Archives for December 2012

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

Where Oil Prices Are Headed In the Face of the Fiscal Cliff

You have heard all the stories of what will happen when the U.S. economy falls over the fiscal cliff.

As I write this, it appears that will happen–at least on paper.

Of course, it will take some time for the tax increases to kick in, while the automatic spending cuts may take a month or longer.

That may make it easier for some Members of Congress to act. Since the taxes will have technically increased, it will be easier for them to vote for an artificial tax cut.

I consider this the pinnacle of absurdity.

Subjecting most Americans to this charade-making them vulnerable to cuts in paychecks, dividends, and social security benefits merely to make some political brownie points-is the height of travesty.

But here we are.

Even if there is a this weekend or Monday, nobody will know what that means for several weeks. This will drag the drama on for a while longer as the precocious children inside the Beltway refuse to play on the same ball field.

Now we all know how this will end. There will be a stopgap measure rather quickly (probably around the time most receive that first paycheck of the New Year) to prolong the process into the first quarter – right into yet another showdown on increasing the debt ceiling.

Isn't there anybody else out there as sick of this as I am?

But in the end, we are interested in what the shenanigans mean for the energy sector.

Oddly enough, gas and oil prices have acted as if the cliff were an ant hill.

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Mutual Fund Investing Isn't as Safe as it Seems

Mutual fund investing should be less risky than buying individual stocks, but that's not always as true as it used to be.

When choosing a mutual fund, investors need to make sure they know not just the fund's objectives, but how far the fund manager will bend the rules to enhance the fund's performance.

For example, more and more fund managers – tempted by high-flying stocks like Apple Inc. (Nasdaq: AAPL) – have shown a willingness to overload their portfolios with riskier stocks in a gamble to beat the market averages.

Despite its volatility, Apple became the top holding among mutual fund managers earlier this year. According to Lipper, Apple stock makes up 10% or more of the assets of 117 mutual funds. Experts say any mutual fund position over 5% is considered too large a bet.

"Any time you get over 10 percent of the portfolio in one company it's a red flag," Michael Herbst, director of active fund research at Morningstar, told Reuters.

The increased position often goes unnoticed as long as the stock is doing well. When a popular-but-risky stock is going up, everyone is happy. The fund manager can bask in the success of outperforming his peers while investors enjoy outsized returns.

The result is a positive cycle that keeps pushing the stock ever higher. Mutual fund managers keep buying more, but so do index funds that by rule must keep pace with the stock's constantly rising weighting in major indexes.

But when such a stock reverses course, the strategy backfires.

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How a Port Strike Would Slam the U.S. Economy in 2013

In the final hours to reach a deal, progress was made today (Friday) in averting a port strike that could cripple most major ports along the U.S. East Coast and Gulf Coast.

A federal mediator Friday announced a temporary solution: The strike, scheduled to take effect Dec. 30, will be delayed until Jan. 28 unless dock workers and management agree on payment issues.

"While some significant issues remain in contention, I am cautiously optimistic that they can be resolved in the upcoming 30-day extension period," George Cohen, director of the Federal Mediation and Conciliation Service, said in a statement.

But, if negotiators representing longshoremen on one side and shipping companies and port terminal operators on the other can't come to an agreement by Jan. 28, 2013, a port strike could cripple the U.S. economy, which may already be hobbled by falling off of the fiscal cliff.

In today's just-in-time, minimal inventory world, a dock strike would mean that stores would quickly run out of certain non-perishable imported products including clothing, shoes and electronics.

For example, Wal-Mart Stores Inc. (NYSE: WMT), which relies heavily on goods imported from China, could fail to receive merchandise on time, particularly on the East Coast. And auto manufacturers, especially those such as BMW that assemble cars in the U.S. from imported kits, could quickly find themselves running out of parts.

Given the uncertainty surrounding the fiscal cliff and how it has weighed on economic activity, "The last thing the nation needs right now is a strike that would shut down the East Coast and Gulf Coast ports," Jonathan Gold, vice president for supply chain policy at the National Retail Federation, told The New York Times. "This will have a huge ripple effect throughout the economy."

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Gold Prices in 2013 to Go Higher Thanks to These "Wars"

Gold prices in 2013 are already expected to top $2,200, and adding fuel to that price surge is an accelerating trend in the global economy.

We're talking about currency wars.

The term currency wars describes a race between many of the world's central banks to make their currencies worth less relative to other currencies, with the goal of increasing exports by making them cheaper.

Such a strategy becomes less effective as more countries join in the battle, but a growing currency war has another effect that investors can exploit: As central banks devalue their currencies, they create inflation and cause hard assets like gold to rise against them.

Fortunately for gold investors, most of the world's central banks, from the U.S. Federal Reserve to the Bank of Japan, are expected to further step up their currency devaluation in 2013.

"Implementation of the European Central Bank's Outright Monetary Transactions, andfurther Bank of Japan easing — both of which we expect – [will] support gold, aswould a weaker outlook for the yen, which competes with gold as a flight-to-qualityasset," wrote UBS analyst Edel Tully in a recent research note.

Why Currency Wars Will Get Worse in 2013

While the central banks' easy money policies have been aimed at stimulating their own sluggish economies, the effect has been to strengthen other world currencies, particularly those in emerging markets.

That has made their exports more expensive, hurting their economies. And they've had enough.

"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging market economies," Brazilian Finance Minister Guido Mantega said at an International Monetary Fund Meeting last week. "Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers."

Mantega singled out the Fed in particular, calling its bond-buying QE3 (quantitative easing) program "selfish."

Emerging economies are also uneasy about the recent election of Shinzo Abe as Prime Minister of Japan. Abe and his Liberal Democratic Party are expected to push for as much as $120 billion of stimulus spending plus call on the Bank of Japan to print piles of yen.

"It's almost obscene what they're talking about doing," John Mauldin, chairman of Mauldin Economics, told The Daily Ticker.

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How You Can Beat "The Street"

I can't tell you how many times I've heard someone say that the little guy can no longer compete – that he or she can't beat "The Street' – in today's stock market.

In fact, I hear it all the time: Wall Street has rigged the game, has turned Washington into its lapdog, and only wants to separate the retail investor from his or her money.

I guess such defeatist sentiments are understandable – especially on days (like after the recent presidential election) when the Dow plunged more than 300 points. But they're also misguided.

You see, while most retail investors believe that they can't beat The Street because the "little guy" is disadvantaged, I hold just the opposite view. I know you can beat The Street, and beat the Big Boys at their own game, precisely because you are the "little guy."

How do I know this? Simple. I've helped tens of thousands of investors around the world do just that.

Bull of the Day: Xzeres Corp (XPWR) - Bull of the Day

Xzeres Corp (XPWR) was upgraded from Neutral to Outperform as quarterly sequential revenue growth resumed last quarter. Third fiscal quarter results are expected in mid-January XZERES is positioned to benefit from the growth of the small wind energy industry. Access to capital through three separate financings over the last eight months, at first stabilized, and […]

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Ironwood Anxiety Drug in Phase I - Analyst Blog

Ironwood Pharmaceuticals Inc. (IRWD) recently commenced a phase I study in the US with its anti-anxiety candidate, IW-2143 (BNC210). The company informed its licensing partner, Bionomics Limited, regarding the development. IW-2143’s safety and pharmacokinetics will be evaluated in the study. Single and multiple doses of the candidate will be used. Ironwood Pharma has a collaboration, […]

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Too Big To Jail: It's a Dark Day For the Rule of Law

The opening line of a December 11, 2012 New York Times editorial on federal and state authorities choosing not to indict HSBC for money laundering reads: "It is a dark day for the rule of law."

It may be a dark day for the rule of law, but it's business as usual for the banks.

America's heralded and frighteningly powerful Department of Justice, along with all of the not so heralded or frightening banking regulators, simply refused to prosecute Britain's biggest bank out of fear of "collateral consequences."

In other words, they're "too big to prosecute."

That's what Andrew Bailey, the chief executive-designate of the Prudential Regulation Authority, said about the usual deferred prosecution agreement that accompanied HSBC's $1.9 billion fine. The Prudential Regulation Authority is set to replace the U.K.'s Financial Services Authority – the country's current toothless watch dog,

It's just another example of too big to fail and too big to jail.

Deferred prosecution agreements and hefty fines levied against the world's TBTF banks have become commonplace. Still, there are relatively few criminal charges, just wrist-slapping, don't-do-it-again fines and public spankings.

It is a dark day for the rule of law because the money cloak has effectively been cast over all things having to do with justice.

Let's call it what it is: buying immunity.

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The Weakest Holiday Sales Growth Since 2008 Means It's Time to Short These Retailers

Initial U.S. retail sales figures released on Wednesday showed sales growth for the holiday season was the worst since 2008.

According to MasterCard SpendingPulse, holiday sales posted a paltry 0.7% increase against expectations of a 3-4% gain. That's below the same period last year when sales grew at a 2% pace.

Analysts looking for a convenient excuse have been quick to blame Hurricane Sandy. But in reality, there's something else much bigger at work here.

That's why I'm actively hunting for shorts in the retail sector right now and will be for much of the first quarter next year.

Following the holiday data and some moderate earnings that incorporate the extra week this quarter, I simply don't think hard-core retail companies like the The Gap (NYSE: GPS), American Eagle Outfitters (NYSE: AEO), The TJX Companies (NYSE: TJX), and Abercrombie and Fitch Co. (NYSE: ANF) – which are up 71.3%, 47.41%, 32.2% and 50.67% respectively year to date through Christmas Eve – will be able to sustain these big up moves.

In fact, there are several real reasons why I think holiday sales were down and consumer spending will continue to drop into 2013, making select retailers good short candidates:

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Fiscal Cliff Deal Gets Lost in "Blame Game"

U.S. lawmakers headed back to Capitol Hill Thursday to try and avoid falling off the fiscal cliff, but the chances of doing so before the New Year have practically disappeared.

Sounding alarm bells Thursday were stern words from Senate Majority Leader Harry Reid, D-NV, who cautioned that there is hardly any time left for a deal.

"I have to be very honest. I don't know time-wise how it can happen now," a pessimistic Reid said in a press conference from the Senate floor.

Acknowledging the urgency for some kind of deal by New Year's Eve, U.S. President Barack Obama cut short his Hawaiian Christmas vacation to return to Washington.

According to CNN, a Republican senator said President Obama told Sen. Mitch McConnell, R-KY, that the president would send a proposal to the GOP on Thursday.

Retiring Rep. Steve LaTourette, R-OH, told CNN that lawmakers are putting finger-pointing ahead of deal making.

"Nobody is willing to pull the trigger" on an agreement because "everybody wants to play the blame game," he said. "This blame game is about to put us over the edge."

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