Archives for June 2012

June 2012 - Page 5 of 16 - Money Morning - Only the News You Can Profit From

Make This Move Today and You'll Celebrate a Great Second Half

The U.S. Federal Reserve earlier this month said the median net worth of the American family fell by almost 40% between 2007 and 2010, wiping out 18 years of economic progress and cutting middle-class wealth back to levels not seen since the early 1990s.

The central bank study really underscores the deep-and-lasting pain inflicted by the global financial crisis of 2008-2009.

And it reminds us how important it is for investors to take control of their own financial destiny.

On that last point, at least, the timing couldn't be better. June marks the end of the second quarter, and the mid-point of the year.

That makes this a perfect time to assess your finances, your objectives and your plan for achieving those goals.

Here are some tips that will help you make that assessment.

  • Polish Your Plan: There's an old adage that says, in essence, "If you fail to plan, you plan to fail." Nowhere is that more true than with investments. The year's mid-point is a perfect time to update your investment plan. If you don't have one, start one. This plan should include your long-term financial goals, your risk tolerance, your current assets and liabilities, and any special considerations that will affect this plan. In short, design your plan to ask and answer: Specifically what is it that you're trying to achieve in life? Don't ignore your dreams – as unlikely as they might seem right now. By being honest about all that you hope to achieve, you're a lot more likely to actually make it all happen. And we here at Money Morning promise to do all we can to help you achieve your goals.
  • Review Your Holdings: Once you've adjusted your plan (or created a new one), take a look at your investment holdings. Does everything still fit and contribute to that objective? Once you've made that determination, take a look at the individual holdings from a performance/potential standpoint. Is the reason you purchased each security still valid? How is each holding performing? If the stock, bond or ETF you're holding is lagging in performance, or even showing a loss, is there still enough upside potential to warrant keeping that particular security? If a security is showing a big loss, or now lacks the upside promise it once had, don't be afraid to prune it.

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What the Moody's U.S. Bank Downgrades Mean for Investors

Moody's ratings agency issued five U.S. bank downgrades Thursday and a total of 15 cuts for global institutions, but markets shook off the news.

The ratings agency cited concerns about the stability of the global systems. Moody's said the banks are not as sound now as they were before the recent global financial woes and contagion.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," Greg Bauer, Moody's Global Managing Director, said in a statement Thursday.

Included in the ratings cuts were Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM).

Bank of America and Citi are now rated just two notches above junk status, while Morgan Stanley sits a hair higher at three notches above junk.

Moody's announcement came after the close Thursday, a rocky day for markets with the Dow Jones ending down 250 points and the Nasdaq lower by 71.

The cuts appeared to be a non-event in trading Friday. Shortly after the open, all three major indexes were modestly higher, with affected banks all in the green.

But Moody's U.S. bank downgrades could be a precursor to aggressive trading activity.

"It is a trading indicator that speaks to more volatility in the future for the banks as traders will be jumping all over earnings, derivatives moves, counterparty fears, correlation concerns, "negative watch" implications and regulatory impacts," said Money Morning Capital Waves Strategist Shah Gilani. "I expect the volume in financials to go higher as traders play them more and more."

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An Open Letter to the Fed: What's Your Number Ben Bernanke?

Dear Chairman Bernanke,

I've been in business for more than 25 years and if there's one thing I have learned it's that every real business leader worth a damn has a number.

That's the figure where they throw in the towel and admit defeat. It's the precise instant they acknowledge that they will no longer throw more money at a bad idea. It's the point in time where they seek fresh counsel and new ideas because the pain of staying the course becomes too great.

Chairman Bernanke, what exactly is your number?

You've just announced Operation Twist (again). You're preparing to spend another $267 billion buying long-term securities as part of a plan to keep rates low through 2014.

You position this as a means of stimulating hiring and supporting a flagging economy that needs more support. You counsel that it will spur borrowing and spending.

We all submit that your plan is not working.

Four years and trillions of dollars into this mess, your Fed has taken a buzzsaw to growth estimates, most recently cutting them to 1.9% from 2.4% for this year. If the government multiplier everybody always cites actually worked, our economy should be screaming along at 8% a year or more.

Yet over 6 million people have left the workforce, which makes the most recent 8.2% unemployment mark extremely suspect. Hiring is slowing again. Factory output is dropping and consumer confidence is faltering.

You've said repeatedly that you can create more "accommodative" financial conditions. When announcing the most recent continuation of Operation Twist, you noted using "non-standard" tools.

Like what…exactly and specifically? Our financial sector is still appallingly overleveraged and undercapitalized. Jamie Dimon's traders used "non-standard" tools to supposedly hedge JPMorgan's risks and suffered at least a $2.1 billion loss. The word "non-standard" scares the hell out of me, Mr. Chairman.

I can only wonder if you're waiting for things to get worse before you act as some people suggest. A simple yes or no would go a long way towards calming things down especially in the financial markets.

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More Proof That Kids are Shaping the Future of Tech

Some years ago, as a young reporter in Detroit, I was covering the battered auto industry and landed a fascinating story about how computers would play a big role in the industry's near future – both in designing and making cars.

As you probably know by now, I have an insatiable curiosity for all things tech.

That's why, almost as soon as I handed the auto computing story off to my editor, I was back on the road…

I just had to know more about computers.

I drove directly to the nearest computer retailer to talk with people there – customers and salespeople alike – about their use of these early-stage personal computers, then used mostly as hobbies.

I was stunned to meet three teenage boys who said they went to the store every day after school to hang out. And no, they weren't playing games. They were "writing code" – creating new applications for a device that many adults still hadn't bought into.

A few days later, I filed a story predicting computers would revolutionize the world as we know it. I guess I wasn't far off…

The year was 1981 – three years before Apple Inc.'s (NASDAQ:AAPL) Mac debuted and five years before Microsoft Corp. (NASDAQ:MSFT) went public.

To this day, I still watch the trends young people embrace to try to keep abreast of the next technology; I think teens can play a profound role in writing the road map of the future.

That's why I told you about a group of tech-savvy young people last week with a lot of talent – kids who've won recent science and engineering contests sponsored by Intel. (See These Teen Geniuses are on a Path to Change the World)

So, I have to say I was pretty excited to pick up a copy of Wall Street Journal recently…

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Stock Market Today: This 85% Gainer is Leading the Rebound

The stock market today is rebounding from yesterday's dismal session, the second worst day of the year. The Dow Jones Thursday sunk more than 250 points, or 1.96%, to 12,573.57 and the S&P 500 fell 2.23% to 1,325.51.

Stocks are fighting back today, trying to ignore Moody's rating downgrades of five of the six largest U.S. banks.

The downgrades included Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM). Each of these stocks were up Friday as the markets already discounted the downgrades.

The markets, led by financials, opened Friday's trading with a jolt upwards before settling back to modest gains. Investors remained focused on Europe as leaders from Germany, France, Spain and Italy met in Rome. Little is expected to amount from this meeting, but it could establish a framework for what is to come in the European Union summit next week.

Besides the financial stocks there are three other companies to keep your eye on today: First Solar Inc. (Nasdaq: FSLR), Darden Restaurants Inc. (NYSE: DRI) and Harvest Natural Resources Inc. (NYSE: HNR).

First Solar (Nasdaq: FSLR), the largest maker of thin film solar panels, jumped in early trading after receiving permission to continue construction on a $1.36 billion power project in Los Angeles County.

First Solar stock has been beaten down this year amid steep losses and criticism over its involvement with the U.S. government. The Antelope Valley Solar Ranch One plant, which had been suspended until today, is partially funded by a $646 million loan from the U.S. Energy Department.

Shares of First Solar have slipped over 85% over the past twelve months from a 52-week high of $142.22.

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Why the Facebook Stock Price is Up

Over the past several days, the Facebook stock price has done a stark about-face.

In fact, Facebook (Nasdaq: FB) shareholders just might get the pop in price they have been hoping for ever since the social media giant debuted May 18.

Worries that Facebook's shares were overvalued and concerns that the company would not be able to grow revenue fast enough had pummeled shares lower by as much as 32% from the May 18 IPO price of $38.

After a disastrous IPO and a dismal showing in the weeks that followed, shares of Facebook are finally showing real signs of life. The tide may be turning.

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Why Crude Oil Prices are in Steep Retreat

Oil prices sank to their lowest level in eight months Wednesday and the trend continues.

Crude oil for August delivery fell yesterday (Thursday) below the $80 line to $78.20 a barrel on the New York Mercantile Exchange.

Oil prices breaking the $80 line can have a psychological impact on traders, which could send oil spiraling even further.

"Oil is participating in the broad decline of equities and commodities," Rich Ilczyszyn, chief market strategist and founder of in Chicago, told Bloomberg News. "We broke an extremely key level for oil, the previous monthly low around $81."

Oil prices fell more than 3.5% the day after the Fed announced a disappointing extension of Operation Twist.

The commodities market, measured by the S&P GSCI Spot Index, entered into a bear market yesterday, off 22% from its highest close of the year on Feb. 24.

Many experts think oil is reaching a bottom – but there are other factors still in play.

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My Favorite Investment in the World's Newest "Sweet Spot"

Having lived in Singapore as a child I've always been fond of Southeast Asia.

Fifty years later, though, I like it for a slightly different reason. It's become a place where I like to invest.

In fact, I believe the region is the world's newest "sweet spot" for investors.

Of course, you don't hear much about the economies of Southeast Asia. Given the media's penchant for bad news, that alone should tell you something.

But unlike the U.S., Europe, China, India and Japan, the region is doing just fine, which is why you should consider putting some money in places like Malaysia and Singapore.

In fact, in a moment I'm going to tell you what my favorite company in the region is.

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Penny Stock Investing: Avoiding Pitfalls and Positioning for Triple-Digit Profits

Penny-stock traders are like the Rodney Dangerfield's of the investment world – they get no respect from their bigger brethren.

But that doesn't mean they should be ignored.

Fact is, while penny stock investing can be risky, it can also be extremely lucrative. Some of the most successful investors in the world became rich buying stocks for pennies on the dollar and selling for $10 or $20 a share.

The key to success is to fully understand all those risks…avoid them at all costs… and then make the right moves so you can safely realize the big profits.

Let me explain...

Investing in Master Limited Partnerships: Earn Higher Returns and Beat the IRS

Contrary to popular belief, you can earn higher returns and pay lower taxes.

All you need to do is make one simple move. It's achieved by investing in master limited partnerships, or MLPs for short.

Due to an obscure law passed during the Reagan era, companies that service the oil and energy sector are allowed to funnel profits directly to their investors.

And because of a unique tax loophole, investors who hold MLPs for the long term can completely avoid paying taxes on 80%-90% of all of their earnings.

For MLP investors, those returns can be substantial.

First, there are the hefty "distributions" MLPs pay out year after year. In fact, several of the 50 companies in the benchmark Alerian MLP Index offer yields of 7.5% or higher.

Second, there is price appreciation which accounted for about 32% of the gain the index has generated since the end of 2007, according to Investing Daily.

Altogether, that gave the Alerian MLP Index a total return of 66.6%. Meanwhile, the S&P 500 Index lost 1.55% over the same period.

What is a Master Limited Partnership?

Most MLPs are involved in the business of connecting energy producing fields with refineries, distribution, and retail sales centers.

But, despite popular belief, most have limited exposure to commodity prices.

That's because most MLPs own midstream energy assets such as feeder pipelines and storage and transport facilities.

It's a great business model because MLPs don't actually take ownership of the commodities. They transport, store and process them.

Doing so, they simply act as gate-keepers, extracting a heavy toll every time a transaction takes place. So when oil or gas is moved from Point A to Point B, MLP pipeline owners get paid.

Or when oil moves through the system and has to be stored, MLPs get paid. In fact, almost anytime anything happens in the energy sector, MLPs get paid.

It all adds up to healthy profits that, by law, are passed on to investors.

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