Archives for July 2012

July 2012 - Page 2 of 17 - Money Morning - Only the News You Can Profit From

Central Bank Meetings Loom Over Stock Market Today

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The stock market today sank lower at the open after stimulus expectations fueled a rally Friday.

The U.S. Commerce Department reported Friday that second-quarter gross domestic product (GDP) expanded at a 1.5% rate, which was slightly higher than estimates, but still far too slow to keep up with inflation.

Investors accepted the number as more ammunition for the Fed to make QE3 a reality when the Federal Open Market Committee (FOMC) meets Tuesday and Wednesday. The Dow Jones topped 13,000 for the first time since May.

What comes out of this two-day policy meeting should be an indication of whether or not the Fed will take any further action either now or at Jackson Hole later this month. QE2 was announced at the Jackson Hole meeting in 2010 and many experts think this will be the case again this year.

If no action is taken it will surely upset the markets.

European Central Bank (ECB) president Mario Draghi last week made clear that he will do all he can to prevent a collapse of the euro, and he is not afraid to inject more stimulus into Europe's economy.

Draghi stated, "The ECB is ready to do whatever it takes to preserve the euro."

After the Fed meets the ECB will be in the spotlight, with its Governing Council meeting in Frankfurt on Thursday.

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Underfunded Pensions Undermine the Entire Economy

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The difficulties facing retirees aren't just their problems. Underfunded pensions weigh down everyone's retirement expectations and America's future growth prospects.

Kicking the can down the road on this one has involved everything from outright lying to misrepresentation, bordering on fraud in the way pension plans calculate their liabilities.

If long- term solutions aren't implemented, the U.S. economy will experience a secular decline, equities will plummet, and millions of Americans of all ages will suffer.

While huge problems exist in private pension plans, public-sector plans — those slated to provide retirement benefits to public-service employees of state and local governments -face exponentially larger problems.

Here's a look at what the problems are, who's responsible for the mess we're in, who's going to have to fill in the deep holes, what the bad news is when it comes to fixing pensions and what the worse news is if they aren't fixed.

A Multi-Trillion Dollar Hole

A recent S&P Dow Jones Indices study highlighted record levels of pension underfunding at publically traded companies in the U.S.

At the end of fiscal year 2011, according to S&P, corporate pension plans were collectively $354.7 billion underfunded based on obligations totaling $1.676 trillion and assets of $1.322 trillion.

In addition, S&P noted that OPEB promises (Other Post Employment Benefits) such as health related benefits and life insurance were $233.4 billion underfunded.

To some extent the private sector's pension woes are ostensibly offset by the more than one trillion dollars of cash sitting on corporations' balance sheets.

But the problem with that cash is that it's not being earmarked for pensions.

Managers are stashing cash for any potential global rainy days ahead, for strategic acquisitions and as a cushion against an expected peak in the earnings cycle. But none of the officers or executives of any corporations sitting on mounds of cash have indicated any intention to fill pension holes with their coveted cash hoards.

On the public sector side of the pension plan dilemma, things are exponentially worse.

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Economist Richard Duncan: Civilization May Not Survive 'Death Spiral'

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Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America's $16 trillion federal debt has escalated into a "death spiral, "as he told CNBC.

And it could result in a depression so severe that he doesn't "think our civilization could survive it."

And Duncan is not alone in warning that the U.S. economy may go into a "death spiral."

Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan's Council of Economic Advisers, have come to similar conclusions.

Kotlikoff estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.

However, while the debt crisis numbers are well known to most Americans, the economy hasn't suffered a major correction for almost 4 years.

So the questions remain: Is the threat of collapse for real? And if so, when?

A team of scientists, economists, and geopolitical analysts believes they have proof that the threat is indeed real – and the danger imminent.

One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings:

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Why Investors Love Amazon.com (Nasdaq: AMZN) Stock

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Amazon.com (Nasdaq: AMZN) reported earnings after Thursday's closing bell that missed estimates and initially disappointed investors. The company reported earnings per share for the quarter ended June 30 of $7 million, or a penny a share, on revenue of $12.83 billion. Analysts had expected EPS of two cents a share on revenue of $12.92 billion. […]

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Keep a Close Eye on Gold Prices Next Week

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The U.S. Federal Reserve is about to give a huge boost to gold prices, and the first push could come as soon as next week.

The parade of dismal economic reports both here and abroad has stoked hopes that more stimulus, in the form of a third round of quantitative easing, is imminent. A clear signal of when we can expect QE3 could come at next week's two-day Federal Open Market Committee (FOMC) meeting that starts July 31.

An increasing number of Federal Reserve officials are convinced the central bank must expand its stimulus operation immediately amid the recent spate of glum data signaling economic growth has hit a roadblock. Several members will push for urgent action, although some may move to delay a decision until September.

Fed Chairman Ben Bernanke told Congress last week that a fresh round of quantitative easing is an option the FOMC is mulling to try and lower the elevated unemployment level.

"We are committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment," Bernanke said just last week.

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Healthcare Reform Could Radically Change Your Benefit Plan

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Both before and after Congress passed healthcare reform, Americans with employee health benefits were assured the legislation would not disrupt their coverage.

U.S. President Barack Obama has often repeated that pledge, which includes anyone who has health insurance.

"If you're one of the more than 250 million Americans who already have health insurance, you will keep your health insurance," the president said following the Supreme Court decision on June 28 that upheld Obamacare. "This law will only make it more secure and more affordable."

Of course, Republicans claims on Obamacare take the opposite extreme.

"Frankly, the people who have healthcare in this country and like it will not be able to keep what they have," said House Majority Leader Eric Cantor, R-VA, the same day.

While something of an exaggeration, Cantor may be closer to the real-life impact of the Affordable Care Act than the president, particularly when it comes to employee-sponsored health benefits.

The Congressional Budget Office estimates 154 million Americans – 72% of the non-elderly population – have health insurance through their employer.

While nothing in Obamacare explicitly forces employers to drop coverage, the healthcare reform law does introduce new rules and requirements. Those provisions will affect how employers offer health insurance, what plans they offer and if they offer any at all.

Business owners, for their part, are still making up their minds as to how they'll deal with the changes healthcare reform will bring (unless, of course, the Republicans sweep in November and repeal it).

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Pension Schemes are The Latest Gigantic Rip-Off

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You made me promises, promises,
Knowing I'd believe.
Promises, promises
You knew you'd never keep.

Those lyrics are ripped from the early '80s band Naked Eyes' hit song "Promises, Promises."

I use the word ripped, not because it's a term used in the music business, but because of its more common meaning, as in ripped-off.

Because that's what we've been – ripped off.

This time, which has been going on for a long time, I'm talking about how grossly underfunded both private and public pension funds are, and how we'll all suffer the consequences.

I'm going to strip out the mumbo jumbo so you see the truth with your own naked eyes.

Retirement is getting further and further away for most Americans. And if they get there, they may not be reasonably compensated by the pension plans they thought they were paying into along with their co-payers, their private and public employers.

That's because a lot of those co-payers aren't paying up.

And that's only part of the problem…

Here's the other, even more insidious, naked truth.

The investment return assumptions inherent in pension plans' calculations are so unrealistically high that the chances of funds ever meeting future obligations, or "promises," is halfway between slim and none.

Don't worry, I'll come back to the co-payers not paying up. But first let's talk about assumptions (as in, making asses out of you and me).

Pension Plans are Based on Unrealistic Projections

The average assumption in the great majority of pension plans is that their assets will appreciate at 8% per year. Now, with compounding, that's a really great deal.

Too bad the actual hand we've been dealt, courtesy of a no-interest rate (actually its closer to zero) Federal Reserve policy, for years now (and rammed-down low rates for years prior, thank you Big Alan Greenspan, with his goofy Ayn Rand hat now sitting in a corner facing backwards somewhere; or at least he should be), makes fixed income returns impossibly low. Low to the point that the "bond" portion of plan asset portfolios are causing the hole they are all slipping into to get bigger and bigger.

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Fascinating New Technology Trends Offer a Glimpse into a Wild Future

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Call it the "Battle of the Jellyfish Breakthroughs".

You may remember this from an article I wrote two weeks ago. In it, I talked about a Pentagon-funded robotic jellyfish that uses hydrogen as its power source. It's a developmental robofish capable of helping in underwater rescues (or spy missions).

Turns out that wasn't the only big advance inspired by this primitive sea creature…

Just this week, we learned that a crack research team has created something incredible called Medusoid.

That's their nickname for an artificial jellyfish they made from rat heart cells and a silicone polymer. This bioengineered creature swims by squeezing its muscles, the same way a real jellyfish does.

More to the point, Medusoid could become a great model for testing new drugs. It also could lead the way to advances in artificial hearts and other human organs.

As I see it, these two breakthroughs coming so close together proves that the Era of Radical Change is here. Cutting-edge high tech really is moving at warp speed, with new advances coming faster than any one person can track.

Indeed, there was plenty of fodder for my fascinations of the month.

Take a look as these new technology trends…

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The Slowing Economy Won't Stop the Stock Market Today

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The stock market today is up on stimulus hopes after first estimates revealed second quarter U.S. gross domestic product (GDP) increased only 1.5%.

This was slightly ahead of the 1.3% growth economists had expected, but much lower than the revised 2% growth of 2012's first quarter.

GDP was hurt by lower consumer spending, which rose 1.5% in Q2 compared to 2.4% in the first three months of the year. Jobs were another blemish in the report as the Commerce Department reported payroll gains averaged 75,000 in the second quarter, down from 226,000 in the previous three months for the lowest gains in almost two years.

The unemployment rate, which held at 8.2% in June, will be reported next Friday. The unemployment level has exceeded 8% for 41 straight months.

Consumer sentiment measured by the Thomson Reuters/ University of Michigan reading fell to its lowest level of the year. The final reading for July fell to 72.3 from 73.2 in June. The barometer for current conditions inched up to 82.7 from 81.5, while the measure of consumer expectations slipped to 65.6 from 67.8.

Facebook Inc. (Nasdaq: FB) reported its earnings yesterday after markets closed and it was not what investors were looking for.

The company announced earnings per share of 12 cents, which matched expectations. But investors were hoping for profits to crush estimates that had been drastically lowered ahead of the report.

What is more concerning is the absence of any specific plan on how Facebook will monetize mobile users, and the continued slowing growth of its user base.

Facebook stock was down more than 15% today, reaching an all-time low of $22.28.

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Economist: "This Is Going To Be A Lot Worse Than 2008"

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Noted expert Peter Schiff says the U.S. economy is on the verge of an economic collapse worse than 2008 and is warning investors to take immediate steps to protect themselves.

In a gripping interview on Yahoo Finance, Schiff warns that while any moves the Fed makes this year could "artificially" bolster the economy – and bring investors false hope that things are turning around – the truth is that the government will only be delaying the "Day of Reckoning."

"If the Fed ultimately comes through with QE3… it won't strengthen the economy, but it will weaken the dollar," Schiff said, noting that Bernanke's policies will eventually lead to a Greek style debilitating sovereign debt crisis where the dollar plunges and consumer prices and interest rates spike.

"We have a much bigger collapse coming, not just the markets, but of the economy. It's like what you're seeing in Europe right now only worse," Schiff said.

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