May 2012 Archives - 2/15 - Money Morning - Only the News You Can Profit From
Why Apple Inc. (Nasdaq: AAPL) is Too Rich For the Dow Jones
Assuming the Dow Jones Industrial Average represents the biggest, most influential companies in America, Apple Inc. (Nasdaq: AAPL) easily qualifies.
With its massive market cap, trend-setting products, and global brand recognition, it is easy to argue Apple belongs as much or more than any of the current tech companies in the index.
So what gives?…
In a nutshell, Apple stock is too rich for the Dow Jones Industrial Average.
Because the Dow Jones is price-weighted, Apple's current $565 share price would simply overwhelm the index.
"It wouldn't be the Dow Jones Industrial Average," Nicholas Colas, chief market strategist at ConvergEx Group told the Associated Press. "It would be the Apple Plus Some Other Stuff Index."
In this case, a price move of just 5% in Apple stock could push the DJIA up – or down – about 200 points.
Looking at it another way, had Apple been added to the Dow Jones in 2009 instead of Cisco Systems Inc. (Nasdaq: CSCO), the Dow would now be over 15,000.
That's well above the Oct. 2007 record of 14,164 and 2,500 points higher than where it stands today.
With that kind of heft, it's no wonder the Dow has shunned Apple.
How the Dow Jones Industrial Average Works
But it's not just Apple. Other Dow candidates trade high in the triple digits as well.
Investing in Japan: Is There Light at the End of the Tunnel?
Most people have given up on investing in Japan.
With an aging population and far too much government debt, the conventional wisdom is that Japan will never again see the vigorous economic growth it once enjoyed.
The earthquake and tsunami of March 2011 only reinforced this view. However, that tragic episode did have another side.
It showed the resilience and discipline of Japanese society.
There was almost no looting, for example — and recent economic data suggest that the Japanese economy is not as dead as it seemed.
First quarter Japanese gross domestic product (GDP) came in at an annual growth rate of 4.1% –far higher than the United States, Canada, Australia, or anywhere in the Eurozone.
Given that Japan has been in perpetual near-recession for 21 years, with no surges of productivity like the U.S. enjoyed in the late 1990s, it's really not a bad performance.
You can also see Japan's true strength from its exchange rate, which is currently 79 yen to the dollar, up from around 120 five years ago. That makes visiting Tokyo very expensive.
However, it's also sign of a highly competitive economy.
Investing in Japan: What You Need to Know
It's notable that observers in the United States, a country which perpetually runs payment deficits of $500 billion-$600 billion annually, sneer at the economies of Japan and Germany, which are almost always in surplus.
Before 1995, I lived in another economy that was similar. Britain ran deficits much like the U.S. does.
So believe me when I tell you, deficits are not exactly a sign of superior economic health.
Good News for Natural Gas Stocks
Finally-encouraging news for beaten down natural gas stocks.
The fossil fuel welcomed words from the International Energy Agency (IEA) Tuesday that gushed about the boom in unconventional natural gas over the next two decades. The agency said the incoming supply increase would let the United States and other countries enjoy cheaper energy and shift the export reliance away from the Middle East.
IEA Chief Economist Faith Birol told Reuters that growth in shale and other new available forms of natural gas could mirror gains made in conventional gas in Russia, the Middle East and North Africa combined.
"Unconventional natural gas will fracture the status quo and will be a complete game changer with major geopolitical implications," Birol said.
Over the past years, high natural gas prices were a driving force behind new ventures into previously unavailable, unconventional gas reserves including tight-gas, shale gas and coal-bed methane resources.
But recently, ample stores and waning demand have weighed on natural gas prices, taking the commodity down to record low levels.
However, things are about to change.
Forecasts differ as for when the natural gas price channels will start churning and push domestic prices higher, but the tide will turn as the fuel becomes more widely used.
Jim Brick, macro-energy analyst at research consultant Wood Mackenzie, told Forbes he believes the U.S. could start exporting 3.2 billion cubic feet of LNG a day by 2030, as America moves away from its reliance on foreign energy sources and takes on a more advanced role as a worldwide energy supplier.
And as surplus domestic supplies begin to dwindle, natural gas prices will take off.
Mike Breard of Hodges Capital deems the chance of natural gas doubling in five years is better than the odds of oil doubling over the same period. The jump, according to Breard, could be sudden.
Facebook Stock Price: Is Mark Zuckerberg Losing Sleep Over This?
Everyone's eyes are on the falling Facebook stock price, but CEO and founder Mark Zuckerberg remains silent on the issue.
Silicon Valley rumors tell us that Facebook employees have been told to concentrate on work and not comment on the IPO fiasco.
Meanwhile, Nasdaq criticism continues and lawsuits pile up as investors who are left with more FB shares than they wanted – worth less than they bargained – feel cheated.
And Wall Street is left to bet on when or if FB stock will rebound.
Five Ways to Avoid the Next Facebook IPO Fiasco
On the heels of the Facebook IPO fiasco, many investors are wondering how they can find the next best thing and avoid getting "facebooked" in the process.
Tall order? Not really.
First, look for companies with ideas that can be applied across a wide variety of industries.
If I had said this five years ago, you'd be looking for Internet- related startups or companies that can do "it" better, faster or cheaper.
Going forward however, I think the true innovation will be exponential progress that's made linking living systems with their digital counterparts. Everything from synthetic biology to computational bioinformatics will grow a lot more rapidly than the broader markets.
So will key markets related to healing human illness, solving hunger and figuring out how to deliver potable water to broad swathes of the planet.
No doubt there will be tremendous ethical challenges along the way, but I believe we will see the line blur between what's needed to live and how we actually live our lives.
Though it's hard to imagine given the state of the world at the moment, I believe a fair number of the best up- and- coming investments will be outside the traditional first- tier markets of the United States, Europe and Japan.
In fact, I'd bet on it.
Second, don't confuse the ability to organize or share information with the ability to generate revenue
One might lead to the other but they are not the same thing.
The way I see it, Facebook is a classic example of everything you don't want in a business. It is 900 million users who spend an average of $1.32 a year. Compare that to Amazon.com, which clocks in at a much more valuable and consistent $36.52 per person.
Revenue is slowing. Facebook doesn't dominate the mobile markets that are becoming the preferred consumer channel for tens of millions of people. And, in what is perhaps the death knell, startups are already cannibalizing Facebook's user base.
The ability to "like" somebody is really no different than signing their yearbook in high school –only you're using a computer and the Internet to do it.
Third, hunt for fringe thinkers working in their garages.
It's not enough to think differently. The next big things will come from those thinkers operating on the fringes of what the rest of us consider normal.
Mobile Wallet Technology: Warming up For the Battle Royale
The mobile wallet movement is inevitable. But so are the bumps in the road.
If there's anything that's going to delay the mobile wallet's future on a global scale rivaling, well, telephony itself, it's going to be because there are so many players and stakeholders tilling the same soil to sow what they hope to reap.
The fact that so many giants and would-be giants are trying to make their networks and systems-in-development the standard mobile wallet platform ensures a battle royale.
The development race will be just that, a race.
But, in the end there will only be a few competitors and everyone else will cease chasing the Holy Grail and fall in under one or another network.
But, because we're investors seeking an edge and know that by the time the end-game is resolved the big money will have been made, we are looking for a "heads-up" on where to place our bets early.
A Mobile Wallet Heads-Up: This Will Be Critical
The answer to that will be evident by watching whose systems and networks offer the best interoperability.
It won't be just about who owns the rails that tomorrow's locomotives will run on. If there are a lot of different sets of tracks headed towards the same destination, what will matter will be how many trains travel each track and pay what tolls .
The way to gauge who is laying the most attractive tracks will be visible in terms of which systems offer the most intersections from which dead-end travelers can reverse course and join the mainstream path to everyone's desired destination.
That's where interoperability will be critical.
Who will build their systems and networks to best and most easily allow parallel ecosystems to merge, or converge, onto a set of easily accessible shared tracks.
The shakeout will result in some spectacular losses.
So, it's better to be on the right side early on than to take your lumps and invest what's left in the final contestants, all of whom will continue to fight for dominance for years to come, if not forever.
But, it's not just the end-game winners we're seeking, though they will emerge and we will be invested there long before the finish line is in sight.
The 152-Year-Old Brain That Changed the Course of Science
The most infamous man in the complex field of neuroscience died 152 years ago.
Yet just last week, railroad construction foreman Phineas Gage made headlines again, reaching out from the grave to offer crucial new insights about the how the brain works.
Thanks to a new discovery of old scans of his brain, a crack research team just found key data that will help them solve the riddles of complex brain diseases, with Alzheimer's at the top of the list.
No doubt, these new findings will improve the quality of life for millions. More to the point for investors like us, they could be worth a fortune.
Let me explain.
It All Went Down Like This…
The year was 1848, a heady time for the U.S. railroad boom. Gage headed a Vermont work crew for the Rutland and Burlington Railroad.
He was using a big metal rod to drive blasting powder into rock in Vermont. The rod weighed 13 pounds and was 3.5 feet long and tapered on one end.
There was a spark. Then a boom. And then the rod went right through Gage's skull. It entered through the left cheek, passed behind his left eye, and came out through the top of his head.
Gage survived the bizarre accident. In fact, he spoke within a few minutes, walked on his own, and recognized the town doctor who treated him. But history shows he was never the same person.
And his bizarre change in personality intrigues doctors to this day.
To continue reading, please click here…
Three Oil Stocks to Watch as Drilling Activity Soars
North America oil drilling is on the rise, and many oil companies – and their stocks – are following.
The Oil and Gas Journal reported for the week ended May 18 there were 12% more oil and gas drilling rigs active in the United States from the same period a year ago, totaling 1,986.
Just look at the Texas Eagle Ford shale region, the largest U.S. shale oil deposit, which is booming more than expected. Shale oil production has increased nearly seven-fold from 2010 to 2011, from an average of just less than 12,000 barrels a day to about 83,400 barrels a day.
And that could explode to 500,000 barrels a day by the end of 2012, according to Valero Energy Corp. (NYSE: VLO) CEO Bill Klesse, with output expected to double to 1 million barrels a day "in the next few years."
Eagle Ford isn't the only area exploding with activity. More than 475 rigs are working across the Permian in West Texas and southeastern New Mexico. Those areas are already producing close to a million barrels a day. By decade's end, that daily total could double to nearly the total oil output of Nigeria.
"We're having a revolution," G. Steven Farris, chief executive of Apache Corp. (NYSE: APA), one of the basin's most active producers, told The New York Times. "And we're just scratching the surface."
This is the Next Oil Market Crisis
We’re nearing the July 1 European ban on Iranian oil, and nothing has changed. Talks in Iran regarding oil imports and exports have failed to deliver progress – which means a looming crisis in the oil markets. Iran is OPEC’s second-largest oil producer, and no sides are budging on what they want out of the deal.
Dr. Kent Moors, Money Morning’s Global Energy Strategist, joined Fox Business to discuss what this means for the oil markets. What happens in the Iran talks will affect investors, consumers, and many economies.
Watch this clip to see just how the looming oil market crisis will affect you.