Archives for February 2013

February 2013 - Page 14 of 17 - Money Morning - Only the News You Can Profit From

Dow to 14,000... and Beyond?

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If you've been a hibernating bear lately, you've missed a ton of positive news.

U.S. construction spending rose, ISM manufacturing data beat expectations and the country added 157,000 jobs.

In addition, the JP Morgan Global Purchasing Managers' Index rose to 51.5, staying above the expansion level for a second month in a row. The strengthening data, as well as improving investor sentiment, helped the Dow hit 14,000 for the first time since 2007.

For the month of January, U.S. stocks experienced the best month in two decades.

Per the Stock Traders' Almanac market indicator, the "January Barometer," the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Let's hope so.

As Adam Shell from USA Today writes, "While there's no guarantee that what happens in the first month of a new year will continue for the remaining 11 months, history is on the side of investors."

Shell asked for my thoughts on this trend and I told him that sentiment has improved in part because several uncertainties have been removed from the market. Read the rest of the story here.

Sentiment among individuals, advisors and traders has experienced a sudden spike recently, says BCA Research.

Early Exit from Bank of Japan Governor is Good for Abe

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Bank of Japan Governor Masaaki Shirakawa told Prime Minister Shinzo Abe yesterday (Tuesdsay) that he will step down a few weeks early, on March 19, in order to align his term, which expires on April 8, with those of the two BoJ deputy governors.

"I told the prime minister that I will resign on March 19 so that a structure with a new governor and two deputy governors can start simultaneously," Shirakawa said at a press conference called after a meeting of the Council on Economic and Fiscal Poicy.

This will enable Abe to replace the entire central bank leadership all at once with people who are more sympathetic to his policy of unlimited easing.

Although some press reports have highlighted the apparent unenthusiastic support Shirakawa is giving to Abe's policies, Shirakawa's resignation is really just putting the Bank of Japan leadership transition process back to normal.

The Bank of Japan governor must be approved by both houses of the Diet. Back in 2008, former deputy governor Toshiro Mutoh was nominated for the top spot by the ruling Liberal Democratic Party (LDP) which held a majority in the Lower House but not in the Upper House, where the opposition Democratic Party of Japan (DPJ) held sway.

The DPJ rejected Mutoh's nomination and it took three weeks of political infighting before Shirakawa was approved as a compromise candidate and took office on April 9.

The situation is exactly the same today. Abe's LDP has a super majority in the Lower House but must get some opposition support to get their nominee approved by the Upper House.

By resigning as governor effective March 19, Shirakawa is undoing the delay caused by political wrangling five years ago.

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Water Stocks: Don't Overlook This $1 Trillion Opportunity

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With most water delivery systems badly in need of repair or replacement, companies that supply the solutions figure to profit handsomely – making now a good time for investing in water stocks.

In the United States alone, estimates of water infrastructure needs run as high as $1 trillion.

Many of the pipes that carry water to U.S. residents are more than 60 years old, with some more than 100 years old. Water main breaks and sinkholes from leaking pipes are common in many U.S. cities.

Water infrastructure is in such bad shape that the nation's pipes leak 1.7 trillion gallons every year. The water lost in a single day is enough to supply the entire state of California.

Pressure to spend more money on the nation's water infrastructure is increasing. This week the National Association of Water Companies and U.S. Chamber of Commerce launched a campaign, "Water is Your Business," to draw more attention to the problem.

And the public is already on board.

In a recent survey taken by water infrastructure company Xylem Inc. (NYSE: XYL), 88% of those polled said the government should be investing in water infrastructure, and 65% said they would accept slightly higher monthly water bills to pay for it.

With the need reaching a critical stage and pressure to act building, U.S. government spending to repair water infrastructure is bound to increase very soon and very rapidly, a golden opportunity for water stocks.

But the opportunity extends beyond the United States. The World Water Council says that current annual infrastructure spending of about $80 billion will double just within the next several years.

And rising global demand for water, driven by population growth, adds even more urgency to the problem.

The United Nations estimates that fresh water withdrawals have increased threefold over the past 50 years, as demand rises by 16.9 trillion gallons every year.

"A billion people lack access to clean water," Bank of America Merrill Lynch wrote in a recent research note explaining why it likes water ETFs. "Water is undergoing pressure both on the supply and demand side."

In the years to come, as governments around the world start spending the hundreds of billions of dollars needed to address these problems, money will flood into water stocks.

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Jim Rogers: Hold on to Your Gold and Silver Coins

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Legendary investor Jim Rogers sees now as a great time to load up on gold and silver coins – and he's not alone.

A record 7.5 million ounces of silver coins were sold in January as investors hunted for a safe haven investment.

"You can't get [silver coins]. They sell out," Rogers, who owns a rare 2013 silver coin, said on Yahoo! Finance's "The Daily Ticker." "Several mints have run out of coins because everybody's worried about the future of the world."

And 150,000 ounces of American Eagle gold coins were sold in January, the highest monthly total since July 2010.

"Gold has been up 12 years in a row which is extremely unusual for anything," added Rogers. "A lot of speculators are rushing into gold right now. I'm not rushing into gold, but I'm certainly not selling it. If it goes down, I'm buying more."

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Are You Prepared for What the End of QE Will Do to Bond Prices?

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Equities rallied and bond prices fell through January as investors, relieved that Congress had avoided the fiscal cliff and postponed a fight over the debt ceiling, changed their stance to take on more risk.

With the immediate crisis over, the need for safe-haven instruments such as U.S. Treasury bonds has diminished, sending yield-starved investors scrambling for better returns.

Improving sentiment in the United States, Europe and even in Japan has sent U.S. Treasury bond prices lower. The yield on the 10-year Treasury bond is now over 2.0% for the first time since April of last year, having averaged 1.80% for 2012.

But it's not just improved sentiment that's going to push down bond prices.

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Debt Ceiling Bill Nothing More Than a Band-Aid

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We have a short-term debt ceiling fix – with emphasis on short term.

U.S. President Barack Obama Monday night signed into law a bill suspending the debt ceiling, a move that allows the government to avoid default-at least until August when Congress will again have to act to prevent such a scenario.

The new law lifts the current debt limit through May 18, allowing the federal government to continuing borrowing to pay its bills until then.

But Congress does have more leeway than the May 18 deadline. The Treasury can use "extraordinary measures" to access funds, which will give it until August before the risk of default comes up again.

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Still Neutral on Amdocs - Analyst Blog

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We have maintained our Neutral recommendation on Amdocs Ltd (DOX), as its bottom line meets the Zacks Consensus Estimate while the top line beats the same in the recently concluded quarter. Why Remains Neutral? Amdocs is well positioned with the largest customer base and the broadest product line in the industry, including a full suite […]

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The Silver Lining Buried in the "Bad" GDP Number

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The markets were hit with an unexpected twist last week. On Wednesday the Bureau of Economic Analysis shocked markets by announcing that U.S. Gross Domestic Product had declined by 0.1% in the fourth quarter.

That marked the first time economic output had fallen since the end of the Great Recession.

But the report wasn't all doom and gloom by any stretch of the imagination. 

In fact, when you look at the report more closely there was a silver lining buried in the numbers: the decline was entirely caused by weakness in government spending and inventories.

Those are areas where bad is really good.

Why Dell Had No Choice But to Go Private

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By David Zeiler, Associate Editor, Money Morning

A proposed deal taking Dell private shows just how hard it has become for the old guard of PC-based companies to survive in a world dominated by mobile computing.

Today (Tuesday) Dell Inc. (Nasdaq: DELL) announced that it had agreed to be acquired for $24.4 billion, or $13.65 per share, by a group that includes private equity firm Silver Lake Partners. Other investors are company founder and CEO Michael Dell, who is contributing about $3.7 billion, and investment firm MSD Capital.

The deal would be the largest leveraged buyout since the 2008 financial crisis, and one of the ten largest ever.

The news has boosted DELL stock about 24%; it was trading at about $11 a few weeks ago.

In an added twist, Microsoft Corp. (Nasdaq; MSFT) is providing a $2 billion loan to the group that is taking Dell private. As one of the top vendors of Windows-based PCs, Dell is one of Microsoft's biggest customers.

But then, that's exactly why Dell has found itself in such desperate straits.

As the computing world has transitioned away from traditional desktops and laptops toward smartphones and tablets, companies like Dell and Hewlett-Packard (NYSE: HPQ) — which thrived on the sales of those PCs – have fallen on tough times.

At its height in late 1999, Dell was the world's largest PC maker. The Round Rock, TX-based company had a market cap of $122 billion and the stock traded at $50 a share.

But as PC sales have fallen in the wake of Apple Inc.'s (Nasdaq: AAPL) iPhone in 2007 and iPad in 2010, Dell has suffered. By last November, DELL was trading in the $9 range and its market cap was about $17 billion.

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