Archives for February 2013

February 2013 - Page 11 of 17 - Money Morning - Only the News You Can Profit From

Best Investments 2013: What to Buy as Global “Currency Wars” Begin

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Japanese Prime Minister Abe's recent success in talking the yen lower against other currencies has increased fears over "currency wars." Now investors are on the hunt for the best investments to profit from central bankers' "race to the bottom" in 2013.

As we've pointed out, the Japanese have done nothing overt to weaken the yen – yet. Markets were massively long the Japanese currency and, when Prime Minister Abe called for "unlimited easing" during the election campaign last year and in the run-up to selecting a new Bank of Japan governor, that was all traders needed to hear to begin selling their yen long bets and taking out short positions.

Abe's great success was in getting the market to do all of the heavy lifting for him.

In fact, Abe has been a little too successful. Minister of Finance Taro Aso told reporters in Tokyo on Friday that the yen had weakened too quickly, which prompted an immediate reversal in the currency markets.

Aso's comments came after remarks by European Central Bank President Mario Draghi Thursday raising concerns that the recent strength of the euro might derail the recovery just gathering momentum in Europe now.

Looking at the interplay of comments from Draghi and Aso last week, it is tempting to think that all of this commotion in the currency markets is being coordinated at the highest level of central banking.

But, with the exception of China, which has been quietly pushing the renminbi toward the lower end of its trading range, no one has done anything. It's all just talk.

In the financial markets, however, talk is a big industry. Talk gets people to put on trades and that is how bankers and brokers make money.

This leaves investors wondering the best currencies to invest in to profit from these fluctuating values, which is why Morgan Stanley developed a currency war basket trade.

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10 Dividend Stocks to Buy Now

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Near-zero interest rates have lots of savers clamoring for yield and plunging into dividend stocks.

Compared with paltry yields on a bevy of bonds, dividend stocks – especially those with the potential of capital appreciation – have become progressively more attractive to income-seeking investors.

Now's a good time to hunt for dividend stocks, as more companies increase payouts. Dividend payments grew sharply in Q4 2012, with 1,262 dividend increases reported, a 94.5% gain over the 649 increases in Q4 2011, according to S&P Dow Jones Indices.

And rich dividend payments are expected to continue among companies flush with cash since
they have curtailed expansion and investment amid growing global uncertainty.

In fact, more than 5,000 analyst estimates compiled by Bloomberg News forecast that companies in the MSCI World Index will boost payments by 3.8% to a combined $39.43 a share this year, up from a low of $29.58 in 2009.

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Bull of the Day: Tyson Foods (TSN) - Bull of the Day

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With the economy seemingly back on track, many investors have looked to higher beta stocks. However, there are also plenty of firms in corners like the consumer staples market which could still be great bets during this environment. One such company is Tyson Foods (TSN-Analyst Report), the world's largest fully-integrated producer, processor, and marketer of […]

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Two Reasons to Expect Greater Volatility in Oil Prices

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A combination of rising demand and tension in the Middle East means oil prices will continue to climb.

How this plays out in the short term will have a primary impact on the profitability of oil sector investments. One conclusion is already clear. This will once again be a volatile market.

And this time, volatility will be point upward.

That is not to say that the rise will be continuous or without occasional pull backs. In fact, yesterday we witnessed two contrary signals attesting to an ongoing collision of forces.

Both of these are exogenous to market factors, a very important observation to recognize moving forward.

The direct relationship between supply and demand would oblige a rise in oil prices for the simple reason that more end use is moving back into focus.

Both the International Energy Agency (IEA) and OPEC have raised demands projections for the near term. Those levels are now approaching less than 3 million barrels per day of global supply.

Now we are not going to have a crude shortage anytime soon, although there may be some regional constrictions on the horizon. Ample supplies are available for quick pumping to meet rising demand. Nonetheless, there will be a greater use of unconventional production (tight, shale, heavy, oil sands).

And that means the oil coming on market will be more expensive.

Knee-jerk reactions to global events will again pull on demand sentiment. That, in turn, will spike the volatility. Yet this is likely to be more subdued on the down side than at any time in the last year.

Pundits have also introduced the specter of another (or "double dip") recession and fanning the flames of that fear would prompt the price of oil to move south.

The likelihood of a recession is rapidly dissipating and the prospects of these fear tactics are declining along with that reality. Reversals, therefore, while still inevitable, will be short in nature so long as the current underlying dynamics remain. Those are now pointing up.

I have a series of personal indicators used to determine what should be happening with oil prices. There are 10 of them, designed to estimate the actual composition, strength, and direction of pricing movements. For the past month, six of them have been pointing positive. As of Friday (these are calculated at the end of each week), seven are now moving north.

The upward pressure is building, reflecting the overall higher revisions in forecasted demand by IEA and OPEC. Yet we are once again reminded that the oil market hardly operates in a vacuum.

And that leads me back to those two outside signals we received yesterday.

Is Japan About to Fire the First Shots in a 1930s Style Currency War?

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Chances are you've heard about the so-called "race to the bottom" in which various industrialized nations are gradually allowing their currencies to depreciate in an attempt to maintain competitive parity.

Forget about it…the real risk right now is an all-out 1930s-style currency war. I know it's not front-page news yet, but I have a sneaking suspicion it will be shortly.

It's going to blindside Washington and most of Europe, where central bankers, politicians, and more than a few economists fail to recognize that events from nearly 100 years ago are now primed to repeat themselves.

Worse, it will devastate an entire class of investors who have put their faith in the current economic dogma of endless bailouts and money printing.

Ironically, this currency war won't start because of international problems. Instead, it will be touched off in earnest because of domestic concerns– only they aren't ours. My guess is Japan fires the first shots.

Here's why:

  1. Japan's newly elected Prime Minister, Shinzo Abe, is calling for unlimited stimulus and more aggressive financial intervention in an effort to boost Japan's flagging economic situation and eviscerated domestic economy.
  2. The Bank of Japan has doubled its inflation target to 2% while also promising to buy unlimited assets using a page from Bernanke's playbook. Bear in mind that Japan's combined private, corporate and public debt is already nearly 500% of GDP, which is much larger than the 250% that's commonly bandied about in the media.
  3. Japan has one of the strongest fiat currencies on the planet, which means it has the most to gain and everything to lose if somebody beats them to the punch. An expensive yen holds back Japan's exports by making them more expensive in global markets, while the debt I just mentioned hobbles future economic development by robbing the private sector of capital it needs for an actual recovery.

Will the Year of the Snake Bring Another Stock Market Crash?

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The Chinese New Year officially began Feb. 10, bringing us the year of the snake – which some investors consider a very bad omen.

Not only does the year of the snake have the worst stock market returns of all zodiac signs, but some of the darkest moments in U.S. history have come during that zodiac year.

Art Cashin, director of floor operations at UBS AG (NYSE: UBS), appeared on CNBC's "Squawk on the Street" Monday and even listed the year of the snake as one reason investors should be cautious about stocks.

And there's plenty of history to back up Cashin's statement.

State of the Union Speech to Disguise True Obama Agenda

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In his State of the Union speech Tuesday night, U.S. President Barack Obama will risk the ire of Republicans by telling the nation the government needs to spend more money to restore economic prosperity.

President Obama will spend much of his fifth State of the Union address outlining several new initiatives aimed at bringing relief to middle-class Americans hard hit by the Great Recession, White House officials have told several major news organizations.

"Our single biggest remaining challenge is to get our economy in a place where the middle class is feeling less squeezed, where incomes sustain families," a senior administration official who had seen a draft of the speech told The Washington Post.

But while the U.S. economy will be the overriding theme of President Obama's State of the Union speech, many of the proposals will not coincidentally advance many of the president's other favorite issues, such as climate change and education.

According to those who have seen the speech, President Obama is expected to announce initiatives in education, infrastructure, clean energy and manufacturing. White House officials told The New York Times that the cost of these proposals would be offset by savings elsewhere in the budget – or new revenues.

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Will John Kerry Kill the Keystone XL Pipeline?

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When new U.S. Secretary of State John Kerry met Friday with Canadian Foreign Minister John Baird in Washington, the talk turned to the fate of the controversial Keystone XL pipeline.

Kerry said the controversial $7 billion Keystone XL pipeline project would undergo a "fair and transparent review," adding he expects to make a decision "near-term" on whether to move forward with it. The State Department has final say over the pipeline because it traverses international borders.

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Government S&P Lawsuit: Who's Next?

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A massive U.S. government S&P lawsuit has no doubt hurt the fortunes of Standard & Poor's parent company The McGraw-Hill Companies Inc. (NYSE: MHP), whose shares have dropped 25% since it was filed.

But the collateral damage could spell bad news for a number of parties and has implications even for the overall health of the U.S. economy.

The Justice Dept., joined by attorneys general from 16 states, unveiled a case accusing S&P of fudging its ratings of subprime mortgages to make the toxic securities appear better than they were.

The federal government is seeking $5 billion in penalties — more than five times what S&P made in 2011 — to cover losses to investors in federally insured banks and credit unions. Separate suits filed by individual states could more than double that figure.

It's the first time the government has taken action against a credit rating agency over illegal behavior tied to the recent financial crisis.

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The Bernanke Shock

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The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad.

By 2020, Germany wants 50% of its total gold reserves back in Frankfurt – including 300 tons from the Federal Reserve.

The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.

Either way, Germany appears to be waking up to a reality for which central banks around the world have been preparing: the dollar is no longer the world's safe-haven asset and the US government is no longer a trustworthy banker for foreign nations.

It looks like their fears are well-grounded, given the Fed's seeming inability to return what is legally Germany's gold in a timely manner. Germany is a developed and powerful nation with the second largest gold reserves in the world.

If they can't rely on Washington to keep its promises, who can?

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