Archives for December 2012

December 2012 - Page 10 of 17 - Money Morning - Only the News You Can Profit From

How to Prepare for the Fiscal Cliff

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Fiscal cliff negotiations continued Thursday, but with Republicans not budging on their staunch opposition to raising taxes, and Democrats refusing any deal that doesn't include higher taxes, hopes for a compromise by year's end have waned.

Investors are worried, and rightly so.

In fact, the Wells Fargo/Gallup Investor and Retirement Optimism Index turned in a score of -8 in November, down from double-digit positive readings in early 2012. That means investors polled are back to being as pessimistic about the investing climate as they were a year ago when Washington was battling over the debt ceiling.

About 70% of investors polled said the fiscal cliff was already slowing the economy, and feared a deep recession would hit in 2013 if the economy fell off the cliff.

With no deal in sight, here's how investors can prepare for falling off the fiscal cliff.

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GFMS: Silver Prices to Climb 38% in 2013

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The world's most respected precious metals consultancy, Thompson Reuters GFMS, came out last month with its 2013 forecast for silver prices.

After being bearish on silver prices over the past few years, GFMS has come around and predicted a good year for silver investors in 2013, with gains as high as 38%.

Philip Klapwijk, global head of metals analytics for Thomson Reuters GFMS, said "a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013."

Klapwijk said buyer interest may not match that of 2011, but it will rise compared to 2012.

"We wouldn't be surprised also if silver's gains outpaced gold's, not only as the usual result of lower liquidity but also as memories of early 2011's painful losses (in silver) continue to fade," said Klapwijk.

Here's why silver could be the precious metals star of 2013.

USANA Health Sciences - Aggressive Growth

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USANA Health Sciences Inc. (USNA) raised its outlook for the full year during its third-quarter report, which also saw this nutrition and personal care products company beat earnings estimates for the seventh straight quarter. With a year-to-date return of roughly 36.3% and a long-term expected earnings growth rate of 18.0%, this Zacks #1 Rank (Strong […]

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These Three Iconic Japanese Brand Names Are On My "Short List"

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[Kyoto, Japan] – Many investors have piled into Japan lately reasoning that somehow this will be "the year" Japan turns around and there will be lots of money to be made.

I don't disagree – only the big profits are on the short side, especially when it comes to these three iconic Japanese tech brands.

As I quipped earlier in the year, it's more likely that Godzilla will walk out of Tokyo Bay again than it is that Japan will suddenly rebound.

I am well aware that's not a popular thought and that it will likely earn me my share of wrath on the Internet. Save your breath and your keystrokes. Having spent more than 20 years in country, I am intimately familiar with the arguments.

For example, value-oriented investors consistently remind me that the Nikkei is "dramatically undervalued." I am also well aware of the "construction boom" that was supposed to follow the tsunami and nuclear crisis.

And I still continually hear from the statistically motivated that the Japanese economy just "has to turn around" because it's exceedingly rare that an economy remains in the doldrums after 20 years.

Let's review.

The Nikkei remains 75.5% off its December 29, 1989 peak for a reason. That means it's going to take a 308.19% gain just to get to break-even based on where it's trading as of this writing.

If you think that's a sure thing, I'm happy for you but wish to point out that business conditions now are hardly conducive to the kind of growth that got the Nikkei there in the first place. The entire society is deleveraging. Consumers are tapped out and the government is a wreck.

As for the construction boom, that's a misconception. As I noted in a flurry of interviews following the terrible events of March 11, 2011, only a few companies are going to enjoy any sort of revenue expansion whatsoever. Sure, there might be a short-term pop, but the majority would experience significant drops in revenue and exports resulting from production losses and a post-quake strengthening of the yen that will compound the efforts to regain lost ground.

And finally, as for the notion that markets simply don't stay down for this long…says who?

It was inconceivable in 1990 that Japan would lose a decade — let alone three. Nine failed stimulus programs and 22 years later, the Japanese economy has just lurched into another technical recession this week. The rules of the game have changed.

Clearly, the markets can, as the old saying goes, remain illogical far longer than investors can remain solvent.

Here's the Reader's Digest version of my thinking:

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The Next Profit Breakthrough: Synthetic Biology

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Drug, chemical, and biofuel firms are relying more than ever on artificial fragments of DNA to invent new products. It's called synthetic biology.

For example, teams all over the world are now in their labs looking to create novel biotech compounds or drugs by inserting synthetic DNA into cells, either living or artificial. They're also growing new microorganisms that yield biofuels to be used in lieu of oil.

Trouble is, the process is so complex that it can take days to synthesize these man-made genes, usually in small batches.

Not only is it time consuming, but it requires the use of costly robots and other advanced gear. Simply stated, if someone came along with a breakthrough that greatly speeded up the development of synthetic genes, it could affect several industries at once, not to mention its own value in the market.

Allow me to introduce you to Gen9 Inc. The company is blazing a trail in the development of scalable technologies for synthesizing genes.

Now, Gen9 is a small, new dynamic company. And its potential is huge.

It was formed last summer around a unique new device that greatly speeds up the process of creating synthetic DNA.

Even better, it cuts the cost of that process by leaps and bounds.

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Today's FOMC Meeting Ends with Major Change

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After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.

And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.

About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally – but then lost that gain and ended down nearly 3 points at 13,245.45.

Here's a breakdown of the FOMC meeting outcome.

Today's FOMC Meeting: QE4

As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.

The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.

Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.

The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.

The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.

While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.

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Berkshire Hathaway Share Buyback: Investor Takeaway

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Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) said today (Wednesday) it authorized the repurchase of $1.2 billion worth of Class A shares from "the estate of a longtime stockholder."

Berkshire Hathaway said it paid $131,000 a share for 9,200 shares.

At the same time, Berkshire Hathaway announced the board of directors had approved an increase in the price it is willing to pay for Berkshire shares from 110% of book value to 120%. Based on Berkshire Hathaway's book value per Class A share of $111,718 at the end of September, the company is now willing to pay up to $134,061 to repurchase shares.

Both Class A and Class B shares rallied this morning following a delayed open at the request of the company, pending news. In late-morning trading, both Class A shares and Class B shares were up by 2.4%.

The move surprised investors – but says a lot about what Buffett thinks of Berkshire's value.

Here's why.

Peter Schiff: Rewinding 2013 Tax Rates to 1950s Can’t Work

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While some "liberal pundits" have suggested the United States set 2013 tax rates for the rich back to the high rates of the 1950s, renowned economist Peter Schiff says that would simply result in the rich paying less than they do now.

Such prominent figures as investing guru Warren Buffett and The New York Times columnist Paul Krugman recently have made the argument that since the U.S. economy of the 1950s was booming despite high tax rates on the rich, tackling the fiscal cliff by raising taxes on the wealthy in 2013 should do no harm – and could actually help the economy.

Schiff, the CEO and chief global strategist of Euro Pacific Capital, says those who think we should adopt anything like the high 1950s-style tax rates – the top marginal rate was 91%, nearly triple today's 35% – haven't studied the whole picture.

"There's a myth out there propagated by people like Warren Buffett that the rich used to pay much higher rates of tax than they do today. The truth is the opposite," Schiff said Friday in a Daily Ticker video interview.

The Tax Rate Truth

Schiff, who is best known for predicting the collapse of the housing bubble and the 2008 financial crisis in his 2007 book "Crash Proof," explained that differences in the tax code from the 1950s reach far beyond just the tax rates.

"Back in the 1950s there was only one kind of income; now there's three," Schiff said, noting that today income earned from work is treated differently than capital gains from stocks or passive income such as dividends.

"Back then income was income. You could deduct losses in one category from gains in another category. Today you cannot do that," Schiff said.

The rich were familiar with, and made use of, a wide variety of tax shelters in that era – many of which were eliminated in the 1980s.

As a result, the wealthy of the 1950s were not paying at the levels suggested by the stratospheric tax rates of the era, Schiff said.

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Fiscal Cliff 2013: GOP Plans Retaliation

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Republicans appear to be losing the fiscal cliff 2103 fight over raising taxes on affluent Americans.

Now they're threatening to retaliate by intensifying Washington's next battle: the U.S. debt ceiling.

Sen. Lindsey Graham, R-SC, pledged Republicans, who control the U.S. House of Representatives, would put up "one hell of a fight over raising the debt ceiling" next year if U.S. President Barack Obama succeeds in getting the tax increase for wealthy Americans without a plan to reduce the national debt. The country is approaching the $16.4 trillion debt ceiling.

On CNN's "Piers Morgan Tonight" Tuesday, Graham threatened, "There will come a time in February and March where we have to raise the debt ceiling. I will not raise the debt ceiling ever again until we get significant reforms, because if we don't reform entitlement we're going to become Greece."

If the country's debt ceiling is not raised, the fallout would send shockwaves across the globe, as the United States, with the world's largest economy, would face the prospect of default. That in turn could threaten global confidence in U.S. Treasury bills should there be non-payment.

In addition, exceeding the debt ceiling could mean the U.S. government would be unable to pay its bills, including salaries of federal workers, who could go unpaid or be laid off. That could have far-reaching effects, disrupting business and reducing consumer spending at a time when the economy can ill afford either prospect.

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AIG Stock Sale Makes it a "Buy" (NYSE: AIG)

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The U.S. Treasury Department has sold off its remaining shares of American International Group (NYSE: AIG), acquired in a financial crisis bailout move.

The Treasury had 234.17 million shares left, or roughly 16% of the insurance giant's outstanding stock.

After unburdening itself from its mountainous holding, the Treasury will only own warrants to purchase additional shares of AIG.

Monday's stock sale announcement follows the department's September sale of about 554 million shares to the public at $32.50 per share. That liquidation marked the end of the Treasury's majority ownership in the firm.

This final stock sale is good news for AIG and its shareholders – and U.S. taxpayers.

"The closing of this transaction will mark the full resolution of America's financial support of AIG-with a profit to taxpayers of $22.7 billion to date. It marks on of the most extraordinary-and what many believed to be the most unlikely turnaround in American business history. And you did it," AIG CEO Robert Benmosche penned in a company email to employees on Tuesday.

After the news, Sterne, Agee & Leach, who give AIG a "Buy" rating, said the sale was good for investors.

"With the U.S. Treasury now out of the stock and AIG once again a 100% privately held company, we expect management will be able to turn its full attention to managing the company to drive improved financial performance and higher return on equity," wrote analysts.

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