Archives for February 2012

February 2012 - Page 3 of 11 - Money Morning - Only the News You Can Profit From

The Greatest Episodes of Market Manipulation...Is Silver Next?

Market manipulation has a long and storied history.

From the Tulip Mania of the 1600s all the way to the recent housing bubble, market manipulators have employed a wide range of tactics to lighten the wallets of unsuspecting investors.

And even though market manipulation is prohibited in the U.S. under a section of the Securities Exchange Act of 1934 – it's as American as apple pie.

Everyone from high-ranking government officials to investment bankers have been caught with their hands in the cookie jar.

The list includes scofflaws like Ivan Boesky, Michael Milken, and Jack Abramoff.

Jim Cramer, the host of CNBC's "Mad Money," said he regularly manipulated the market when he ran his hedge fund, calling it "a fun…and lucrative game."

Not surprisingly, a recent study found that those closest to the information loop -corporate insiders, brokers, underwriters, large shareholders and market makers – are most likely to be the perpetrators.

To give you an idea of how things work, here are three notorious examples of market manipulation.

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The Stimulus Secret Obama Doesn't Want You to Know

As he campaigns for re-election, U.S. President Barack Obama wants voters to believe his 2009 stimulus package played a key role in the economic recovery.

But while the American Reinvestment and Recovery Act (ARRA) did indeed help many people by spreading more than $787 billion around the country, it fell short of its goal of stimulating an economic recovery.

That's because about two-thirds of the stimulus package either went to debt reduction or into people's savings accounts. Neither boosts the economy.

That's the perspective – with some exaggeration for effect – you'll hear from Republicans during the presidential campaign.

"At the signing of the 'stimulus' three years ago, President Obama said he wanted to be held accountable for the results of his spending binge," House Speaker John Boehner said last week. "Today, there's no denying the fact that his 'stimulus' policies not only failed, they made things worse."

President Obama will need to shift the focus to ARRA's benefits. It did put a lot of money into the hands of millions of people through the tax rebates and extra entitlement spending on Medicare and unemployment benefits. And he can fall back on his mantra that the stimulus package kept the crisis from getting worse.

"Most economists – almost every economist – will tell you that had we not put [ARRA] in place we could've tipped into a great depression," President Obama recently told ABC News.

And yet that's not quite the same thing as jumpstarting the economy.

"Ultimately the stimulus did not live up to the promise of what the American public expected it to do, and that's bring about a strong, sustainable recovery," Michael Grabell, author of a new book on ARRA, "Money Well Spent?" told The Daily Ticker.

A Massive Stimulus Package

One would think the sheer size of the stimulus package would have done more than just keep things from getting worse.

"In raw dollars, inflation adjusted, the stimulus comes out as the biggest – bigger than the moon race, the [Works Progress Administration], the Louisiana Purchase, the Manhattan Project," Grabell told The Fiscal Times.

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The Mitt Romney Tax Plan: Trying to Please Everyone

The Mitt Romney tax plan, released by the candidate yesterday (Wednesday), aims to give everyone a little something by cutting taxes across the board – but without dramatic reform.

Romney's tax plan shows a series of mild tax cuts for all income earners and corporations. The GOP hopeful's plan isn't as aggressive as his rivals, but also adds less to the federal deficit than their plans do.

Basically, there's no one standout winner – except maybe Mitt Romney.

While this middle ground could prove too timid, it could also dodge heavier criticism directed toward other candidates – and push Romney a step closer to the White House.

The Mitt Romney Tax Plan

Romney attacked President Obama's increases in taxes and spending when he released his tax plan Wednesday. He promoted his as more balanced and fair than the president's.

"The right way forward is a flatter, fairer, simpler tax system that generates the revenue we need to fund a smaller government that is restrained to its historical size," said Romney.

Here's what Romney has proposed for individual and corporate tax rates:

  • Make an across-the-board 20% cut in marginal rates, including:
    • Reduce the top income rate from 35% to 28%.
    • Cut the lowest tax bracket rate from 10% to 8%.
    • Reduce middle-bracket tax rate from 25% to 20%.
  • Maintain the current 15% rate on income from qualified dividends and capital gains, except eliminate taxes on interest, dividends and capital gains for taxpayers who pay less than $200,000.
  • Repeal the alternative minimum tax (AMT) for both individuals and corporations.
  • Eliminate the estate tax.
  • Cut corporate tax rate from 35% to 25%.
  • Employ a territorial corporate tax structure.
  • Enforce the R&D tax credit.

"My plan sends signals of stability to business leaders and investors around the world, conveys a process for accomplishing these goals, and draws on my leadership skills and real-world experience to integrate and implement a comprehensive economic policy," said Romney.

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Hewlett-Packard Co. (NYSE: HPQ) Earnings Disappoint, Still a Tech Stock to Avoid in 2012

Hewlett-Packard Co. (NYSE: HPQ) delivered disappointing earnings today (Wednesday), showing new CEO Meg Whitman is still working on nursing the tech giant back to health.

Hewlett-Packard's adjusted earnings per share were 92 cents on revenue of $30 billion in the first quarter, while Wall Street was expecting H-P to earn 87 cents on sales of $30.67 billion.

Earnings fell 32% from the same period a year ago, and revenue slipped 7%.

Hewlett-Packard Co. Stock Price History

H-P is the world's largest PC maker, but its glory days are long gone. Over the past year, H-P stock has fallen about 40%.

Its financials for the November – January fiscal quarter illustrate the steep climb H-P faces to regain its profitable leading spot.

"All [its] segments are going to have headwinds," Abhey Lamba, an analyst at Mizuho Securities USA Inc., told BusinessWeek. "It's not going to be a one-year turnaround."

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Five Savvy Ways to Conquer the Wall of Worry

If you like extreme risk and consider living on the edge to be "normal," today's column isn't for you.

Today I'm writing to the millions of investors who are completely terrified by the prospect of what's next and who simply want their faith restored – not to mention their investments.

To all of them I would say: You are not alone and you're not wrong to be apprehensive.

Our political situation is an embarrassing train wreck, our national debt looks like a one way trip to financial hell, housing remains in the dungeon, unemployment is unacceptably high and Europe…oh Europe.

It's nothing short of a gigantic wall of worry.

Plus, there have been so many attempts to "fix" things that I've lost count. Throwing good money after bad is a fool's game and one that will have very real and inevitable consequences.

So what should investors do?

The Fed's War on Capitalism

Here's how I see things. The "Whitewash Ministry" has basically five options:

  1. Repression
  2. Devaluation
  3. Austerity
  4. Deflation
  5. Inflation

You can forget the double "d's" – devaluation and deflation.

Even though both would be the proper way for free markets to bleed out the excesses of the past, they are essentially political nukes and nobody has the willpower to touch either one of them.

The third, austerity, is being tried but only halfheartedly. Our leaders have no idea what this actually means. Since they remain completely unaccountable, there is no true incentive.

Besides, large numbers of people have figured out it's easier to be on the dole than it is to actually work, so this is another disincentive for meaningful cuts in spending.

As for inflation, this too is officially a non-starter as long as interest rates are held near zero. Unofficially, it's a different story. Most investors I know are feeling the heat of 12% to 15% a year in their wallets.

That leaves option number one – repression.

You can call it what you want, but repression is really a fancy way of saying that our government is conducting punitive monetary policy.

While they mouth off about how they want to create jobs and take care of the middle class, in reality they're eviscerating it.


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The Greek Bailout: Why I'm Mostly Bullish about the Eurozone

Last week's news that Eurozone GDP declined by 0.3% in the fourth quarter of 2011 set all the usual pundits moaning about the inevitable decline of Europe.

Even Andrew Roberts, a wonderful historian with whom I almost always agree, wrote in the Financial Times that "Europe's fire has gone out."

Today, the markets may welcome the Greek bailout deal, but behind the scenes they still dread the fact it won't work.

Meanwhile, hushed whispers are still being muttered about a Greek default as being "worse than Lehman."

On this subject I am a firm contrarian.

If Greece does default and is thrown out of the Eurozone, then I think Europe is actually due for a rebound – not a collapse.

It's only if they decide to bail out Greece again that I would become less optimistic.

If that is the case, they would be devoting hundreds of billions of taxpayer dollars (or euros, as it were) to propping up an inevitable failure. Even then, Greece is relatively small compared to the growth drivers in the Eurozone, which are strong.

The Problem with the Greek Bailout

What the Greek crisis has shown is that European leaders in Germany and Scandinavia have their heads properly screwed on, but they are not yet a majority of EU opinion.

The EU bureaucracy simply gave in far too easily to Greece's first demand for a bailout, then suggested further bailouts for the entire Mediterranean littoral, all of which had over-expanded their governments on the back of low interest rates in the first decade of the euro.

Now reality is returning rapidly to the discussion.

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Buy, Sell or Hold: BOK Financial Corp. (Nasdaq: BOKF) - the Only Bank Safe Enough to Buy

I was on the road lately and had the chance to drop into the Bank of Oklahoma's main branch in Oklahoma City. Upon entering, it was obvious these were prudent, old-school bankers. No matter the floor I was on, quiet and calm ruled.

That's the pace of banking I like.

Indeed, there are two types of banks in the world: The old-school banks, and the modern, frenzied versions that blew up in 2008.

Obviously, the latter are rightly hated in my opinion. The excessive leveraging of the bubble era has left the world's banks severely weakened. Since 2007, the non-stop deleveraging going on in the global economy has left banks on life support, propped up by their national balance sheets. And the velocity of money has slowed to a crawl.

Yes, in most cases the banks have paid back their TARP funds – but the stigma remains. C), Bank of America Corp. (NYSE: BAC), and Wells Fargo & Co. (NYSE: WFC) all needed bailing out. And both Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) had to convert their charters to bank status to hide from the reality of their own numbers.

They blew up. It's that simple. Wall Street failed.

However, not all banks blew up, failed, and needed government aid to keep their doors open.

I've been watching Bank of Oklahoma's parent for a while now, even before my visit inside their building, and they're one of the banks I consider a solid institution.

This is a contrarian bank. They skipped TARP. They didn't need access to the capital, even if markets were locked up. Their dividend rate is still going up and their earnings are growing.

So it's time to buy BOK Financial Corp. (Nasdaq: BOKF) (**).

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President Obama’s Corporate Tax Rate Plan Won’t Get Anywhere in 2012

The Treasury Department today unveiled U.S. President Barack Obama's corporate tax rate plan, in an effort to get ahead of Republican candidates who will be promoting their plans this week.

President Obama wants to lower the corporate tax rate from 35% to 28%. He wants an even lower rate for U.S. manufacturers to encourage corporations to produce at home.

Although the move could benefit U.S. corporations down the road, right now it's much more a political tactic than a realistic policy change.

"This is a very cynical move," Greg Valliere, chief political strategist at the Potomac Research Group, told Bloomberg Television. "It comes one day before a Mitt Romney speech in Detroit in which Romney will outline his tax proposal. So in effect the White House is saying, "Hey, we're in favor of tax reform,' even though they know there's virtually no chance of getting anything done this year."

This year will likely mark the start of serious corporate tax rate discussions, but with an election in the fall and bipartisanship in Washington, don't expect a tax rate change in 2012.

"This is such a bitterly gridlocked and divided Congress that something this enormous I think has no chance of making it before 2013," said Valliere.

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The Stocks Warren Buffett is Buying

Warren Buffett has gotten a lot of headlines recently for his critical assessment of the U.S. tax code.

But don't forget that Buffett became one of the world's wealthiest men through his career as an investor – not a political pundit.

For that reason, Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) is one of the most successful and widely followed companies in the world.

In fact, a 2007 study by two university professors entitled "Imitation is the Sincerest Form of Flattery" showed that buying what Buffett buys – even a month after his purchases – is a pathway to superior returns.

"The market … appears to under-react to the news of a Berkshire stock investment since a hypothetical portfolio that mimics Berkshire's investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year," the study said.

And right now Berkshire is making big moves.

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A New Robotic Horde Means Big Business for iRobot (Nasdaq: IRBT)

Don't let the recent sell-off in iRobot Corp. (Nasdaq: IRBT) shares get you down about robotics.

The truth is, this small-cap robotics leader just reported record results for 2011.

Shares of iRobot only fell when the company warned that tight defense budgets could curb sales of "warbots" until the second half of the year.

iRobot investors who are concerned that the drubbing is a reason to worry about the future of this industry are making a very big mistake.

Here's why.

An Asian electronics firm alone will field nearly 1 million new robots in less than five years. And in a moment I'll give you the details behind this robotic horde….

But first I want to make sure you know why I'm so bullish about this emerging high-tech field.

After all, in the Era of Radical Change, robots and other smart machines will transform the world in ways we still don't fully understand.

A Robotic Leap Forward

I realize that robots have been around for at least 30 years in factories. I actually saw some of the earliest versions in use at a General Motors Co. (NYSE: GM) plant in the early 1980s.

But today, the robotics industry continues to register one advance after another…

You see, we've reached critical mass in key areas. Today we have better software, chips, programming, and artificial intelligence.

All these high-tech advancements add up to a new generation of robots that can perform highly complex jobs.

Now, even low-cost Chinese workers who steal jobs from Americans face pressure from this new generation of "workerbots."

Just ask the workers at Foxconn International Holdings Ltd., a firm based in Taiwan that makes products for big computer firms.

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