Archives for November 2011

November 2011 - Page 3 of 9 - Money Morning - Only the News You Can Profit From

Why America Hates Congress

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Everybody knows that screwing up a critical assignment at work will almost surely get you fired.

That is, unless you work as a member of the U.S. Congress.

After more than two months of bickering, the six Republicans and six Democrats on the "super committee" tasked with finding at least $1.2 trillion debt reduction savings over the next decade have thrown in the towel.

They have no debt reduction plan.

Analysts agree that despite the urgency of addressing America's fiscal issues, both sides are more interested in scoring political points than solving problems.

Meanwhile, the federal debt continues to grow. It eclipsed $15 trillion last week.

With representatives pocketing salaries of $174,000 a year despite their failures, it's no wonder U.S. citizens are down on Congress. A recent New York Times/CBS poll showed Congressional approval sinking to just 9%.

Even some members of Congress admit it.

"The politicians care more about their parties and getting reelected than they do the very real problem," Sen. Tom Coburn, R-OK, said Sunday on C-SPAN's "Newsmakers" program. "[The super committee] was Washington's answer to kicking the can down the road."

According to the law passed as part of the debt ceiling deal over the summer, failure of the super committee to come up with a debt reduction plan is supposed to result in $1.2 trillion in automatic cuts, known as "sequestration."

Half of those cuts, $600 billion, are to come from defense spending, with the other half coming from such areas as education, the environment, transportation, housing assistance and veterans' healthcare.

But just because that's what the law says doesn't mean it will happen. Congress, don't forget, can undo any laws it creates. Ideological opposites Sen. John McCain, R-AZ, and Rep. Maxine Waters, D-CA, among others, are already working on this.

It's just more evidence of a disingenuous Congress.

Pointing Fingers

Instead of developing a deficit reduction solution, lawmakers have tried to convince the American people that the super committee's failure is the other party's fault.

Democrats had called for a "balanced" approach of some higher taxes, mostly on the wealthy, and spending cuts. Republicans eschewed any increase in taxes, preferring instead to reach debt reduction goals entirely through spending cuts.

"The wealthiest of Americans, those who earn more than $1 million every year, have to share, too. And that line in the sand, we haven't seen any Republicans willing to cross yet," super committee co-chair Sen. Patty Murray, D-WA, said on CNN's"State of the Union."

"I don't understand the economics that says that if we raise taxes on my employer, or my boss, somehow they're going to go out and hire my unemployed brother-in-law," Rep. Jeb Hensarling, R-TX, another committee co-chair, countered on "Fox News Sunday."

Why so much rhetoric and no action?

The main reason is that the automatic cuts don't kick in until January 2013 – after the key 2012 elections. Both sides hope to pin the blame on the other side to secure election victories next November that will empower them to solve the debt problem their way.

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Breaking: A New Profit Opportunity for Money Morning Subscribers

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Money Morning Chief Investment Strategist Keith Fitz-Gerald is always chasing down potential profit opportunities – and he just uncovered a big one. In fact, Fitz-Gerald is so excited about the investment potential of this new discovery he recently held a free online briefing to share it with subscribers. That briefing was a raging success and […]

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New York Stock Exchange Holiday Calendar 2011-2013

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Under normal circumstances, the New York Stock Exchange (NYSE) is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET. It closes for official U.S. holidays; most U.S. exchanges follow the NYSE's schedule.
The NYSE will also close for special occasions or emergencies.

New York Stock Exchange Holiday Calendar 2011-2013

Notes on the Schedule

  • New Years' Day (January 1) in 2011 falls on a Saturday.The rules of the applicable exchanges state that when a holiday falls on a Saturday, we observe the preceding Friday unless the Friday is the end of a monthly or yearly accounting period. In this case, Friday, December 31, 2010 is the end of both a monthly and yearly accounting period; therefore the exchanges will be open that day and the following Monday.

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Next Trade Of The Century-Short German Bunds?

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The eurozone meltdown that we anticipated and followed up on recently continues. Sovereign yields and spreads over German government bonds (also referred to as Bunds) are still on a frighteningly steep upward trajectory. While interbank funding in euros has eased and appears stable for the time being, interbank demand for U.S. dollars continues to intensify […]

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PepsiCo Inc. (NYSE: PEP) Is the Perfect Buy-and-Hold Investment

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If they aren't already, long-term investors should be digging up some solid defensive plays, like PepsiCo Inc. (NYSE: PEP).

Everyone is familiar with PepsiCo, one of the leading manufacturers and marketers of food and beverage products. And with a strong business model, steady bottom-line growth, and a healthy dividend, PepsiCo is one of those rare buy-and-hold investments.

Although its name is typically associated with soda, PepsiCo has developed a diversified product line that supports a steady revenue stream from more than just fizzy drinks. PepsiCo, through its Frito-Lay and Quaker Oats subsidiaries, is the name behind consumer-favorite brands like Doritos, Tropicana, Gatorade, SoBe Lifewater, Cracker Jack, Rice-A-Roni, and Grandma's Cookies.

Many investors already know that, though.

What you might not know is that PepsiCo's future earnings are based on much more than delicious snacks for U.S. consumers.

This global powerhouse is investing in two areas that will drive food company profits going forward: emerging markets growth and "good for you" products.

It has struck deals to develop both initiatives this year, and the efforts are paying off.

Increased emerging markets sales boosted PepsiCo's revenue from those countries 33% last quarter. Sales of healthy products are on pace this year to hit almost $15 billion, and the company hopes to double that by 2020.

When you combine its new business focuses with its existing profitable product lines, PepsiCo is strong enough to weather a global economic storm – exactly what our portfolios need to include right now.

So it's time to buy PepsiCo Inc. (**).

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Defense Stocks Under Fire From Super Committee Budget Cuts

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Defense stocks have become collateral damage in the battle raging in Congress over how to reduce the deficit by $1.2 trillion over the next decade.

Any mix of cuts and tax increases will certainly include significant reductions in defense spending. And if the Congressional "super committee" fails to come up with a plan, an automatic "sequestration" will kick in, which calls for half of the money — $600 billion – to come out of defense.

That will come on top of $350 billion in defense spending cuts (also stretched out over the next decade) that were part of this past summer's agreement to raise the debt ceiling.

No wonder the major defense contractors are concerned.

"The defense market is shrouded by the uncertainty," Jay Johnson, Chairman and CEO of General Dynamics Corporation (NYSE: GD) told Politico. "We continue to have no special insight as [to] what the super committee will determine … or what will happen to defense budgets beyond 2012."

While the deadline for the 12-member bipartisan super committee to vote on a plan is Wednesday, it must submit that plan to the Congressional Budget Office today (Monday).

Talk on Capitol Hill last week was anything but optimistic.

Super committee member Sen. Max Baucus, D-MT, was among those expressing dismay at the lack of progress.

"We're at a time in American history where everybody's afraid – afraid of losing their job – to move toward the center. A deadline is insufficient," Baucus told The Washington Post. "You've got to have people who are willing to move."

The urgency of doing something about the federal deficit was underscored last week when it officially passed the $15 trillion mark.

With defense spending already on the decline as a result of the withdrawal of U.S. military forces from Iraq by year's end and the continuing drawdown of forces from Afghanistan, the defense industry has already started to feel the pain.

Lockheed Martin Corp. (NYSE: LMT) laid off 6,500 workers over the summer; its stock is down more than 5% in the last six months. Northrop Grumman Corp. (NYSE: NOC) let 800 people go just last month, and its stock has fallen nearly 12% in the past six months.

Profits at Risk

An adjustment was coming even without a debt problem. While the United States was embroiled in two major overseas conflicts, the defense industry got fat – profits grew from $6.7 billion in 2001 to $24.8 billion in 2010.

Government spending on defense has nowhere to go but down — the only question is by how much.

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The Goldman Rule: Don't Let This Puppet Master Pull Your Strings

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Goldman Sachs Group Inc. (NYSE: GS) Chief Executive Officer Lloyd Blankfein was really on a roll speaking at an investment conference in New York last week.

Among other things, he said there's no way we can conclude that a slowdown in banking and trading businesses is "secular, rather than cyclical."

That alone was enough to make me laugh. But then he went on to address concerns about pending regulations that are coming as a result of the Dodd-Frank Financial Reform Act.

"In our conversations with clients, they have expressed several concerns on the impact to their businesses," Blankfein said, making it clear that his firm will make client interests a theme of its arguments against the regulations. "What Goldman Sachs does for our clients is even more relevant and important."

Now that should make you laugh – if, of course, you're not too afraid.

The truth is that Goldman Sachs and the rest of the big banks on Wall Street – in the inimitable words of author Michael Lewis from his seminal book Liar's Poker – invariably "blow up" customers to make money for themselves.

Not only do they run roughshod over their customers (trading partners) and clients (banking relationships), the big banks manipulate markets, industries, economies and countries to fatten their already gigantic bonus pools and personal fortunes.

Now, I'm not singling out Goldman Sachs because it's the biggest and baddest bully on the block, which it is. I'm not blasting Goldman because I once idolized the firm – its culture, its talent, its sheer money-making prowess – and have seen its vision blinded by greed since going public in 1999. I'm not saying Goldman is the only self-serving, greedy, and pretentious firm on Wall Street. And, I'm certainly not calling out Lloyd Blankfein, whose extraordinary accomplishments as a trader are legendary, but whose leadership of Goldman has been marred by what might generously be described as "PR gaffes."

What I am doing is using Goldman as proof positive that Wall Street banks are bad news.

In fact, rather than seeing them rebound we would all be better off seeing them unwound.

From Wall Street to K Street – And Back

Let me start with the nexus of power and money in this country. That nexus resides exactly where Wall Street and Washington intersect. Each serves the other and the middle-class be damned.

You see, the "revolving door" metaphor that's so often used to describe the relationship between Wall Street and Washington isn't exactly accurate.

The reality is that there is no revolving door. There are no doors at all. It is more like one giant corridor where all the water cooler talk is about paying for campaigns, paying lobbyists, and paying bonuses.

There's a reason why Goldman Sachs is derisively referred to as "Government Sachs." The flow of executives and operatives between Goldman and Washington, and even other world governments and central banks for that matter, is legendary.

I can't point out all the connections – there are simply too many. But I will point out a few that you may not be aware of.

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Profit From Congress' Next Move With a Cybersecurity Stock That Could More Than Double

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We've been telling Money Morning readers for months now that cybersecurity represents one of the biggest investing opportunities for the New Year.

A new move by Congress figures to make our prediction come true.

Congressional leaders this week vowed to make cybersecurity a top issue in 2012, a move that will significantly elevate the sector's visibility. That will alert global investors at all levels to this burgeoning opportunity – a reality that will almost certainly be bullish for cybersecurity stocks in 2012.

And that means you may want to make your moves now.

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Why Warren Buffett Is Buying - And You Should Be Too

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Legendary investor Warren Buffett recently made news with his purchase of International Business Machines Corp. (NYSE: IBM), though I can't say I'm surprised.

Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.

And guess what, it's exactly what I've been counseling investors to do since this crisis began – bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").

According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).

In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.

Buffett Pulls the Trigger

As a long time Buffett watcher, I am somewhat surprised that he picked up Intel and IBM, if only because the Oracle of Omaha has a well-documented aversion to tech.

Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.

There are technical similarities, too.

For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.

Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.

Coke is up tenfold since then. Enough said.

Here's what I think Buffett sees:

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