Archives for December 2011

December 2011 - Page 2 of 8 - Money Morning - Only the News You Can Profit From

The Five Stocks You Have to Own in 2012

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An energy play that's poised for a 50% gain – that will pay you more than 9% on your
money while you wait …

A global tech play that has a unique solution to the single-biggest danger that we face in this
new Information Age – and that will reward its shareholders with a gain of as much as 99% ….

And a low-priced stock in the industry we believe will be the focus of Wall Street's next
big takeover wave. (Hint: The company is one of the few gold-mining stocks most individual
investors have likely never heard of – but would be smart to own) ….

I've included all three of these recommendations – and several more, besides – in today's
report. It's free..

You see, in the four months that followed our Aug. 11 launch of Private Briefing, the feedback has been terrific.

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Congress Handing Out Stock Tips to Hedge Fund Managers

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As if trading on insider information gleaned from their legislative duties wasn't bad enough, now it turns out Congress has been passing that information on to hedge fund managers as well.

That's helped many hedge fund managers make the same sort of lucrative bets in the stock market that has enriched members of Congress.

Meanwhile, Congress isn't doing anything to help individual investors, who don't have access to insider information and would probably be fined or jailed for doing what their representatives have been doing for decades.

"We the people need a new bill of rights from Congress," said Money Morning Capital Waves Strategist Shah Gilani. "I'm talking about our rights to control their indiscretions, lies, cronyism and the actions they take under cover of the protections of their offices."

Washington's latest transgression was revealed Tuesday in The Wall Street Journal.

New York-based broker-dealer JNK Securities Corp. arranges about 12 meetings a month between legislators and hedge fund managers.

If the information discussed turns into a useful stock tip, the hedge fund must execute the trade with JNK so it can earn a commission. But as questionable as it all sounds, no one is breaking any laws.

It boils down to "buying information from members of Congress in a perfectly legal way," Richard Painter, a former ethics lawyer for President George W. Bush and currently a law professor at the University of Minnesota, told The Wall Street Journal.

Greed, Corruption and Lies

In one instance, Conatus Capital Management scooped up 300,000 shares of Visa Inc. (NYSE: V) in the first quarter of 2010, knowing that a key provision harmful to the major credit card companies would not be included in the Dodd-Frank legislation. That tip came from a meeting with bill co-author Sen. Christopher Dodd, D-CT.

"Hedge funds and other investors have found that Washington can be a gold mine of market-moving information, easily gathered by those who are politically connected," Sanford Bragg, CEO and President of Integrity Research Associates, told The Wall Street Journal.

Both Republicans and Democrats defended the practice, telling The Journal that the discussions with hedge fund managers help them shape legislation.

Clearly, Congress can't be trusted with market-sensitive information. And if you think the revelations in The Journal or the CBS News "60 Minutes" expose on insider trading in November will slow them down, think again.

They have too much incentive to maintain the status quo.

A study by the academic journal Business and Politics shows that over the long term, members of Congress beat the market by an average of 9% annually.

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How the Pentagon Will Create Space Travel Profits

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The mainstream media was all over Microsoft Corp. (Nasdaq: MSFT) co-founder Paul Allen's recent announcement proclaiming he intends to "transform" the space industry.

But they missed the real story – one that will make a few savvy investors a small fortune.

If you want big profits from the next generation of space travel, keep an eye on new developments at a small but highly respected research arm of the Pentagon.

It's the agency that brought you the Internet. And now it wants to create a whole "new space system."

Don't get me wrong. I believe Allen's investment is an important vote of confidence in for-profit space travel.

But hold on to your wallets folks, because I'd be surprised if he or any investors ever turn a profit from Allen's new venture.

In reality, the story played to America's obsession with celebrities: Famous billionaire says he'll invest up to $200 million in new hybrid space crafts that will launch satellites for industry and government.

Era of Radical Change
After reading about Allen's foray into outer space you might have been tempted to jump into some obvious industry stocks.

Orbital Sciences Corp. (NYSE: ORB) boasts some exciting technology. But for now, steer clear of the stock.

Its fortunes still rest too heavily on NASA, which because of budget restraints axed a planned return to the moon.

The so-called Wall Street "pros" may tell you to buy shares of Lockheed Martin Corp. (NYSE: LMT), a big-cap concern that spans the defense-space spectrum.

But other divisions of the Pentagon are cutting back, which means Lockheed will face cash flow challenges for at least the next two years.

So let me tell you what's really going on – I believe a recent announcement by an innovative arm of the Pentagon will become an investment bonanza.

It didn't get much play in the major media because it's hard to see the profit potential in recycling dead satellites still orbiting earth.

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Fed Lets Banks Off the Hook... Again

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We've told you before that the U.S. Federal Reserve puts Wall Street's interest above that of the American public. And yesterday (Wednesday) the central bank proved it… again.

Confronted with the opportunity to enact meaningful change to the regulatory system, the Fed punted on its responsibility to protect the public from the very banks that brought down the global economy.

This once again proves that the Fed, far from being a guardian of public welfare, is actually on the side of big banks.

"The Fed is an agent of the banks and, as such, it continues to come up with new ways for them to make money, risk free," said Money MorningCapital Waves Strategist Shah Gilani.

This time, instead of proposing strong guidelines that would actually do something to avoid another crisis caused by too-big-to-fail banks, the Fed put forth a plan that lacks key details and leaves important decisions in the hands of international regulators in Basil, Switzerland.

Specifically, the Fed proposal is hazy on capital requirements and minimum liquidity levels, which are crucial to ensuring a bank survives a financial emergency.

Delay has been a common theme for agencies charged with creating the regulations set out in Dodd-Frank. As of the beginning of December – 18 months after Dodd-Frank was signed into law – fewer than 25% of its hundreds of new rules have been finalized.

On Tuesday, it was the Commodity Futures Trading Commission (CFTC)voting to delay until July of next year regulations governing derivatives – the financial instruments that were at the very heart of the 2008 financial crisis.

And by forfeiting its chance to effect change, the Fed left the United States even more vulnerable to another financial crisis.

Now, not only have these vital regulations been delayed, but the process gives well-connected Wall Street bankers three months to "comment" – read "influence" – on the proposals.

Following the Fed's announcement, the banking industry didn't seem particularly worried that the finished regulations, when they do arrive, will cause them much of a headache.

"While these rules will require considerable review and comment from the industry, we are pleased to see the Fed is taking a phased-in approach to a number of these measures," Ken Bentsen, an executive vice president the Securities Industry and Financial Markets Association trade group, told Bloomberg.

A headline on CNBC summed it up nicely: "Banks Breathe Sigh of Relief Over New Fed Rules."

Indeed, Wall Street isn't concerned because at the end of the day, it knows the Fed is its ally.

"The average American has no idea how protected the big banks in this country really are," said Money Morning's Gilani. "Maybe that's because the biggest bank in the world is the U.S. Federal Reserve. And it happens to be a creation of – and 100% beholden to – the banks that it is a master shill for. It also lies to us and covers up Wall Street's misdeeds."

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How the European Debt Crisis Could Smother Fiat S.p.A. (PINK: FIATY)

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Around this time last year I warned you that the Eurozone debt crisis would trample the Italian economy and take carmaker Fiat S.p.A. (PINK: FIATY) down with it.

To profit from this debacle, I told you to short Fiat. Since then, the stock has tumbled 76%, from $19 a share to yesterday's (Wednesday's) closing price of $4.66.

Fiat is a perfect example of how an unstable home market – like Italy – will kill a struggling company's stock. Fiat is Italy's largest private sector employer, and the past year's market performance mirrors the weakness unleashed by the European debt crisis.

Sadly, Fiat won't be the only company whose shares will plunge.

TheEuropean debt crisis has grown from a problem on the edge of Europe to a problem inside the region's core. You only have to look at the series of bank stress tests that Europe has rolled out to see that things are getting worse, not better.

In fact, the European Central Bank (ECB) announced yesterday that it would provide $638 billion (489 billion euros) in three-year loans to more than 500 banks in the Eurozone. More than a dozen Italian banks borrowed $143.52 billion (116 billion euros).

But the solution is only short term, and the region's grim long-term outlook hasn't changed. We're heading toward a point of maximum pessimism – one I think we'll reach sooner rather than later.

So, it's time to thank the Eurozone, Italy, and Fiat S.p.A. for a great short trade and close it out. While the stock could go all the way to $0, the meat of the move is over, and we want to take profits before a major short-covering event gives the share price a temporary boost.

Fiat S.p.A.: Stung by the European Debt Crisis

The European Central Bank forecasts Eurozone growth will slow to a near standstill next year, with gross domestic product (GDP) only expanding 0.3%. The ECB said area-wide inflation will reach 2.7% in 2011.

This slow-growth, higher-priced environment won't bode well for the region's automakers, which are already feeling the effects.

Automobile registrations in Europe in November dropped 3% to 1.07 million vehicles from 1.10 million a year earlier. That's the biggest decline since June, according to the Brussels-based European Automobile Manufacturers Association. The Italian auto sales market led the region's declines, slipping 9.2%. France was close behind at 7.7%.

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Keith Fitz-Gerald: Why Europe's Latest Bailout Won't Work

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Money Morning Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business Network's Varney & Co. today (Wednesday). In case you missed it, here's what he had to say about the latest European bailout attempt. The European Central Bank (ECB) probably thinks its latest $645 billion (489 billion euro) package will buy the markets some time, […]

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Our Financial "Regulators" Just Let Us Down Again

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The Dodd-Frank Act became law 18 months ago, and it may be hard to believe, but we still aren't any better off now than we were then.

Indeed, the regulators that are supposed to be protecting us from a repeat of the 2008 financial crisis can't – or refuse – to get the job done.

In fact, just yesterday (Tuesday), the Commodity Futures Trading Commission (CFTC) voted to move the effective date for rules that would add oversight to the $600 trillion derivatives market to July of 2012.

Derivatives were one of the primary culprits in creating the financial crisis in 2008.

Originally the regulations were to go into effect on July 16 of this year, but the CFTC pushed the date back to Dec. 31. And now, regulations of the item most responsible for the 2008 meltdown won't go into effect until two years after Dodd-Frank was enacted and nearly four years after the crisis occurred.

Other agencies responsible for finalizing the rules set forth in Dodd-Frank, such as the Securities and Exchange Commission (SEC) and the U.S. Federal Reserve, have been just as derelict in their duties.

In short, nothing has been fixed.

As Bad as Ever

"The structural problems are worse," Simon Johnson, a professor at the MIT Sloan School of Management and a former chief economist at the International Monetary Fund (IMF) told the Huffington Post. "[The institutions'] size, incentives — none of that has changed."

Meanwhile, American citizens still suffering from the fallout of the last crisis are left to worry about vulnerabilities in the system and the ramifications of having a group of financial institutions that are still "too big to fail."

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The Income Investments You Need to Focus On Right Now

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The yield on 10-year Treasuries dipped sharply below 2% again last week. Meanwhile, inflation, even on the official figures, is running at 3.4%.

For someone trying to preserve their capital in real terms, those two figures show a real problem – with bond investments, it's impossible.

Capital gains are out – the Dow Jones Industrial Average is below its level of five years ago and, adjusted for inflation, below its level of 10 years ago. Today, the only way you stand to get a decent deal out of your investments is through income stocks.

Not all income stocks are ideal. At one extreme, there are the blue chips that pay 3% to 4% in dividends and are referred to as "income stocks" because they don't show a great deal of growth. These include McDonalds Corp. (NYSE: MCD), The Procter & Gamble Co. (NYSE: PG) and the like.

Individually, some of these may be good "Buys" sometimes. But collectively, they are overpriced. Everybody has heard of them and the most optimistic assumptions about their steady growth are built into their stock price.

Even with all the analysts on Wall Street crawling over them, stuff can still go wrong – at which point their stock price will tank. While they may not be very risky, at their current prices there's all risk and little reward. Dividend yield of 3% to 4% is not much more than Treasuries and certainly doesn't pay you if something goes wrong. At $57 (equivalent to $570 today) in 2006-07, Citigroup Inc. (NYSE: C) was one of these stocks – within two years it was trading at $1.

At the opposite extreme, there are stocks that appear to have very high yields, but won't pay their dividend. Often, this is because the quoted yields are based on historical dividends, and hard times have hit the stock – Citigroup quoted some very fancy yields indeed on the way down! However, there are other snares in this area, which may be more difficult to spot:

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Russian Disaster Reveals Growing Problem in Supply Access

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Earlier this week, an oil platform sank off the Russian Pacific coast in frigid, stormy waters.

The Kolskaya had been stationed off far northeastern Russia, and capsized when engineers were moving the jack-up rig from ongoing drilling projects in the Sea of Okhotsk to the western coast of Sakhalin Island. Accounts from the 14 survivors mention waves in excess of 20 feet.

That is enough to flood the operations base and sink the rig.

Details are still coming in on how this tragedy occurred.

But the question of why is one that deserves reflection.

The Kolskaya disaster is a sobering reminder of a growing problem for Russian producers as they push offshore in search of more and more crude supplies.

But it is also a warning that tragedies like this will likely occur again if budget shortfalls and company shortcuts continue to intensify in the years ahead.

The Russian Push North

Russia is now the world's largest producer of crude oil.

However, as I noted earlier this month, Moscow is moving offshore into very hostile conditions to compensate for accelerating crude oil extraction declines in the traditional production basins of Western Siberia.

I have never been on the Kolskaya ("Kola" in English, pictured below), but I have spent time on similar class jack-up rigs.

A jack-up is a floating platform resting on movable legs set in a stationary position on the sea floor. The legs can be raised or lowered to compensate for water depths (usually to a maximum of about 400 feet).

These are amazing pieces of equipment, with facilities to house more than 100 personnel, and the ability to drill dozens of wells at a time. Once the rig has completed a project, a production platform is towed into place, and the jack up moves on to its next job.

And that's what was happening when disaster struck.

The Kamchatka Peninsula-Sea of Okhotsk-Sakhalin Island corridor is a prime target area for Russia's offshore expansion. Current production from Sakhalin (which is due north of Hokkaido, Japan) is essential to ongoing crude oil and natural gas extraction figures, with the future demanding even greater volume from continental shelf development.

As I noted in early December, we know the vast majority of remaining oil and gas is positioned in offshore waters. Much is both north of the Arctic Circle and under effective Russian control.

However, these projects lack sufficient equipment and technology, are incredibly expensive, and are already running well over budget.

As with all of the far northern projects I reviewed during my recent trip to Russia, there is a lack of drilling rigs and a multiple-year delay in getting access to available production platforms. Most of the platforms must be ice-resistant and are constructed from scratch.

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Investing in Tech Stocks in 2012: New Opportunities Arise from Scrapped AT&T Deal

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The end of the AT&T Inc. (NYSE: T) deal with T-Mobile USA isn't just a win for U.S. consumers – it's creating new opportunities for investing in tech stocks in 2012.

Since AT&T Inc. announced Monday it was backing out of the $39 billion deal to avoid a lengthy and costly legal battle, the tech sector has been buzzing with what's next for both companies.

The acquisition of T-Mobile USA, a subsidiary of Germany-based Deutsche Telekom AG (PINK ADR: DTEGY), would have made AT&T the largest U.S. wireless carrier, leapfrogging current No. 1 Verizon Wireless (NYSE: VZ). It would have also thrown a lifeline to the ailing T-Mobile, the fourth-largest U.S. wireless provider behind Verizon, AT&T, and Sprint Nextel Corp. (NYSE: S).

But AT&T couldn't prove to the U.S. Justice Department, which filed an antitrust suit in August, that the deal wouldn't ruin competition by creating an industry duopoly. Ever since AT&T announced the plan in March, U.S. consumers feared future higher rates and fewer plan and phone options.

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