Archives for July 2012

July 2012 - Page 12 of 17 - Money Morning - Only the News You Can Profit From

FOMC Meeting Minutes: Will We Ever See QE3?

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Investors were anxiously listening today (Wednesday) to see if the Federal Open Market Committee (FOMC) meeting minutes gave any hints the Fed may engage in a third round of quantitative easing (QE3) to bolster the ailing U.S. economy.

But no such clues were shared.

Last month the Federal Reserve decided to extend Operation Twist, a bond maturity extension program. But many investors wanted a third round of asset buying, or QE3, instead of more twisting.

Immediately following details of the June FOMC meeting, the Dow Jones Industrial Average, which had been choppy all day, was little changed. Then came the negative reaction and all three major indexes ticked lower, and the VIX, the "fear index," edged higher. The Dow fell as much as 90.14 points, or 0.7%, to 12,562.98 in afternoon trading.

Though QE3 is not completely out of the question, things need to deteriorate further for the Fed to even consider more bond purchasing as a means of stoking the economy, according to the FOMC meeting minutes.

Just four Fed officials referred to more quantitative easing in their individual forecasts, with two in favor and two considering another round.

Had that FOMC meeting been held today, maybe more officials would have supported a heavier stimulus measure. Since that meeting, fresh data have shown manufacturing is weak and unemployment levels are still elevated – and look to move higher.

In addition, economists have drastically reduced second-quarter growth estimates amid the weaker-than-expected numbers.

This has left scores scratching their heads asking how much worse things need to get before the Fed makes a move.

The minutes also show that several Fed officials want to create "new tools" to ease financial conditions. With little left in their cache to give the economy a much needed boost, "new tools" are warranted, but scarce at best.

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Mitt Romney's Running Mate: Meet the Candidates

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Given the ramifications of Election 2012 on the markets and the economy, it's time to evaluate the potential candidates to become Mitt Romney's running mate.

As we approach the summer political conventions, curiosity is escalating over who will join Mitt Romney in seeking the White House. But the most obvious names and faces aren't necessarily the most likely choices.

Five favorites for Romney's running mate have emerged, but few of them deliver what Republicans ideally want in a vice president.

Here's a look at the current favorites, the dark horse candidates, and the candidates most likely to turn down the job despite their impressive resumes.

Mitt Romney's Running Mate in Election 2012: The Current Favorites

1. Ohio Senator Rob Portman

Voters outside of Ohio don't really know this junior senator from this quintessential swing state. But, just in case you didn't know, Ohio and its 18 electoral votes will surely be up for grabs this fall. And that has Republicans buzzing about Portman and his electability.

Portman provides popularity in the Midwestern trenches, where it will certainly be a dogfight up until Nov. 6. As an Ohio Congressman, Portman consistently won his southern Ohio House district with at least 70% of the vote. In his 2010 senate campaign, he won 57% of the vote and carried a staggering 82 of his state's 88 counties.

Portman also has received commendation for executive experience and time in Washington on his resume, having served George W. Bush as budget director.

Still, this executive experience could be his biggest weakness. Portman presided over then-record deficits during the Bush years, which doesn't mesh well with the GOP message of reducing government spending. Nonetheless, Portman provides political cover and popularity in a crucial swing state.

The only glaring downside for the Republicans would be that his departure from the Senate could lead to the party losing a critical spot come 2016 when Portman's seat is up for reelection.

Overall: Medium Risk, Medium Reward.

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Is There Any Hope for Research in Motion (Nasdaq: RIMM) Stock?

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Die hard BlackBerry fans are more worried than ever that Research in Motion (Nasdaq: RIMM) may soon meet its maker.

The recent declines in profit, sales and RIMM stock — which has plummeted 51% in the past six months — has sparked mounting anxieties that the end for Research in Motion is imminent.

Speaking to these fears, RIM's new Chief Executive Officer, Thorsten Heins, vowed yesterday (Tuesday) that he will lead a turnaround for the beleaguered company, starting with a successful 2013 launch of its next-generation BlackBerry 10 phones.

Like a preacher on a pulpit, Heins maintained in an address to besieged shareholders that he would convert RIM into a "lean, mean, hunting machine."

"I have assembled a leadership team for RIM that's truly capable of taking us into the future," Heins promised.

BlackBerry fanatics, who helped coin the catch phrase "CrackBerry" to refer to their "addiction" to the iconic mobile phones, are pleading for RIM to make it – but it may be too late.

"If RIM continues to be run as it is, we believe that the company will eventually fail," wrote Nomura analyst Stuart Jeffrey in a June note to clients.

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Stock Market Today: Will the Fed Finally Give In to QE3?

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The stock market today opened flat awaiting minutes from the Federal Open Market Committee's (FOMC) June meeting that will be released this afternoon.

Prior to the release of the Fed minutes, Spanish Prime Minister Mariano Rajoy announced that Spain will work immediately towards more government efficiency and austerity. After yesterday's announcement by the Eurozone finance ministers to inject Spanish banks with 30 billion euros ($36.6 billion), Rajoy declared that Spain would cut 65 billion euros or almost $80 billion from its budget in less than three years.

Rajoy said this would be done through cutting public institutions and social welfare programs such as unemployment, plus raising taxes. These decisions come a day after Spain was given an extra year to lower its deficit.

The Federal Reserve will release its minutes around 2 p.m. today and everyone will want to know if QE3 is on its way.

For over a year now investors have pined over the prospect of the Fed lifting the markets, if only for the short-term, through more quantitative easing measures. As experts have proclaimed this action would simply be another "Band-Aid" for a beaten down market.

Money Morning's Chief Investment Strategist Keith Fitz-Gerald put the effects of additional stimulus very simply.

"It has never worked since the dawn of recorded time and it will not work now," said Fitz-Gerald. "You cannot debase your currency and work your way out of this for anything but a short-term basis."

With last week's underwhelming jobs reports and signs from corporate earnings and manufacturing that the economy is slowing further, it might be hard for Chairman Bernanke and the Fed to ignore the option of QE3 any longer.

If Bernanke continues to just hint at more easing that may not be enough to lift this struggling market.

In other domestic news the trade deficit shrank 3.8% to $48.7 billion led by lower crude oil prices, bringing imports down while exports held up well, increasing 0.2%. U.S. wholesale inventories rose 0.3% but these numbers did little to soothe investor's fears ahead of the Fed minutes.

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Investing in Uranium Stocks: Time to Buy the Industry's Biggest Player

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Ah, what a difference a year makes.

Just a couple weeks ago it was reported that a Japanese town recovering from the last year's tsunami-inflicted Fukushima disaster is teaming up with Toshiba Corp. to build several solar electricity plants that combined could be Japan's largest solar facility.

The coastal town of Minami Soma plans to install 100 megawatts of solar, which would be about 2% of the 4.7 gigawatts of capacity at the now idle Fukushima Daiichi nuclear station 16 miles to the south.

If you recall, a huge earthquake triggered an even bigger tsunami that laid waste to northeastern Japan, including three aging nuclear reactors. Parts of Minami Soma were in the no-go zone following the meltdowns.

After the Fukushima disaster, Japan shut down all of its 54 nuclear power stations.

But the lesson here isn't really about how Japan has seen the light (pardon the pun) and is going to replace all its nukes with solar, geothermal and wind.

No, the hidden news peg in all this is most people have put the disaster behind them and now are getting back to business as usual.

And whether the Japanese restart their nukes or not, it's immaterial. Nuclear energy is a clean fuel of the future for developing nations around the world and in particular, China and India.

That means big things for uranium producers, big things for the biggest uranium player, Cameco Corp. (NYSE: CCJ) – and big things for those investing in uranium stocks.

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You Might be Invested in Facebook Stock and Not Even Know it

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Investors who boast that they were smart enough to avoid the hype of investing in Facebook (Nasdaq: FB) stock might want to check their mutual funds' holdings before relishing in their bravado.

According to data compiled by investment research firm Morningstar for The Wall Street Journal, some 160 U.S.-based mutual and exchange-traded funds bought shares of Facebook in May. And since only some fund companies choose to reveal their holdings on a monthly basis, the ones that chose to invest in Facebook will be disclosed over the next two months as fund companies file quarterly reports.

"Even if John Q. Public didn't buy [Facebook] directly, he may own one of the hundreds of mutual funds that did," Geoff Bobroff, a mutual fund consultant in East Greenwich, RI, told The Journal.

What is notable in many cases about the purchases, including those by lead underwriter Morgan Stanley (NYSE: MS), is that some of the funds that purchased shares wouldn't normally invest in a high-growth technology company like Facebook. And some wouldn't invest such a high percentage, like Morgan Stanley that had at least seven funds with over 5% of portfolio holdings in Facebook stock.

"That's a huge gamble," Michael Kalscheur, a financial planner with Castle Wealth Advisors LLC, told The Journal. "Are you really going to put an IPO as a top-five holding in a fund?"

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Four Debt-Free Companies to Own if the Markets Tank--and Even if They Don't

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Many investors remain on the sidelines under the impression that every company has been stopped in its tracks by the financial crisis. Somehow they've convinced themselves there's nothing worth owning.

The problem is it's just not true. Companies that carry little or no debt are kicking butt and will continue to do so even if the markets stumble.

Not only are most of them tacking on solid numbers in very volatile markets, but over time these debt-free companies are proving themselves to be stable and reliable performers.

Take last year for example. The S&P 500 returned 2%. Yet, the top 15 firms as measured by the highest amount of cash and short-term investments as a percentage of total assets returned an average of 15% according to CNBC analyst Giovanny Moreano.

That's 650% more than their debt-laden brethren over the same time frame.

So far this year, my favorite debt-free companies have tacked on average gains of 19.82% versus the S&P 500, which was up 9% as of July 3. That's a 120% advantage over the same time period.

Going further back these same companies have done even better.

In fact, my favorite debt-free choices have returned an average of 349.16% versus a loss of -3% for the S&P 500 as a whole since the top of 2007 when the financial crisis broke.

Over the past decade that number jumps to over 2,061%. And, I'll bet you dimes to Bernanke dollars that these same debt-free companies will pull ahead further in the years to come.

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Election 2012: Jobs Picture Won’t Brighten Before November

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If President Barack Obama is pinning his Election 2012 hopes on better U.S. jobs reports in the months between now and November, he may want to get started on updating his resume.

The president's re-election bid took a blow on Friday when the U.S. Department of Labor reported the U.S. economy added just 80,000 jobs in June. That was far below analyst expectations of 100,000-125,000, and well short of the 125,000 needed to keep pace with population growth.

The disappointing U.S. jobs report came on the heels of other bad economic news, including a contraction in manufacturing activity and a decline in household spending.

"We had confirmation of what all of the other economic indicators have been signaling for some time, and that is a marked deceleration of the U.S. economy," Paul O'Keefe, director of economic research for the consulting firm J.H. Cohn and a former Labor Department official, told The Wall Street Journal. "This is not an outlier month. We've seen a deceleration in job growth since the beginning of the year."

While the headline unemployment rate held steady at 8.2%, the numbers are clearly going in the wrong direction. The Labor Department said 155,000 people joined the workforce in June — almost double the number of jobs added.

An analysis by Hamilton Place Strategies calculated that the economy would need to add 219,000 jobs per month to get unemployment below 8% by Nov. 6.

Given the recent trend – 68,000 jobs in April, 77,000 in May and now 80,000 in June – it appears more likely the rate stays steady or even inches higher as we approach Election 2012.

Why U.S. Jobs Reports Won't Get Better

Unfortunately for President Obama, hiring won't increase significantly any time soon.

Businesses simply have too many concerns:

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JPMorgan (NYSE: JPM) Earnings and Five Others That Could Surprise You

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Earnings season begins in earnest this week as financial giants JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) report for the April-to-June period.

A flood of reports from other corporations follows next week before gradually slowing to a trickle by the month's end.

How investors perceive those numbers could well kick off an up- or downtrend in share prices that will continue for weeks, or even months.

That is especially true if there is an "earnings surprise."

An "earnings surprise" occurs when the revenues and profits a company reports differ significantly from analyst expectations.

Positive surprises – earnings that beat the pre-report forecasts – tend to drive stock prices higher, while negative surprises send them lower.

The bigger the surprise, the more rapid and dramatic the move becomes.

Will JPMorgan (NYSE: JPM) Earnings Surprise?

One prime candidate for an earnings surprise in this cycle is JPMorgan Chase.

Usually considered one of the strongest companies in the financial sector, JPM would normally be expected to surpass the pre-report estimates. After all, the company has beat earnings in three of the past four quarters – including an 11% surprise in the January-March period, when earnings came in at $1.31 a share vs. a projected $1.18.

However, the company has been rocked by controversy following revelations that it suffered more than $4 billion in trading losses on what JPM called a "hedging strategy" but others described as an outright "bet" on interest rates.

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Fiscal Cliff 2013: Global Concern is Growing

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It's been a couple months since the Congressional Budget Office shared some negative news about the looming "fiscal cliff" – even suggesting a possible 2013 recession – and investors worldwide are starting to take the warning more seriously.

The fiscal cliff is the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013 unless Congress and the White House take some action to either delay or change them.

Should these two actions combine, you'll watch $7 trillion be tagged onto the nation's debt over the next decade. This would come out to around $500 billion next year,according toCNN.

Not helping matters is that we've unofficially hit the middle of summer; the clock is ticking louder for the fiscal cliff as expectations for political stagnation instead of a resolution have increased ahead of Election 2012.

A recent Morgan Stanley (NYSE: MS) survey highlighted the fiscal cliff concerns.

According to MarketWatch, 65% of global investors – 71% of U.S. respondents – believe that "the fiscal cliff will cause significant uncertainty in markets for the rest of the year, but think policy makers will ultimately agree to extend most or all of the expiring stimulus and tax measures."

But only 24% of global investors believe the risks surrounding it are overblown.

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