Archives for March 2012

March 2012 - Page 10 of 12 - Money Morning - Only the News You Can Profit From

The VIX Indicator: What this Contrarian Index is Telling Us Now

Most investors think of the VIX Indicator (VIX) as the "fear gauge."

True to form, the old saying with the VIX is, "When the VIX is high, it's time to buy."

But experts look at the VIX as much more than just an index.

They view the VIX as possibly one of the best contrarian indicators in the business.

While most investors are scrambling to figure out whether the market's headed up or down, savvy pros use the VIX both as means of protection and a source of profit.

"It gives you an idea of how uneasy people are about the markets," Joe Levin, vice president of product development at the Chicago Board of Options Exchange (CBOE) told CNNMoney.

That is, it tells you whether or not the markets have reached an extreme level of sentiment – either bullish or bearish.

More often than not, it is the action in the VIX that signals major market tops and bottoms.

But before we get into how to use the VIX, we need to understand what the VIX actually is.

To continue reading, please click here...

The Real China Story: It's What Premier Wen Didn't Say That Matters

According to Premier Wen Jiabao on Monday, China is only going to grow at 7.5% this year.

But this isn't the bombshell most Western analysts think it is-even though the markets sold off on the day and may continue their temper tantrum later this week.

It's actually what Premier Wen didn't say that really matters. As is so often the case in China, it's what goes on behind the scene that is far more interesting – and actionable.

In that sense, Premier Wen's comments aren't really news at all, but rather recognition of the symbolic priorities attached to Chinese growth.

As I have talked about at length in the past, China needs to do three things this year: 1) keep growth in line, 2) promote monetary stability and 3) be flexible with regard to inflation.

What makes Wen's 7.5% GDP figure significant is that in dropping it by half a percent, Premier Wen is not saying, but, in fact, telegraphing two things:

  • China's domestic growth priorities have now trumped growth through exports and manufacturing in terms of relative importance; and,
  • The Communist Party expects to shift spending to lower brow projects like ordinary train lines, rural roads, education and technical infrastructure.

Having spent more than 20 years doing business in Asia, I've learned that Chinese leaders almost never say anything in public they haven't already baked into the cake.

This stands in stark contrast to our own politicians who frequently write checks with their mouths that they can't possibly cash.

Understanding the China Story

No. China's leaders are acutely aware of "face" and the risks of losing it. So it's what hasn't been said that's actually far more important here.

The real message is that China expects to maintain growth above 6%, the internal Party Elite's real target, and continue to develop employment opportunities that will keep its 1.3 billion people fed, clothed and housed – so they don't revolt.

Never mind Iran's "Red Line." This is the one that matters.

Understand the importance of 6% and you will understand China in a way that Washington doesn't.

Exports, imports, the yuan, the ghost cities, and hard landings…

None of these things hold a candle to what Beijing considers its most important issue–ensuring China's own survival.

To continue reading, please click here...

Tech Stocks to Watch: Pandora Media (NYSE: P), Apple (Nasdaq: AAPL), Yahoo (Nasdaq: YHOO)

This week's news moving tech stocks includes today's (Tuesday's) Pandora Media Inc. (NYSE: P) earnings report, tomorrow's (Wednesday's) Apple Inc. (Nasdaq: AAPL) iPad debut, and Yahoo Inc.'s (Nasdaq: YHOO) rumored layoffs.

Pandora Media (NYSE: P) Earnings: Internet radio site Pandora, which went public June 15 last year, released fourth-quarter earnings after the bell today.

Pandora lost $8.18 million, or five cents a share, due to higher costs for advertising, marketing and content acquisition. Fourth-quarter revenue rose to $81.3 million from $47.6 million, a 71% year-over-year increase. Advertising revenue was $72.1 million, up 74% from the year before, and subscription and other revenue was up 51% to $9.2 million.

To continue reading, please click here...

Windows 8: Microsoft (Nasdaq: MSFT) Strikes Back at Apple and Google

Microsoft Corp. (Nasdaq: MSFT) has radically retooled its flagship product, Windows 8, to fight for a bigger piece of a mobile computing market currently dominated by its rivals.

Microsoft unveiled a beta version of Windows 8 at the Mobile World Congress in Barcelona last week.

With a final release expected in the fall, Microsoft needs Windows 8 to be a winner.

Microsoft's Windows, which has owned desktop computing with a market share well over 90%, has not fared as well on mobile devices like smartphones and tablets.

Instead, Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG) have dominated the "post-PC era" with such products as the iPad and the Android operating system.

The Redmond, WA, tech giant now hopes that Windows 8, optimized for the touchscreens of mobile computing but sharing a unified look and feel between its tablet and desktop versions, will reverse its fortunes in mobile computing.

"Microsoft's future path is riding on Windows 8 and its success," Gartner Inc. (NYSE: IT) analyst David Cearley told the Associated Press. "This is a chance for Microsoft to re-establish itself in a market where it's becoming increasingly irrelevant."

Microsoft is at a critical juncture.

The Windows and Office franchises that the company was built on rely on continued growth in the PC market which has slowed in recent years.

This stagnation in the PC market has hurt Windows sales. Revenue from the Windows division was down 6% in the December quarter – the fourth time in the past five quarters that revenue from Windows has declined year-over-year.

Meanwhile, Apple has become the most valuable company in the world on the strength of its iPhone and iPad businesses.

Unless Windows 8 can establish a strong presence in mobile computing, Microsoft risks getting left on the sidelines of tech – still moderately successful, but with little chance for growth and waning influence.

To continue reading, please click here...

Stuxnet Virus Triggers New Era of Cyber Attacks - Is the U.S. Ready?

Due to threatening cyber attacks like the Stuxnet virus, the United States has made cybersecurity a top priority.

But are we still too vulnerable?

After all, cyber attacks have gotten more sophisticated, and more targeted to specific operations in the past couple of years.

They also often remain undetected for long periods of time. Less than 5% of cybersecurity attacks are discovered within hours, while almost 80% aren't found for weeks or months, according to Verizon's 2011 threat report.

The growing concern caused FBI Director Robert Mueller to warn last week that cyber attacks will become the No. 1 terrorist threat to the United States – which is why Congress is trying to pass the first U.S. cybersecurity law.

"We will suffer a catastrophic cyberattack," said House Intelligence Committee Chairman Rep. Mike Rogers, R-AL. "The clock is ticking."

The Stuxnet Virus

Much of the fear surrounding a U.S. cyber attack has escalated due to the Stuxnet virus.

The Stuxnet virus was first detected in June 2010 when a software security firm's Iranian client complained about a software glitch.

"As soon as we saw it, we knew it was something completely different. And red flags started to go up straightaway," Liam O Murchu, an operations manager at antivirus company Symantec Corp. (Nasdaq: SYMC), told "60 Minutes" correspondent Steve Kroft in a March 4 segment on Stuxnet.

To continue reading, please click here...

The Singapore Stock Market is the World's Biggest Bargain

Having spent three years there as a child, I have happy memories of Singapore.

In those days, most of the locals lived in "atap" palm-frond-roofed huts and bathed by standpipes.

Today's Singapore is completely unrecognizable to me.

It is a modern country that is now among the world's richest. There is barely a palm-frond roof to be found anywhere.

Singapore is also ranked first on the World Bank's Doing Business list (the U.S. is fourth), second on the Heritage Foundation's Index of Economic Freedom (the U.S. is 10th ) and fifth on Transparency International's Corruption Perceptions Index (the United States is 24th).

So why is the Singapore stock market trading on an 8.3 times P/E ratio, according to the Financial Times?

The Upside of the Singapore Stock Market

After all, its economy is in fine shape, and is growing faster than any of the major Western economies.

In fact, with its GDP per capita estimated at $50,700, Singapore is now richer than the United States.

It's all proof that as the world's leading trade entrepot, Singapore is aggressively moving up the global value chain as its citizens become richer and better educated.

And unlike the U.S., Singapore's recovery from the 2008-09 recession was rapid, with 14% growth in 2010.

Since then, it has entered a mini-recession, with GDP declining at a 2.5% annual rate in the fourth quarter of 2011. Still, overall growth in 2011 was a solid 4.8%, and the country is expected to grow by another 3.1% in 2012, according to the analysts at The Economist.

Inflation is a moderate problem, running around 5%, although it is expected to decline.

Yet the most impressive statistic about Singapore is its current account surplus of 18.4% of GDP; the budget is also in modest surplus, as it is most years.

With a GDP of only $266 billion in 2011, Singapore is a relatively small economy. But its exalted position in wealth, economic freedom and clean government and business make it a country that is a highly attractive place to invest in.

That's why its current modest P/E ratio is so surprising.

The recession has affected bank earnings (Singapore is a center of private banking, with excellent secrecy laws) but its industrial companies appear to be doing well, so patient investors should find themselves very well rewarded indeed, as the market enjoys an upward re-rating.

To continue reading, please click here...

Four Things to Know About Super Tuesday 2012

Usually by the time voters reach Super Tuesday, the party has a clear leading candidate. This year, however, could bring a little GOP shake-up.

There are ten states holding a primary election or caucus on Super Tuesday2012. Former Massachusetts Gov. Mitt Romney is slated to take about four of them, but has faced increasing competition from previous underdog former Pennsylvania Sen. Rick Santorum. Santorum surprised the Romney camp Feb. 7 when he swept three states – Minnesota, Missouri, and Colorado.

While Romney has won the most elections so far, there is still a large number of Republicans he has failed to win over. Some GOP members think he's too liberal to represent the party in Washington.

With some surprise wins for Santorum already this year, tomorrow's Super Tuesday battle could further rattle Mitt Romney's lead.

As we enter one of the most closely watched days in Election 2012, here's what you need to know.

Super Tuesday 2012

Which states are key? There are 437 delegates in the Super Tuesday states, more than double the amount that already voted. Only 422 technically are up for grabs tomorrow, since the rest are superdelegates and unbound to the results. That's still more than one-third of the 1,144 delegates needed to clinch a nomination.

Here's how they break down per Super Tuesday state:

To continue reading, please click here...

If I'm an Apple (Nasdaq: AAPL) Investor, I Want a Dividend

Now that their stock is up more than 20-fold in the last ten years, Apple Inc. (Nasdaq: AAPL) investors have had a wonderful ride.

On top of that the company has amassed a $97.5 billion cash hoard that would be the envy of any small nation.

However, as a dispassionate observer with experience of past such glorious valuations, I will tell you: If I were an Apple shareholder I'd want a cash dividend.

In fact, I think investors should certainly demand payout of at least three quarters of that cash hoard.

Simply put, a dividend is the best way for Apple shareholders to get real value out of their investment.

Here's why.

If Apple decided to pay out a $25 billion dividend per annum, allowing shareholders to benefit directly from the company's profits, it would be less likely to diversify unwisely in the future.

By receiving such a dividend, Apple shareholders would find their capital value preserved and their income increased.

However, the temptation of the $97.5 billion cash hoard would remain and management would still dream of the $100 billion acquisition that could revolutionize Apple's prospects.

That's why besides an annual dividend of $15-$20 billion (giving a 3.75%-5% yield on a $400 billion capitalization), shareholders should demand that the cash hoard itself, or the great bulk of it, be paid out to them, by a special dividend of maybe $100 per share.

By doing that, the diversification risk would be removed, and Apple would retain only enough earnings to guard against the onset of recession.

The Larger Case for an Apple Dividend

But that's not the only reason why Apple should do the right thing and start paying a dividend.

To continue reading, please click here…

Options 101: Credit Put Spreads Can Boost Your Gains and Lower Your Risk

Last month, Money Morning showed you how to use a technique called selling "cash-secured puts" to generate a steady flow of cash from a stock – even if you no longer own the shares.

It is a highly effective income strategy that can also be used to buy stocks at bargain prices.

But selling cash-secured puts does have a couple of drawbacks:

  • First, it's fairly expensive since you have to post a large cash margin deposit to ensure that you'll be able to follow through on the transaction if the shares are "exercised." ­Thus the name, "cash-secured" puts.
  • Second, if the market – or the specific stock on which you sell the puts – falls sharply in price, you could have to buy the shares at a price well above their current value, taking a substantial paper loss.

Fortunately, there is a way to offset both these disadvantages while continuing to generate a steady income stream.

It's called a "credit put spread" and it strictly limits both the initial cost and the potential risk of a major price decline.

I'll show exactly how it works in just a second, but first I have to set the stage…

To continue reading, please click here...

Agricultural Stocks: Deere & Co. (NYSE: DE) and AGCO (NYSE: AGCO) Are Poised to Reap Gains

Many analysts are forecasting lower food prices this year, and that's taken a toll on many agricultural stocks.

But there are two reasons why investors shouldn't be so quick to abandon the sector.

In fact, two stocks, Deere & Co. (NYSE: DE) and AGCO (NYSE: AGCO) are poised to reap gains now that ag stocks have pulled back

Here's why.

  1. Much of the pessimism surrounding crop prices is overdone.
  2. Many ag stocks are still excellent long-term plays – despite any short-term trepidation.

I'll explain.

It's true that farmers currently are planting more staple crops in an effort to exploit high prices. But as we've seen in just the past few months, floods, droughts, and rapidly rising demand could easily intercede to keep prices near record levels.

The most important crop to watch right now is corn.

Preliminary USDA data suggest that farmers this year will plant the biggest corn crop since World War II. However, that's exactly what will be needed, since corn is facing the greatest supply constraints of any staple crop.

Indeed, even a bumper crop will first have to compensate for the shortages of the current crop year, which are significant. By this year's autumn harvest, global stocks of corn as a share of consumption will have fallen to the lowest level since 1974.

"There has been no rebound in global corn stocks," Ed Allen of the USDA's economic research service told the Financial Times. "This has maintained very tight markets for corn."

And while global corn production is expected to rise, there's still a chance bad weather will damage the harvest just as it has in the past two years.

Last year, wet weather early in the season delayed planting while hot weather in the summer scorched young stalks. That contributed to two consecutive years of shrinking supplies.

Analysts say a third straight year would be rare, but according to economists at the University of Illinois, there is a 40% chance corn yields will fall short in any given year.

"The odds slightly favour a corn yield above trend in 2012, but there is certainly precedent for another year below trend," the economists wrote last month. "More specific expectations about the 2012 average yield will depend on how the planting and growing season unfolds."

Good News for Agricultural Stocks

Corn isn't the only crop facing supply constraints, either.

January droughts in Argentina and Brazil reduced global soybean production by 7.2% this year. And with farmers focusing on corn there's less land available for soybeans. The USDA anticipates soybean production will fall by 12.7 million metric tons this year.

On Oct. 1, the start of the next season, soybean inventories will be 20% lower than they were last year, according to Jefferies Bache LLC. As a result, soybean prices, which are up nearly 9% year-to-date, will gain another 6.7% by June, the New York-based commodities trader estimates.

To continue reading, please click here...