy is "tipping into a new recession" and there's nothing President Barack Obama or the U.S. Federal Reserve can do to prevent it, according to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute (ECRI).
Now, if you're wondering why you should believe this prediction ahead of others then there's something you should know: According to The Economist, Achuthan's predictions on the direction of economy – either toward recession or recovery – have never been wrong.
"We don't make false alarms," Achuthan said, noting that ECRI did not forecast a recession last year when other prognosticators were.
A new recession could topple the stock markets into another deep funk like the one caused by the 2008-2009 downturn when the markets plummeted more than 50%.
The ECRI uses dozens of leading indexes to make its forecasts, and as of last week, Achuthan said those indicators were all pointing to a recession.
"We're seeing the weakness spread widely," Achuthan told MarketWatch. "There's a contagion…that's not going to be snuffed out. The nature of a recession is not a statistic. It's a vicious feedback loop. Sales fall, production falls, income falls and that depresses sales. We're in that and it's going to run its course."
Worse still, he doesn't think any governmental policy changes can prevent it.
"It is not reversible," Achuthan told Bloomberg Radio. "There is virtually nothing that can be done to avert what is going to happen."
- Copper: Possible Deflation Call and Warning for Stocks
Southern Copper Corp. (NYSE: SCCO) Gives You High Yield, High Profit Potential
Here's a company to get genuinely excited about: Southern Copper Corp. (NYSE: SCCO).
Because Southern Copper has world-class assets and high profit potential, but its share price has taken a dive amid all of the recent market turmoil.
I love to find a sound business whose stock price has been pummeled in the uncertain markets. It screams bargain and is a major buying opportunity.
And in this case, the fact that Southern Copper's stock price has dropped means its already-juicy dividend has increased. Currently the company's $2.48 dividend equates to a 9.5% yield.
Plus, it's consistent: Over the last five years, Southern Copper has averaged a payout of 83% of its after-tax profits.
Given all that, it's time to buy this high-yielding, high-quality mining company (**).
Southern Copper Corp. Outshines the Competition
Southern Copper Corp., founded in 1952, engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. It has the largest copper reserves of any publicly traded company, and last year mined more than 1 billion tons of copper. That means it is perfectly positioned to profit from increasing global demand for copper.
The company operates the Toquepala and Cuajone mines in the Andes Mountains located southeast of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates underground mines that produce zinc, gold, and lead, as well as a coal mine that produces coal and coke.
The Housing Market is Finally Bottoming – Here's How to Play It
The housing market remains a drag on the economy, but there are indications that it is finally starting to bottom.
Prices have stopped declining, and there is even some sign of life in sales.
Not all the news is good, of course. New home sales dropped still further in August from July, falling to a pathetic 295,000 annual rate compared to the 1 million-plus in the good years. And housing starts fell to an annual level of 571,000 from 601,000 in July – that's 12% below their August 2010 level.
Still, this is to be expected. The new home sector should be the last to turn up. There is a massive overhang of existing homes, both through foreclosures and through suppressed sales from homeowners that are "under water" on their mortgages and can't afford to sell.
With the exception of a very few markets – such as North Dakota (4% unemployment and new jobs appearing from the Bakken oil shale) and the overstuffed bureaucrat haven of Washington and its surrounding suburbs – there should be very few new homes built for the next several years.
We Prepared You for September's Market Swoon – Are You Ready for What's Next?
We warned you last month that September, not October, is statistically the worst-performing month for the stock market. We also told you why this September would be particularly bad. But most importantly, we told you what steps to take to guard your investments.
Well, now that September is fully in the books you can see that our concern was justified.
The Dow Jones Industrial Average fell 5% for the month, far exceeding the average 1.07% loss the index has seen in September since its 1896 launch. The other months have averaged a 0.71% gain.
That 1.87-point spread is considered by mathematicians to be "statistically significant at the 95% confidence level."
But this September had more going against it than a bleak history. With so much detrimental news weighing on investors' minds, from the Greek debt crisis to weak U.S. economic data to concern that the U.S. Federal Reserve has run out of policy options, a September market swoon was inevitable.
Most of the ugliness was confined to a handful of really bad days. The Dow actually rose on 11 of 21 trading days in September, but on the days it fell, it fell hard. Six of the down days recorded drops in excess of 200 points.
But as bad as this September market swoon was, however, it was no surprise to readers of Money Morning or its new sister service, Private Briefing.
In the Sept.1 Private Briefing report "Investment Plays for the Current Economy," Executive Editor Bill Patalon not only warned readers of what was to come, his interview with Money Morning Global Investment Strategist Martin Hutchinson laid out a "safety-first" investing strategy to help readers protect their portfolios.
Although September is over, many of the negatives that have caused the market swoon in recent weeks haven't changed. And the craziness isn't going to stop any time soon.