Archives for June 2012

June 2012 - Page 4 of 16 - Money Morning - Only the News You Can Profit From

U.S. Economy 2012: Jack Welch on What's Stifling Job Creation

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Excessive government regulation and uncertainty over tax policies are what's restraining companies from hiring, former General Electric (NYSE: GE) CEO Jack Welch said on CNBC last Wednesday.

Welch joins a large number of economists and pollsters trying to sort out why the U.S. economy in 2012 hasn't rebounded more strongly from the 2008-2009 recession.

In particular, everyone is trying to figure out why job creation has been so sluggish.

The U.S. economy added just 69,000 jobs in May. That's far below the 150,000 or so needed just to keep pace with new workers joining the labor force.

"We should be poised to do well, but we are getting hammered by political forces who won't deal with the fiscal cliff coming up," said Welch, referring to the expiration of the President Bush-era tax cuts and sharp reductions in federal spending due to hit in January.

Welch blamed an array of government agencies for cooking up more and more nitpicking rules. Such rules have little or no benefit, but hamper business owners and suppress job creation.

"These are the things that are going on every day. They add up," Welch said. "That's why we're not taking off."

Welch compared the current recovery to the Reagan Administration recovery in the mid-1980s. That recovery, once it got going, accelerated rapidly.

"If you look at 2009, and you look at the recovery we launched, we were getting into a traditional recovery," Welch said. "We had 4%, 4.5% growth until we started getting into regulations."

Jack Welch Not Alone in U.S. Economy View

The blunt talk from Jack Welch echoes data from several recent surveys of businesses.

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Beat Ben Bernanke with These Juicy Double-Digit Yields

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With the economy beginning to stall, Ben Bernanke's war on the nation's savers rolls on.

From his promise to keep the Fed funds rate near zero through late 2014 to his efforts to push ten-year note yields even lower, the Fed Chairman is a saver's worst nightmare.

You see, in Ben's world, the safety of money in the bank earning a reasonable interest rate is a dangerous thing.

It's why folks with savings have been virtually forced into the market these days in search of higher yields.

One place where income investors can find them is in closed-end funds.

A few of these funds even pay juicy double-digit yields — like the one my Permanent Wealth Investor subscribers have earned 20% on in two years.

But here's the best part. You can actually buy closed-end funds like these on sale.

Let me explain.

Buying Closed-End Funds at a Discount

Developed in the 19th century, closed-end funds are the oldest type of mutual fund. If you understand the idea behind a mutual fund, then understanding a closed-end fund is easy.

In essence, they are the same thing- pools of money controlled by a professional money manager.

However, in contrast, a typical mutual fund is also what's known as an open-ended fund.

This means that the fund itself can issue as many shares as it needs to meet the demand on any given day. So the total number of shares in this type of fund isn't fixed at all-hence the term open ended. Shares are added as needed.

As a result, the cost of any share in one of these funds is always bought or sold at its current Net Asset Value (NAV). That's why shares of open-end funds don't trade per se on the exchanges.

A closed-end fund, on the other hand, is totally different. Unlike an open-ended fund, closed-end funds issue a limited number of shares. That means the number of shares outstanding is fixed.

So closed-end funds actually trade on an exchange like a stock, and are bought or sold minute-by-minute with a price driven by market sentiment.

That means that just like a stock, shares may trade at a premium or discount to their net asset value. That's a key difference, and why I say closed-end funds can be bought on sale.

Chesapeake Energy (NYSE:CHK) Needs to Dump CEO Aubrey McClendon

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Strategically, Chesapeake Energy Corp. (NYSE: CHK) is a great business with a long, bright future.

Chesapeake had been the largest independent natural gas producer in the U.S., with significant cross-interests in oil, a creative approach to bringing in international majors without losing control over projects, and some of the most attractive drilling acreage around.

It's positioned for a decade of growth – at least.

What's more, now that the shares have sold off, Chesapeake is incredibly attractive from an investment standpoint, too. (In fact, we're taking advantage of the company's growth potential in my Energy Advantage right now.)

So don't get me wrong when you see what I have to say today. I love the company.

But Aubrey. Oh Aubrey…

I don't normally devote an entire column to criticizing a company executive. But I have had enough of these shenanigans by the company's fast and loose CEO and co-founder Aubrey McClendon.

The latest revelations have caused yet another sell-off.

This time, there are allegedly email records of his attempts to suppress land-bidding fees with normal competitor Encana Corp. (NYSE: ECA). And this may end up in the lap of federal investigators.

While this might be concerning, I don't want anyone to overreact. I only see this as a temporary problem – and one that creates even more of a buying opportunity for potential shareholders.

Nonetheless, the time has come for more drastic action on the corporate side.

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How a Crude Oil Prices Slump Could Bury these Countries

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As crude oil prices fall far below $100 a barrel, the trend is affecting the most oil-dependent economies in the world. You see, whether we're talking about a country or a company, having a "competitive advantage" is one of the most important principles involved in succeeding in business. Just like a company, a country does […]

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Spain Bailout Package of $77 Billion Will Not be Enough

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The Spain bailout package has a steep price, but still might not be enough to save the country's banking sector.

Spanish economy minister Luis de Guindos formally asked Eurozone partners for up to 62 billion euros ($77.4 billion) to recapitalize his country's ailing domestic banks. The financial institutions are weighed down by bad loans to property and construction companies, and by an ongoing Eurozone debt crisis.

In a letter to the Luxembourg Prime Minister Jean Claude Juncker, who serves as head of the 17-nation Eurozone finance ministers, Guindos explained he wanted to settle on details and conditions of the loan before the next euro group meeting on July 9.

Juncker acknowledged receipt of the letter and said that the ministers expect to give a go-ahead to the European Commission, the European Central Bank and the European Banking Authority to negotiate terms of the bailout.

The request was anticipated after the results of two independent audits were released last week. Financial consultants Oliver Wyman and Roland Berger made the first step in a two-part audit of the Spanish banking system.

Wyman found that worst-case scenario, Spain's banking sector would need a bailout package of between 51 billion euros ($63.6 billion) and 62 billion euros ($77.4 billion). Berger estimated on the lower end with 51.8 billion euros ($64.6 billion).

The formal request for a Spain bailout has made investors more nervous, and is driving the bond yields higher, making it increasingly likely Spain will need more money to try and resolve its debt crisis.

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What the ObamaCare Ruling Means for Healthcare Stocks

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As we await the Supreme Court's decision this week on the group of laws known as Obamacare, Stuart Varney asked Shah about the implications for investors. What sectors and stocks will do well if the law is struck down? Which ones will thrive if Obamacare passes? Loading the player …

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Stock Market Today: Europe Concerns Ruling the Day

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The factors weighing on the stock market today should sound pretty familiar to investors by now. The Eurozone debt crisis – with its carousel of struggling countries thirsting for a bailout – worsens every day.

Today the Spanish government made a formal request for more financial aid for its struggling banking sector. In a letter to Euro group Chairman Jean-Claude Juncker, who is also Luxembourg's prime minister, Spain's Economy Minister Luis de Guindos asked for up to 62 billion euros ($77 billion) in financial assistance for the recapitalization of the Spanish banks that require it.

This move was expected as yields on the Spanish 10-year bonds have been under tight scrutiny as they hover around the alarming 7% line.

Members of Germany, France, Italy and Spain on Friday agreed on a set of growth-enhancing policies equal to about 125 billion euros, or 1% of Eurozone gross domestic product. The European summit takes place later this week and investors are expecting less and less to come from the meeting.

In a bit of good news that doesn't seem to be impacting the sell-ridden market today, new single family home sales grew 7.6% to their highest level in two years. New sales were at a seasonally adjusted 369,000-unit annual rate, almost 20% higher year-over-year, but still a far cry from where sales should be in a healthy economy.

Here are some companies making headlines today.

Chesapeake Energy Corp. (NYSE: CHK) is in the news again and this time for anti-trust violations. Reuters reported today that Chesapeake, led by CEO Aubrey McClendon, conspired with its top competitor Encana Corp. (NYSE: ECA) to suppress land prices. The two companies apparently agreed through numerous emails to avoid bidding against each other at public land auctions to drive land prices for oil and gas fields down.

If these reports are true Chesapeake and Encana violated both federal and state anti-trust laws.

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Gold Prices: Begging for QE3

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The Fed's Operation Twist announcement Wednesday slammed gold prices, and the yellow metal fell 2.5% Thursday.

Gold for August delivery ended last week down 3.8% to about $1,570 an ounce, well below its 2011 high of $1,920.30.

Before the two-day FOMC meeting, gold was up 4% year-to-date. Gold rose at the beginning of the week on hopes that the Fed would announce accommodative moves.

In the last round of easy-money moves back in January, gold rallied as high as 15% as investors flocked to the asset for protection. Since then, gold has dropped numerous times from a lack of additional news of more easing.

Gold was once again disappointed last week when the Fed said it would keep twisting, and the lack of a more aggressive maneuver failed to give a needed gold rally.

"To get gold really moving, you need a definite QE3," Sterling Smith, commodity analyst with Citi Institutional Client Group, told Kitco News. "Operation Twist is not nearly the food for a gold bull that outright QE is."

Gold Prices and Operation Twist

On Wednesday morning, the Fed announced the extension of its long-term government bond holdings by $267 billion to decrease borrowing costs while selling an equal figure of short-term securities to keep its $2.9 trillion balance sheet.

While scheduled to end this month, the Fed extended the Operation Twist program until the end of the year.

Operation Twist is derived from a Federal Reserve program that "twists" the yield curve or sells short-term securities from its holdings and buys longer-term ones in an effort to drive down longer-term yields.

Market watchers had been mixed about this happening.

Barclay's Capital saw Operation Twist as "the most likely outcome," saying it would provide additional time for the Fed to sift through and mull soft data that is "payback" from the additional warm winter hiring or a potentially lengthier prolonged slowdown, reported Kitco.

But since Operation Twist was considered the least the Fed could do, markets had priced it in already.

Jeffrey Wright, managing director and research analyst with Global Hunter Securities, said to Kitco he expected limited gains for gold on the heels of the "Twist," possibly to the $1,650 range, as the market has already been adding in the possibility for Fed action.

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The Glory Days for U.S. Farms are Far From Over

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Many Americans view farming as one of the last bastions of low tech.

It's not hard to see why. These days you can use your tablet computer for a video chat session while your car parks itself.

How on earth could crops ever compete with that?

Well, as it turns out, there's some pretty cool stuff going on out at the farm, too.

Today's tech-centric farms use remote sensors that "talk" to satellites. They have robots milking the dairy cows. They even rely on unmanned planes that can fly over their fields to help create 3D maps and improve crop output.

Welcome to the future of U.S. farming…

There's a lot going on in the field of precision farming.

All this activity makes me optimistic that high-tech can solve one of the most pressing concerns of our time: feeding the world.

Then again, we are living in the Era of Radical Change. An endless stream of high-tech breakthroughs will greatly improve life for millions of people over the next few years.

I put farming at the top of the list for a very good reason – it clearly defies the "food crisis" doomsayers out there who predict the world will soon outgrow its resources.

They claim that, with population slated to grow from the current six billion to 10 billion by the end of this century, we'll simply run out of food.

I've been hearing these predictions since I was in high school. (And that was a long time ago.) But in actual fact, high-tech has helped farmers greatly increase output for livestock and crops over the last few decades.

The industry is poised to adopt a wide range of cutting-edge high tech that will prove a further boon to farming.

Fact is, this spending occurs at what is already a great time for the sector. U.S. ag exports are booming.

For the fiscal year 2012 that ends this month, exports will total $134.5 billion. You can pretty much bank on that estimate – it comes from the USDA. Consider that in fiscal 2007, U.S. farm exports stood at only $82.2 billion. That means we've seen five-year export growth of 63%.

There's a lot of money to be made in high-tech ag.

Now wonder these hungry startups want in on the action…

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Cash in on the Next Gold Rush by Investing in Underwater Mining Stocks

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The next real gold rush won't be on a far flung asteroid. It will be under the sea.

In fact, The Wall Street Journal said earlier this month that underwater mining could be a $500 trillion business someday.

That means underwater mining stocks, which are cheap now, could be headed for monster gains.

Scientists now project there are over 10 million tons of gold to be found by sifting through the seas – but don't go out with your shovel and sifter. Most of the gold is buried under a mile of water.

And that is just the gold.

Underwater mining companies also hope to extract copper, nickel, ore, silver, zinc, and even rare earth metals.

So for those of you who are worried that the earth will run out of these minerals, underwater mining should calm your fears.

"It's unimaginable to think we'll need to rely on asteroids from space to supply the Earth with metals," Scott McLean, chief executive of Ontario-based mining company HTX Minerals Corp., told The Journal. He said the idea is "interesting, it is visionary to think about these things," but he concludes: "The Earth's mineral bounty is immense, and it will continue to provide for millennia."

Underwater Mining: Tapping the Unknown

There is very little that is known about what exactly lies at the bottom of the ocean and how much of it there is. Yet engineers and scientists are coming up with newer ways to find out what is hidden below and how to extract those resources.

Last year scientists from the University of Tokyo discovered an estimated 80 billion to 100 billion metric tons of rare-earth deposits in the Pacific Ocean, or almost a thousand times more than current proven recoverable onshore rare-earth reserves, as estimated by the U.S. Geological Survey.

And the interest in underwater mining is booming on a global scale.

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