Archives for January 2012

January 2012 - Page 10 of 11 - Money Morning - Only the News You Can Profit From

Special Report: How to Buy Silver

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Silver prices soared as high as $50 an ounce last year before experiencing a brief correction that took it back below $30.

However, despite this blip, mounting inflationary pressures, a weakening dollar, and emerging market demand will see silver retest its record highs in 2012. In fact, this time around it could even climb as high as $150 an ounce.

The white metal has already gotten off to a strong start this year, with silver for March delivery surging 5.9% on Tuesday to settle at $29.57 an ounce – the biggest one-day gain in months.

And it's just getting started. So if you don't want to miss the next big bull-run, you might consider the following instructions on how to buy silver.

How to Buy Silver

Like gold, silver investments can be made in a variety of forms. Let's take a look at some of the most popular forms.

Physical Silver: Physical silver can be purchased in a variety of sizes and weights, which determines its price. Most typical are 1.0 ounce silver coins, like the Austrian Silver Philharmonic, the American Silver Eagle, and the Canadian Silver Maple.

Their prices vary slightly due to differences in silver purity, with the Silver Maple being the highest at 99.99% pure. You'll pay about a 16% premium over the silver price for coins due to the cost of fabricating them.

Another popular option is the 100-ounce silver bar, which commands a 5% premium over the spot price of silver.

These coins and bars are essentially bought for their silver content and not as collectibles. If you're looking to build a silver stash – either large or small – bullion dealers may be the easiest way for investors to do so. But do your homework first, and check them out before you buy. Also, avoid paying more than the premiums I noted above for either coins or bars.

Some investors wonder if they should buy smaller denominations, like 1/20th, 1/10th, ¼, or ½ ounce (gold) coins. The thinking goes like this: If ever these coins need to be used to transact and make payments, one would want to have smaller "amounts" to carry around. That's a valid rationale. Even so, keep in mind that you'll pay a premium to the actual silver content, since each individual coin has to be fabricated. I believe that, should we ever get to that point, you could just convert a one-ounce coin or bar into a number of smaller coins, and pay the premium, or perhaps receive whatever else is being used for transactions (a new currency?) in return.

A few dealers that have an established reputation are:

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The One Question We Must All Ask Ourselves

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Rampant profiteering by Congress and greedy bankers is forcing us to weigh the slings and arrows of outrageous fortune against honesty and transparency – both of which are being trampled by crony capitalists in pursuit of the almighty dollar.

What's at stake is whether gross criminal activity and reckless disregard for the public will continue to be whitewashed by regulators like the Securities and Exchange Commission (SEC), the U.S. Federal Reserve, courts, and Congress, which encourage half-baked civil fraud charges followed by non-prosecution agreements and nickel-and-dime fines.

And even more galling, guilty parties end up neither admitting nor denying wrongdoing.

Let's face it, we have allowed the SEC, the Fed, and Congress to be corralled as a matter of regulatory and legislative capture by the very crooks they are responsible for policing and protecting us from.

We are lying to ourselves if we do not believe that we are all part of this problem. It's not that most of us aren't honest. It's that we venerate money and wealth too much.

Rather than being disgusted by dishonest manipulators, liars and cheats, we excuse the less-than-obvious perpetrators as if their example of cutting corners to get ahead, as far ahead as possible, might clear a path for some of our own pursuits.

What have we become? Are we a nation of people with liberty and justice for all, or just a bunch of money grabbers stepping on each other's liberties to pursue self-centered happiness by becoming filthy rich?

Don't get me wrong. There's nothing wrong with the profit motive driving business. And there's nothing wrong with working hard and trying to make a lot of money. Those are honorable pursuits.

President Calvin Coolidge said: "The chief business of the American people is business."

But in the same speech made on January 17, 1925 our 30th president went on to say: "Of course the accumulation of wealth cannot be justified as the chief end of existence."

Tragically, the fountainhead of greed in America emanates from our own Congress. It has become obvious that the accumulation of personal wealth is their primary civic duty.

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Is It Time to Buy These
"Death Watch" Stocks?

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Money Morning's Keith Fitz-Gerald joined Fox Business's Stuart Varney yesterday (Wednesday) to discuss three stocks Varney said were on "death watch" – including Eastman Kodak Co. (NYSE: EK), rumored to be on the brink of filing for bankruptcy.

Varney asked Fitz-Gerald if any of these companies presented a buy-when-it's-cheap opportunity, or if investors should steer clear.

First, Eastman Kodak Co.

The photo company is rumored to be preparing to declare bankruptcy if a plan to sell digital patents doesn't materialize over the next few weeks. The company has plunged a staggering 98% in the past five years, bringing its market cap to a measly $170 million.

"It's hard to believe this company is in danger of delisting and has become a microcap stock," said Fitz-Gerald.

Fitz-Gerald said as an investment this company should be avoided, but did not discount some day-trading opportunities for aggressive traders.

"Of these stocks, this is the one that intrigues me if I want to take a flyer – not an investment, but a flyer. The potential winner if you are a trader here is the patent lawsuit against Apple and Research in Motion."

Kodak initiated a suit against Apple Inc. (Nasdaq: AAPL) and Research in Motion Ltd. (Nasdaq: RIMM) in 2010 claiming patent infringement on imaging technology.

"But my concern is the judge has put off an opinion until September 2012; Kodak may not have the cash to survive until then," said Fitz-Gerald.

Next up, Sears Holding Corp. (Nasdaq: SHLD). ……

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Oil Companies Big Winners as U.S. Becomes Net Exporter of Fuel

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The United States has become a net exporter of fuel for the first time in more than 60 years. That simple fact could drive oil-company profits for at least the next decade.

It's also another sign of dramatic shifts in the energy industry, with consumption declining in the United States and rising in emerging economies.

The United States exported 98 million barrels more of fuel than it imported in the first 10 months of 2011. Just a few years ago, in 2005, the country imported almost 900 million barrels of fuel.

"It looks like a trend that could stay in place for the rest of the decade," Dave Ernsberger, global director of oil at Platts, told The Wall Street Journal. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."

The United States is still the world's largest importer of crude oil, however – although even U.S. oil imports have dropped by 10% since 2006.

Actually, that's one of the reasons the United States has become a net exporter of fuel. New sources of domestic oil from the shale fields in North Dakota and Texas, as well as Canada's Athabasca oil sands, have made more crude available to U.S. refining companies.

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Beware of these Three "Death Watch" Stocks

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Money Morning's Keith Fitz-Gerald joined Fox Business's Stuart Varney this morning (Wednesday) to discuss three stocks Varney said were on "death watch" – including Eastman Kodak Co. (NYSE: EK), rumored to be on the brink of filing for bankruptcy. Watch this video to hear Fitz-Gerald's analysis of why investors should avoid Kodak, a major U.S. […]

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Prepare for Iran's Energy Market Chaos with the United States Oil Fund LP (NYSE: USO)

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Iran kicked off the New Year with aggressive messages for the Western world, setting the stage for heightened political tensions and a huge oil price push in 2012.

Oil futures finished at their highest level in eight months yesterday (Tuesday), with West Texas Intermediate crude jumping 4.2% to settle at $102.96 a barrel on the on the New York Mercantile Exchange (NYMEX).

The surge came after Iran warned a U.S. aircraft carrier to stay out of the Persian Gulf. The message fueled speculation that Iran will make good on its threat to close the Strait of Hormuz to oil tankers.

An average of 14 supertankers carrying one-sixth of the world's oil shipments every day pass through the Strait, a narrow channel which the U.S. Department of Energy calls "the world's most important oil chokepoint."

With global oil demand expected to rise to a record 89.5 million barrels per day in 2012, a major disruption to oil exports from Iran would drastically affect pricing.

Even though Iran has made such threats repeatedly over the past 20 years, tighter sanctions imposed by the United States and Europe may have pushed the country to its breaking point. Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.

Now Iran is expected to trigger oil market performance similar to spring 2011, when Libya's civil war caused oil prices to spike close to $115 a barrel.

In fact, if the Iranian government made good on shutting down the Strait, oil prices would probably shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.

While we can't control Iran's actions, we can control how we prepare for whatever political and economic turmoil it inflicts. That's why it's time to buy the United States Oil Fund LP (NYSE: USO).

Global Political Tensions Will Bolster US Oil Fund

Iran is trying to scare the world out of imposing more sanctions against it, which drastically limit the country's ability to conduct business.

The latest sanctions, signed into law by U.S. President Barack Obama last Saturday, will make it far more difficult for refiners to buy crude oil from Iran, the world's fourth-largest oil exporter.

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Foreign Funding Ushers In a New Era of Profit Opportunities for U.S. Gas Companies

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U.S. natural gas companies have found a convenient new way to boost their profits – by drawing in overseas companies to help fund their development projects.

The maneuver was illustrated yesterday (Tuesday), when two large foreign companies bought big stakes in major U.S. shale projects.

French oil major Total S.A. (NYSE ADR: TOT) said it would invest $2.3 billion in Chesapeake Energy Corp.'s (NYSE: CHK) Utica Shale operation in eastern Ohio. Within hours, China Petroleum & Chemical Corp. (NYSE ADR: SNP), also known as Sinopec, announced a $2.2 billion deal to buy a 30% stake in five Devon Energy Corp. (NYSE: DVN) shale projects.

The deals follow several last year that have helped U.S. companies raise the cash they need to accelerate drilling for shale gas, which is more expensive than drilling for conventional natural gas.

"We will be seeing more of this kind of joint venture activity, bringing in foreign companies with deep pockets to offset rising development expenses for shale projects, while still allowing the U.S. company to retain control," said Money Morning Global Energy Strategist and Editor of the Oil & Energy Investor Dr. Kent Moors.

But the Chesapeake-Total deal takes this idea one step further, allowing Total to actually lease land in the Utica shale gas deposits.

"This is going to usher in a new era in how we develop the vast unconventional reserves in this country," said Moors.

Actually owning some of the shale gas deposits adds directly to the foreign company's share value, while the acceleration of the project made possible by the cash infusion boosts the U.S. company's stock.

"Having an American producer control a mega domestic project, but deflecting large chunks of the expense to a foreign company, is an ideal solution," Moors said.

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How Banks Are Using Your Money to Create the Next Crash

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In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis – rehypothecated assets.

It's a complicated, fancy term in the global banking complex. Yet it's one you need to know.

And if you understand it, you will get the scope of the risks we currently face – and it's way bigger than just Greece.

So follow with me on this one. I guarantee that you'll be outraged and amazed – and better educated. You'll also be in a better position to protect your assets at the end of this article, where I'll give you three important action steps to take. So follow along…

Their Profits on Your Money

Few people know this, but there's a process through which banks and trading houses are leveraging your money to increase their profits – just like they did in the run-up to the last financial crisis. Only this time, things may be worse, as hard as that is to imagine.

Consider: In 2007 the International Monetary Fund (IMF) estimated that this form of "leverage" accounted for more than half of the total activity in the "shadow" banking system , which equates to a potential problem that would put this insidious little practice on the order of $5 trillion to $10 trillion range. And this is in addition to the bailouts and money printing that's happened so far.

Wall Street would have you believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But I have a hard time believing that.

Wall Street is addicted to leverage and, when given the opportunity to self-police, has rarely, if ever, taken actions that would threaten profits.

Further, what I am about to share with you is one of main the reasons why Europe is in such deep trouble and why our banking system will get hammered if the European Union (EU) goes down.

And w hat makes this so disgusting – take a deep breath – is that it's our money that's at stake. Regulators like the Securities and Exchange Commission (SEC) and their overseas equivalents are not only letting big banks get away with what I am about to describe, but have made it an integral part of the present banking system.

Worse, central bankers condone it.

As you might expect, the concept behind this malfeasance is complicated. But it's key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond.

What we're talking about is something called "rehypothecation."

Most people have never heard the term, but trust me, you will shortly. Let me explain what this is, and why you need to know about it. Then, I'll offer three ideas to trade around it.

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Should We Be Worried About Iran?

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If the Iranian government makes good on its recent threats to stop oil shipments through the Strait of Hormuz, oil prices would shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.

Such a steep spike in crude oil prices would plunge the United States and Europe back into recession, said Money Morning Global Energy Strategist Dr. Kent Moors.

Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.

The world's fourth-biggest oil producer is unhappy with fresh U.S. financial sanctions that will make it harder to sell its oil, which accounts for half of the government's revenue.

"Tehran is making a renewed political point here. The message is – we can close this anytime we want to," said Moors, who has studied Iran for more than a decade. "The oil markets are essentially ignoring the likelihood at the moment, but any increase in tensions will increase risk assessment and thereby pricing."

One reason the markets haven't reacted much to Iran's latest rhetoric is that although it has threatened to close the Strait of Hormuz many times over the past 20 years, it has never followed through on the threat.

But a fresh wave of Western sanctions could hurt Iran's economy enough to make Tehran much less cautious.

The latest sanctions, signed into law by U.S. President Barack Obama on Saturday, will make it far more difficult for refiners to buy crude oil from Iran. And looming on the horizon is further action by the European Union (EU), which next month will consider an embargo of Iranian oil.

"The present United Nations, U.S. and EU sanctions have already had a significant toll," said Moors. "They have effectively prevented Iranian access to main international banking networks. Iran now has to use inefficient exchange mechanisms."

Because international oil trade is conducted in U.S. dollars, Moors said, Iran must have a convenient way to convert U.S. dollars into its home currency or other currencies it needs, such as euros.

Pushed to the Brink

The impact of the sanctions combined with internal political instability has driven Iran to turn up the volume on its rhetoric.

"Tehran has limited options remaining," Moors said, noting Iran has historically used verbal attacks on the West to distract its population from the country's problems. "The Iranian economy is seriously weakening, the political division among the ayatollahs is increasing, and unrest is rising."

Analysts worry an Iranian government that feels cornered would be more prone to dangerous risk-taking in its dealings with the West. So while totally shutting down the Strait of Hormuz isn't likely, Iran could still escalate a confrontation beyond mere talk.

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An Investor's Guide to the 2012 Iowa Caucuses

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Whether you see it as an example of direct democracy in action or an over-hyped media circus, there's no question that the Iowa caucuses will influence this year's presidential election.

Traditionally, the top three finishers in the Iowa caucuses have had the best shot at securing the Republican nomination for president. And while U.S. President Barack Obama has enjoyed a bit of a surge in the polls recently, he's far from a lock to win a second term.

So investors – regardless of their political affiliation – would be smart to closely consider each potential candidate's economic platform, as well as their chances of winning the nomination.

This year the Republican field is as competitive as I've ever seen. You can make a case for multiple candidates winning the caucuses, and any candidate could be boosted into the thick of the race by a strong finish.

Even the participants that are unlikely to win either Iowa or the nomination have significant strengths and policy ideas that could be absorbed by other candidates.

For investors, there are two criteria: First, how well will a candidate's ideas and personality play in the market and in the U.S. economy? And second, how likely is the candidate to beat President Obama in November 2012?

Generally, a Republican victory in 2012, if accompanied by Republican control of Congress, would be good for the market and would cut domestic public spending below that of a renewed Obama administration. It would also keep taxes lower, although a substantial tax increase is probably inevitable in 2013-14.

A Republican president would repeal Obama's healthcare legislation, although it's unlikely that that would save much money or solve healthcare's funding problems.

A Republican president also would probably replace U.S. Federal Reserve Chairman Ben Bernanke, although a President Mitt Romney or President Newt Gingrich would be unlikely to change the overall "loose money" thrust of monetary policy unless forced to do so.

Most likely Republican candidates would also pursue a more aggressive – and expensive – foreign policy than a re-elected Obama. So unless a real budget-cutter is elected, there will be little improvement in the U.S. budgetary position and a likely worsening in inflation over time, leading to another financing crisis well this side of 2016.

That said, let's take a detailed look at each candidate in this field guide to the 2012 Iowa Caucuses.

Jon HuntsmanJr.

Jon Huntsman, 51, was President Obama's Ambassador to China after being Governor of Utah. In Utah, he increased spending 33% during his term, not a good sign for his ability to balance the federal budget. He also backed "cap and trade" legislation on global warming and the 2007 immigration amnesty bill.

In an attempt to attract economic conservatives, he has put forward a supply-side tax reform, but he appears blocked by Mitt Romney, another moderate Mormon, in his attempt to gain traction. His best shot is New Hampshire on Jan. 10, but unless Romney fades very fast, he's unlikely to go much further. However, he is media-savvy, which could help. Still, he's not viable as a vice presidential candidate for either Ron Paul or Rick Perry, because the neoconservative lobby (which wants an aggressive foreign policy) does not like his fairly dovish foreign policy views.

If by some fluke he won the nomination, he'd have a good chance against Obama, and if elected, he'd probably be quite a good middle-of-the-road president and good for the market.

Rick Santorum

Rick Santorum, 53, was Senator from Pennsylvania 1995-2007, unluckily losing his 2006 re-election bid by 18%. He's the darling of the social conservatives and of the neocon foreign policy hawks, with an economic policy of tax breaks for manufacturing.

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