Many people wonder how much longer the Eurozone can survive as it struggles to deal with its plaguing debt crisis. Well, billionaire investor George Soros has the answer. On Saturday, in a thorough and enlightening speech made at the Festival of Economics in Trento, Italy, Soros gave the region a deadline for resolving its debt […]
Archives for June 2012
June 2012 - Page 14 of 16 - Money Morning - Only the News You Can Profit From
By all accounts, the U.S. dollar should be the functional equivalent of a Zimbabwean bill.
The Fed has pumped trillions into the worldwide financial system as part of misguided stimulus efforts that should be incredibly inflationary.
Yet, instead of a disastrous repeat of the Weimar Republic, the U.S. dollar has strengthened considerably.
This despite rising unemployment, slowing economic growth and a debt debate that's about to begin anew.
Since last July, the U.S. dollar has risen against all 16 major currencies while the Intercontinental Exchange Dollar Index is up 12%, according to Bloomberg.
In fact, the greenback is now higher than it was when the Fed engaged in Operation Twist in late 2011 as part of a plan to keep the dollar low by buying bonds.
So much for Club Fed's plans…
As usual, they don't really have a clue about how real money works — let alone why it flows and where it's going.
Taking the Mystery Out of the U.S. Dollar
Here are the three reasons why the U.S. dollar is really rising:
1. Institutions are unloading gold to raise cash against anticipated margin calls, redemption requests, or both. They are parking that money in treasuries and in dollars, creating additional demand. There are simply more buyers than sellers at the moment, so prices for dollars and treasuries are rising. And not just by small amounts, either.
2. Institutional portfolio managers and traders are required to maintain specific classes of assets under very specific guidelines. These guidelines dictate everything from the amounts being held to the quality of specific investments.
Many, for example, are required to hold only AAA-rated bonds, or invest in stocks meeting certain income, asset size and volatility criteria.
Imagine you're Jamie Dimon and you have to hold reserves against trading losses or you're Mark Zuckerberg and you've got to build up a large legal settlement fund for the Facebook IPO.
Or, perhaps you're Tim Cook of Apple and you're sitting on $110 billion in cash for future investments.
Chances are you're going to want to buy things that are as close to risk-free as possible to ensure your assets hold their value.
A year ago, you could choose from eight currencies in the G10 that met internationally accepted "risk-free" ratings criteria as measured by the cost of credit default swaps priced under 100 basis points.
Now, there are only five to choose from. A year from now, there might only be two or three.
Here it is. The most important piece of advice I have for anyone thinking about options trading.
Don't let the red tape hold you back.
A lot of experienced and sophisticated investors shy away from anything that involves paperwork.
They think they're not qualified or ready, or simply that it's not worth the trouble.
Don't be one of them.
Yes, you will have to fill out an options application with your broker, but it's easy.
In fact, you had to file a similar form just to open your trading account in the first place. Now, if you want to upgrade your account to be "options approved," it's just another small step away.
Admittedly, the application may look intimidating at first glance. It is full of disclosures, legal qualifications and the kind of small print that is worrisome.
Yet the purpose of the application is simple enough.
Your broker just wants you to state that you know enough about options to make your own trading decisions.
And not to worry… It's not a quiz.
The disclosures are designed to gauge your level of experience. But their real goal is to let the brokerage firm off the hook in case things go terribly wrong. Of course, that's not going to happen to you.
But if a broker lets anyone trade without at least appearing to check them out first, they could be liable for your losses. And no one wants that.
Because options are by definition speculative, the New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA), and National Association of Securities Dealers (NASD) all have rules and policies about "suitability."
That's the real reason you have to go through this (very small) hoop.
So you'll fill out the application. They file it away into the "just in case" drawer and you're ready to trade.
What's on the Options Trading Application?
The options application will ask some questions you would expect: Name, address, employment and employer name, annual income and all sources of income. They also want to know your net worth and liquid net worth, marital status and number of dependents.
Then there are a few questions you might not expect.
Iran loves to rattle its saber-especially when it comes to Israel.
But the country that would like to wipe Israel off the map now finds itself the target of a very different kind of war.
On the frontlines of cyberspace, Iran has become the victim of another massive attack on its computer networks.
In the wake of the Stuxnet attack, the Flame virus unleashed on Iran is one of the worst pieces of malware ever to hit cyberspace.
The Flame virus is not just nasty, it's also very smart.
It was written to spy on a user's infected system and steal data. This includes documents, recorded conversations and even keystrokes.
Then it throws open a back door that allows hackers to tweak the code giving Flame even more ways to wreak havoc.
Clearly, news of the Flame attack comes at a key moment.
Rising tensions between the U.S. and Iran over its nuclear program have left the region under the threat of a wider conventional war.
In the background is the Israeli wild card. Israel has taken key political actions to ensure it's ready if it needs to attack Iran.
Flame's success is that it helps to keep a lid on this brewing powder keg.
In short, it is war by other means-even though Israel and the U.S. both deny they are behind the Flame attacks.
Yet, there's no question the Flame episode is part a major global trend that has put cybersecurity stocks back in the public eye.
And in a moment I'll show you four ways to invest in this growing field-pegged at about $65 billion.
But first, I want to make sure you have the correct context…
Ramped up production and ample supply have weighed on natural gas prices over the past year, pressuring natural gas stocks.
But news out of Asia this week delivered support for a long-term bull market for natural gas.
The International Energy Agency (IEA) reported Tuesday that worldwide demand for the fossil fuel is expected to increase some 17% over the next five years, thanks in a big way to China.
Despite recent signs of a slowing economy in the Asian nation, Chinese consumption of natural gas is expected to double during the period, according to the IEA. China's demand for the fuel is forecast to grow 13% a year through 2017.
"Asia will by far be the fastest-growing region, driven primarily by China, which will emerge as the third largest gas user by 2013," the IEA wrote. "There are no doubts that China will become a major importer of gas. The question for external suppliers is how much pipeline gas and LNG China will need in five or 10 years."
North American natural gas companies are poised to benefit the most from the surge in Asian demand for the fuel. The region is positioning itself to become a major net exporter of liquefied natural gas (LNG) over the next five years as new projects come on line, the IEA said. The agency added that Asian LNG producers, such as Malaysia and Indonesia, stand to become net importers as local demand balloons and output wanes.
China won't be alone in increasing demand. The IEA estimates U.S. natural gas consumption will increase 13% by 2017, and European demand will grow by 7.9%.
By 2017, the agency says, low natural gas prices should lead to gas generating almost as much electricity as coal in the United States.
"The continued boom in unconventional gas in the U.S. may even herald the end of the hundred-year dominance of coal in U.S. power generation. In 2005, when the first shale well was fractured, coal produced almost three times as much power in the U.S. as gas. By 2017, the race will be almost even," the IEA reported.
Europe’s debt problems are hitting a breaking point, U.S. economic growth is slowing and the Dow is down about 7% in the past month – so investors want to know what to do. Money Morning Capital Waves Strategist Shah Gilani is doing just that – sharing the stocks he thinks will provide safety in these uncertain times. He joined Fox Business’ “Varney & Co.” Tuesday morning to share with host Stuart Varney two investments he has recommended to his Capital Wave Forecast subscribers. One is a solid pharmaceutical company with blockbuster drugs barreling down the pipeline and 4.8% dividend yield. The other is an alternative utility-based investment with 5.8% dividend yield. Watch this clip to learn more.
It's been almost 43 years since millions of people sat perched in front of rabbit-eared television sets or tuned into AM radio stations, watching and listening in awe as Neil Armstrong became the first man to walk on the moon.
Stepping onto unchartered territory Armstrong uttered the famous words, "That's one small step for man, one giant leap for mankind."
Some four decades later, space chatter is buzzing again, thanks to a privately owned startup firm called Space Exploration Technologies Corp., more commonly known as SpaceX.
SpaceX on May 22 marked a turning point in U.S. space travel when it became the first private firm to launch a capsule into orbit. When Dragon successfully touched down a week later, it confirmed a new era in space exploration.
And things could get even more exciting and lucrative for investors as an initial public offering of the epic company looms.
A slow moving train wreck known as "Taxmageddon" is creeping toward U.S. taxpayers.
You see, if Congress doesn't act by year's end, numerous tax breaks will expire — and hit every American taxpayer squarely in the wallet.
It's a fiscal tsunami that will strike as early as December. The damage will be so widespread it could derail the entire U.S. economy.
Nobody in Washington, however, is doing anything about it.
"You just don't get the sense that there's even a secret plan yet," Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, told The Washington Post. "It's scary."
If you're not worried yet, you should be.
"Taxmageddon" Means Higher Taxes for All
The Bush-era tax cuts will end on Jan. 1, 2013, unless Congress intervenes.
Also set to expire that day will be a temporary payroll-tax holiday on social security.
The tax changes won't just slam a few income brackets; they'll reach all taxpayers.
Every one of the existing income tax brackets will be ratcheted up, starting with the lowest 10% bracket, which will be hiked to 15%. The 25% bracket will jump to 28%; the 28% bracket will go to 31%; the 33% bracket will be replaced by a 36% bracket and the 35% bracket will soar to 39.6%.
Stock market investors will also be punished.
Right now, the maximum tax rate on long-term capital gains and dividends is only 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20%.
But get this — the maximum rate on dividends will skyrocket to a whopping 39.6%.
That's not all.
In the wake of Friday's disastrous jobs number, 10-year Treasury Note yields finally fell through the 1.5% level, trading as low 1.44% on the day.
That plunge took many traders, talking heads and politicians by surprise.
Our "leaders" in Washington D.C. were heard to say: "Nobody saw this coming."
Well, that's just not true. Not one iota.
If you've been reading Money Morning you saw this coming. So did tens of thousands of our Money Map Report subscribers.
I've been warning that 10 year yields would drop below 2% then hit 1.5% for more than 2 years now.
In fact, our readers had the opportunity to profit handsomely on our bond related recommendations that have earned them 30%-71% so far.
What does this mean for you?
First questions first…
Now that we've busted 1.5%, the next stop is 1%.
I can even see negative yields ahead, meaning that investors who buy Treasuries will actually be paying the government to keep their money.
Be prepared. I'm going to show you here what to do and – yes -how you can profit from this move– even at this stage of the global financial crisis.
Why Bond Yields Will Continue to Fall
First off, 10-year yields dropping to 1% means several things:
- Bond prices go even higher. Rates and prices go in opposite directions. Therefore when you hear that yields are falling, this means that bonds are in rally mode.
- The world is more concerned with the return of its money than the return on its money. You can take your pick why. Personally I think it comes down to two things above all else: the looming disintegration of the Eurozone and the fact that our country is $212 trillion in the hole and warming up for another infantile debt ceiling debate instead of reining in spending.
- More stimulus. Probably in the form of a perverse worldwide effort coordinated by central bankers as part of the greatest Ponzi scheme in recorded history.
But zero percent or negative yields – right here in the US of A?
There has been no shortage of red ink in the market lately.
Paltry new jobs figures (69,000 new jobs, less than half of what was expected) have combined with the ongoing mess in Eurozone and lagging figures from China to sap investor confidence.
This latest action will further depress oil prices, as the rash of bad news translates into even more knee-jerk projections of reduced demand.
Of course, it's much too early to make such predictions based on the news, but the pundits do it all the time.
In any case, we are now in a downward movement that will end only when the market manipulators say so.
When this happens, individual investors always take it on the chin.
That's why I want to take a moment today to outline for you the strategy I use for my Energy Advantage and Energy Inner Circle subscribers.
Of course, if we could time the market, or invest in perfect hindsight, we wouldn't need an investment strategy.
But while some of the largest investment banks are getting it (very) wrong these days, crystal balls seem to be in short supply.
So what should we do?…
Well, there are three overriding considerations you must keep in mind when approaching the energy sector in an environment like this.
- First, know that this, too, shall pass. Take a deep breath and relax.
- Second, keep your power dry. There is no point in chasing uncertain shares in an uncertain market, simply because some talking head on TV says they are undervalued. In the current situation, almost 80% of the shares I follow are well below market value. However, until the market finds equilibrium (something it always does, by the way), the undervaluation means little. Nibble when you feel targets are cheap enough, but never go all in.
- The third point is the single most important thing to remember here. A situation like this one demands that you preserve your investment capital. Uncertainty is always the mother of discretion. The energy sector has been hit harder than the market as a whole for much of the last six weeks. That means you need to set up an exit strategy and stick to it.