Archives for July 2012

July 2012 - Page 15 of 17 - Money Morning - Only the News You Can Profit From

Election 2012: Battling for the Youth Vote

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In the 2008 presidential election, U.S. President Barack Obama won in no small part due to the "youth vote."

Four years ago, voters under 30 formed about 17% of the electorate and cast twice as many ballots for President Obama as for opponent John McCain. This was in stark contrast to voters over 30 where only half supported the Democratic nominee.

It was the biggest generation gap in four decades of modern election polling. The election itself had the largest turnout since 1960 — when another young, charismatic president made it to the White House.

But Election 2012 may be different.

This year President Obama could find it much more difficult to inspire the youngest voters with his message of hope. It will be hard for under-30, unemployed voters to believe this president is an "instrument of change" and a "visionary" when jobless numbers remain unusually high.

The latest unemployment numbers for 20- to 24-year-olds are 9.3% for college graduates and 12.9% overall. What's worse is the newest voters, aged 18-19, have a depressingly high unemployment rate of 23.5%.

A Reuters/Ipsos poll provided another foreboding statistic for the president: 54% of recent graduates say they think the country is on the wrong track.

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Central Banks Move to Prevent Recession 2013

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With more investors and consumers concerned over the Recession 2013 threat, Europe and China today (Thursday) took action to motivate their sluggish economies and prevent a drastic global slowdown.

It hasn't even been a week since a crucial European summit provided a blueprint for the 17-member Eurozone to pull out of its debt crisis. But already the rally that immediately followed has fizzled. At issue is how European leaders will work out the tricky details for a central banking authority and the expanded use of bailout funds.

Now the European Central Bank (ECB) doesn't have much left in its arsenal to calm fears of a broad economic slowdown in the region. It used one of its last tools Thursday when it slashed its benchmark lending rate by 0.25 percentage points to 0.75%, the lowest level since 1999, when the euro was created.

At this level, the ECB hopes that bankers be more willing to lend and also that investors will open their wallets wider.

ECB President Mario Draghi noted in a press conference following the group's decision that the move was made independently of China's decision to cut rates.

"There wasn't any co-ordination that went beyond the normal exchange of views on the state of the business cycle…economy…or global demand," said Draghi.

Draghi stressed that the cut wasn't aimed to help an individual country, but to assist the entire struggling region.

"We can genuinely say that this measure is addressed to the whole of the euro area, and not only to specific countries," he said.

Reiterating that markets haven't felt the full effect of the ECB's recent moves to increase liquidity, Draghi also cautioned that the bank could only do so much. Draghi said the central bank couldn't do more than it already had to encourage people to borrow or invest.

"Credit is now led predominantly by demand, and if demand is weak, you wouldn't expect string credit growth," Draghi added.

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This is How to Fix the U.S. Housing Market

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Real estate research firm Reis reported today (Thursday) that apartment rents are rising at the fastest rate since 2007.

Reis said vacancies hit a 10-year low as rental rates for the second quarter jumped 1%, the biggest increase since the financial crisis.

Compare this information with recent data on pending home sales, new home sales, and housing prices that has been more promising than months' past and it seems the U.S. housing market is on the mend.

That was the topic posed to Money Morning's Chief Investment Strategist Keith Fitz-Gerald during a visit Thursday to Fox Business' "Varney & Co." program. Fitz-Gerald outlined what the recent housing data is telling us about the U.S. economy and the future of home prices and sales.

He also suggests what the U.S. government should do to encourage a stronger economic recovery and let people once again believe in the American Dream of home ownership.

Check out this Q&A session with Fitz-Gerald about the latest developments in the U.S. housing market. You can see all of Keith's analysis in the video below.

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Draghi Dampens Rally in the Stock Market Today

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After a nice three-day run going back to last Friday's session, the stock market today is down following dreary statements from Mario Draghi, President of the European Central Bank.

Speaking at a press conference Thursday morning, Draghi commented that the Eurozone would recover gradually and offered little optimism for the region.

"The risks surrounding the economic outlook for the euro area continue to be on the downside,"Draghi said at the news conference. "We see now weakening spots of growth in the whole of euro area including countries that had not experienced that before."

The ECB lowered its key interest rate by 0.25 percentage point to 0.75% and lowered its deposit rate to zero. The People's Bank of China also cut several key interest rates for the second time in less than a month, bringing its lending rate down by 0.31 percentage point to 6%.

The Bank of England decided to enact stimulus measures through quantitative easing, increasing asset purchases by 50 billion euros ($78.1 billion).

Domestically better-than-expected job reports were released, showing the fewest layoffs in 13 months and fewer initial unemployment claims filed than in the previous week.

For the week ended June 30, about 374,000 initial jobless claims were filed, down 14,000 from the previous week. ADP employment numbers showed that 176,000 private jobs were added last week.

This number is a preview to unemployment numbers to be released tomorrow by the Labor Department. Economists expect jobs to be added in the range of 80,000 – 100,000, factoring in government layoffs.

These positive labor numbers follow very weak manufacturing reports issued earlier this week and a poor reading from the Institute for Supply Management (ISM) on U.S. non-manufacturing businesses. The ISM services index fell to 52.1 in June from the prior month's 53.7.

These numbers keep the volatile trend of the markets going as investors go back and forth from hope to worry over European and domestic concerns.

Some notable headline-makers in the stock market today include Boeing (NYSE: BA) and Apple (Nasdaq: AAPL).

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How Ordinary Investors Are Suddenly Getting Rich On Options

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Get ready…

A powerful investment tool… once the exclusive domain of the most experienced high- risk traders… is now giving millions of ordinary investors record profits — even during one of the rockiest markets on record.

I'm talking about options trading.

That's right. The myth that options are too complex, too confusing and too risky for the average investor, has been finally debunked.

Done right, options can create a cash cow in anyone's portfolio – and fast.

Consider the case of the SPDR Gold Trust (NYSEArca:GLD). In January 2011, GLD shares were trading for about $130.

You could have gone "long" GLD by buying 100 shares. You'd have done pretty well; 12 months later, GLD was trading at $160, and your 100 GLD shares were worth $16,000. That's a nice 23.7% gain.

Or you could have used options.

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What the Government Must do to Fix Housing

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Recent data on pending home sales, new home sales, housing prices and rental rates have suggested the U.S. housing market is really on the mend – is that so?

That was the question posed to Money Morning's Chief Investment Strategist Keith Fitz-Gerald during a visit Thursday to Fox Business' "Varney & Co." program. Fitz-Gerald outlined what the recent housing data is telling us about the U.S. economy and the future of home prices and sales.

He also suggested what the U.S. government should do to encourage a stronger economic recovery and let people once again believe in the American Dream of home ownership.

You can see all of Keith's analysis on the U.S. housing market in the accompanying video.

Read More…

Fiscal Cliff 2013: IMF Warns of Global Impact

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Worries over the looming "fiscal cliff" are spreading, and implications of the scheduled tax increases have become a growing global concern.

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 change or at least delay them.

Everyone has an opinion on the matter, and this week the International Monetary Fund added its two cents.

The IMF issued a fresh report Tuesday warning that failure to avoid the fiscal cliff in 2013 could put the brakes on the U.S. growth rate, pushing it under 1%. Such a slowdown poses great risk to economies worldwide.

The IMF said the global implications for early 2013 are a negative growth rate with "significant negative repercussions on an already fragile world economy."

"It is critical to remove the uncertainty created by the "fiscal cliff" well as promptly raise the debt ceiling, pursing a pace of deficit reduction that does not sap the economic recovery," the IMF said in its annual health check of the U.S. economy.

Under current fiscal cliff terms, the proposed spending cuts and tax increases would minimize the deficit by approximately 4% of GDP in 2013.

Lawmakers should, the IMF counseled, replace the fiscal cliff with a program of small deficit reductions in the short-term with a longer term fiscal sustainability program.

Christine Lagarde, IMF Managing Director, said at a press conference Tuesday that a small deficit reduction means cuts amounting to 1% of GDP next year. The downside risks to the U.S. economy as well as worldwide financial systems have deepened, she noted.

"We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," said Lagarde.

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Making Friends with Your Financial Fears

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Bill, a new subscriber, recently wrote us this note:

Dear Friends at PBL:

You guys do great work and I'm a huge fan, but I have a question.

I happen to believe that the good times are short-term, and that a day of reckoning, or prolonged austerity, is near at hand.

  1. So how do I protect the investments I already have?
  2. If it all hits the fan and we go into another downturn or worse, how do we
  • Protect what we have, and
  • If possible, grow our nest egg during the downturn?

Bill is obviously afraid of losing the wealth he has…

The fear of losing something you value is completely natural. And it is also healthy as long as the fear is not too great. But when fear is great – and I sensed that for this person it was – it can be destructive. Unbridled fear produces two negative responses: immobility and rashness.

When you fear too much, you won't take the positive actions you suspect you should. When opportunities are presented, you'll shun them for fear of the potential dangers and downsides.

Years ago, when gold was trading at around $500 per ounce, fear was the reason why so many of my friends and colleagues were afraid to invest in gold, despite my urging them to do so. It is the reason that many of my Palm Beach Letter readers are ignoring my advice to buy real estate now.

It's important to remember that the major media are almost always wrong about investing. When prices skyrocket, they write stories about people making money. When prices drop, they write stories about people losing money. Most readers have a hard time disbelieving the major media. They wonder, "How could all of these pundits on TV be wrong?" So they stay on the sidelines, waiting for positive confirmation from their favorite newspaper or television channel. But that never comes until it is too late.

Some investors who don't trust the major media are fearful too. They are persuaded by what they read in the alternative press about government debt and worldwide economic collapse. So they put all their money into gold or bury it in their backyards. And when gold soars, they are afraid to cash in and invest in the stock market. The end result is just as bad for them as for those who foolishly trust the mainstream media.

I see how fear impoverishes people in the world of business all the time. Smart, hard-working people who want desperately to quit the nine-to-five routine and start their own businesses fail to do so because they can't get the threat of failure out of their minds. I spent 10 years writing books and essays on entrepreneurship and taught hundreds of thousands of people the secrets to business success. But only one in 10 was actually successful. When I met them at conferences and got to know them, the reason was obvious: They were simply scared.

If you fear losing money too greatly, you will never implement the knowledge you gain. You may invest money in investment education – thousands and thousands of dollars over time – but you won't put the ideas you learn into action. Instead, you will do only the few things you are comfortable with. As a result, you will make no progress toward your wealth-building goals.

So that's what I want to talk about today: How to make friends with your fear of losing money.

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The Libor Manipulation Scandal Has Been Brewing for Years

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The Barclays Libor manipulation scandal is the latest development out of a huge investigation in the global banking industry – one that would have started years earlier, if Money Morning's Shah Gilani was in charge of it.

You see, Libor rates are incredibly important. They're the benchmark, or "reference," rates for hundreds of trillions of dollars in loans.

They are so important that even a 0.10% error or "manipulation" in calculations could impact billions of dollars.

That's why Gilani has been warning Money Morning readers of the risks of Libor manipulation since 2008.

"Gilani was among the earliest proponents of the theory that the contributing banks may have rigged the calculation of LIBOR," wrote Securities industry lawyer and Wall Street regulation critic Bill Singer in 2011. "Gilani warned that such activities were likely antitrust violations and were exposing major international banks to legal liability."

How Libor Manipulation Began

As Gilani explained in October 2008, how banks manipulate Libor isn't an incredibly complex event. That's because loan rate reporting is based on the honor system.

Or dishonor, in some cases.

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More Proof Microsoft (Nasdaq: MSFT) Must Dump CEO Steve Ballmer

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You can add the failed acquisition of online advertising firm aQuantive to the mounting evidence that Microsoft Corp. (Nasdaq: MSFT) should oust CEO Steve Ballmer.

Microsoft announced Monday night that it would take a $6.2 billion charge this quarter to reflect the destruction of nearly all of the value of the $6.3 billion deal it made in 2007.

The write-down will more than wipe out Microsoft's profit for the June quarter, which analysts had projected to be about $5.25 billion.

The deal was supposed to help Microsoft catch up to Google Inc. (Nasdaq: GOOG) in the race to profit from online search.

However, Google's U.S. share of search remains about 67%, aided by its own $3.2 billion acquisition of DoubleClick the same year Microsoft bought aQuantive.

Microsoft has managed to increase Bing's share to about 15.4%, but most of its gains have come from search partner Yahoo! Inc. (Nasdaq: YHOO).

And Microsoft continues to bleed cash from search, losing $10.4 billion since 2007 and $2 billion in the past year alone.

Google, meanwhile, used its acquisition of DoubleClick to double its profits to $9.7 billion last year.

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