Archives for February 2013

February 2013 - Page 15 of 17 - Money Morning - Only the News You Can Profit From

Why Did the U.S. Government Sue Standard & Poor's?

The U.S. Justice Department slapped Standard & Poor's Rating Services with a lawsuit claiming the agency sidestepped its own standards when rating mortgage bonds that collapsed during the financial crisis, resulting in billions of dollars in losses for investors.

U.S. Attorney General Eric Holder's civil charges, filed late Monday against S&P, are the first federal enforcement charges against a credit rating firm over the financial crisis.

Reports say the government is going after S&P to the tune of more than $1 billion.

Following a report in The Wall Street Journal Monday afternoon that the government planned to file the suit, S&P acknowledged it was expecting the action and claimed the firm was being wrongly punished by the U.S. government for "failing to predict" the housing meltdown or financial crisis.

New York-based S&P, one of the three major rating firms, has denied any wrongdoing. The firm said in a statement before the government filed the suit that it would be "entirely without factual or legal merit."

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The Best Stocks to Buy, According to Top Strategist

It doesn't hurt to have help narrowing down the best stocks to buy – especially when the advice comes from one of the country's best stock analysts.

Tobias Levkovich, Citigroup Inc.'s (NYSE: C) chief equity strategist, has sent a note to clients consisting of 18 recommended stocks and their end-of-year price targets. We've sifted through the list to bring you the 10 stocks that have the highest projected returns based on Citi's targets.

Those returns range from 10.14% to 27.27%.

Here are the companies and their price targets, accompanied by a summary of Citi's analysis for each stock:

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Housing Bubble Threat Means Sell These Stocks

The recent rumors of a housing bubble have chilled the recent rise in homebuilder stocks, which were one of the great stories of 2012.

They had underperformed badly for several years in a row as a result of the credit crisis. Foreclosures and other distressed properties were clogging the marketplace and there was very little demand for new homes. Many of the stocks were still losing money and almost all of the homebuilders traded for less than their book value.

But the housing market began to show some signs of improvement during the year. The S&P Exchange Traded Fund (NYSE: XHB) rose by more than 50% during 2012 and many leading builders performed much better than that. Shares of The Ryland Group Inc. (NYSE: RYL) rose by more than 100% while Hovnanian Enterprises Inc. (NYSE: HOV) and PulteGroup Inc. (NYSE: PHM) saw their shares rise by more than 150% during 2012.

We have seen improvements in the Case Shiller Index of housing prices, up 4% through October of 2012. Housing starts in December were at the highest level since 2008. Foreclosures fell to an almost six-year low in December.

The end result of all this positive news is that Wall Street started falling all over themselves in a rush to upgrade and recommend the homebuilding stocks.

But before investors embrace the enthusiastic support of homebuilding stocks it might be best to take a step back and look at the whole picture.

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Gold Prices Will Ride Higher on this New Investment from China

China remains a small player on the international gold scene, but that's about to change, and that's good news for those betting on higher gold prices.

You see, currently China's gold investors have few opportunities to play rising gold prices, which they want to do increasingly to hedge against risk and inflation. Most buy gold bars and notes to bet on higher gold prices.

But they will soon have more options.

The China Securities Regulatory Commission on Jan. 25 announced the country's rising gold demand required diversified investment instruments. It announced provisional guidelines for gold exchange-traded funds (ETFs), which have been prepared for launch over the past few years and will be made available soon.

The CSRC said that the gold ETFs would be invested in the spot contract traded on the Shanghai Gold Exchange and up to 10% on other products.

In the future, the funds could be opened up to futures contracts.

"Later on, we will further open up the market and quicken the steps to integrate into the international market," Xie Duo of People's Bank of China said. "We should actively create conditions for the gold market to become integrated with the international gold market."

Here's how this news is bullish for gold prices.

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Stocks to Buy Now: How to Profit from Higher Food Prices

If you thought your grocery tab was high in 2012, brace yourself because this year will be even worse- but that just means there are stocks to buy now that will let you cash in on higher food prices.

Last year's drought drove up prices of grains such as corn, wheat and soybeans. Soybean prices jumped 40% earlier in 2012 while wheat prices soared about 50%. Prices declined in the fall as crops were harvested, but remained elevated.

Because of the higher prices of animal feed such as corn and soymeal, many ranchers had to slaughter animals earlier than planned. This caused a brief bump up in meat supplies in 2012, but threatens to lead to tight meat supplies and higher prices in 2013.

The Livestock Information Center in Denver forecasts that this year's U.S. beef production will come in at 24.8 billion pounds – the lowest level since 2005.

In 2014, the Livestock Information Center forecasts only 23.6 billion pounds of beef will be on the market – the lowest level since 1993.

And Larry Pope, the CEO of the world's largest pork producer, Smithfield Foods Inc. (NYSE: SFD), told the Financial Times in 2012 he thought pork and chicken would soon join beef on the list of increasingly expensive meats.

The U.S. Department of Agriculture forecasts food prices overall will increase 3.5% to 4% in 2013.

However, like most government estimates, those could be on the low end due to these three main factors driving higher prices.

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The Key to International ETF Investing - Investment Ideas

Investors have largely embraced international ETFs to start 2013. Funds tracking emerging markets have seen particularly huge inflows and are easily setting the pace for ETFs this year. Yet while many investors may be jumping into these products, some might not understand one of the biggest—and arguably most important—aspects of these types of funds, currency […]

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Buy, Sell or Hold: Why Investors Need to Tune in to Netflix

In the new age of media all roads lead to streaming content. Whether it's music, movies or TV Shows, how entertainment gets delivered is never going to be the same.

As this secular change takes place, traditional media companies are now scrambling to get their piece of action.

Where this "movie" really gets interesting for investors is the path they are going take to claim their share of the streaming pie – especially if you own Netflix, Inc. (NASDAQ: NFLX)

That because Netflix has laid the groundwork to be the leader in the new world of streaming media. And on Jan, 23, the plot thickened even more when the company reported its Q4/2012 earnings and blew away everyone's expectations.

Netflix posted earnings per share of 13 cents on revenues of $945 million. Both handily beat consensus estimates, which called for a loss off 13 cents per share and revenues of only $934 million.

But one of the most important items for investors to note from the earnings release was that Netflix added over 2 million new domestic subscribers (at $7.99 per month) in the fourth quarter. In all, NFLX ended the year with 25.47 million paid subscribers – well ahead of expectations.

As a result, the company's is up 66% in eight trading days. The rocketing share price has pushed its trailing 12-month P/E up to 578 and the forward P/E to 60.

Now ordinarily gaudy numbers like these would make me pass on a company like this as an investment – but "hold" on while I make a case for Netflix.

How to Invest in 2013 Without Losing Your Shirt

What a long, strange trip it has been. Roughly four years after falling to 6,600, the Dow pushed back above 14,000 last week.

Of course, you would think that such a climb would be cause for some euphoria. But reading the mail that comes into Money Morning each day leaves me with another impression entirely.

Judging from the comments, it's clear to me that investors are struggling at the moment with how to make sense of these markets. Worse, an overwhelming majority are now afraid that the rally will leave them behind.

The undercurrent is a familiar friend called fear, and it's cousin, confidence. Neither eliminates the need to grow their wealth.

So, what's an individual investor to do? How can you compete in today's brave new financial world?

I put those questions to Chief Investment Strategist Keith Fitz-Gerald last week and wasn't disappointed.

Point by point, Keith explained how retail investors can safely participate in these markets without losing their shirts.

It's embodied by his "Money Map Method," a proven strategy for building wealth in today's tough markets.

Here's what Keith had to say:

Robots Taking Jobs From Every Sector of the Economy

Robots taking jobs from manufacturing workers is a trend dating back decades, but rapidly advancing software has spread the threat of job-killing automation to nearly every occupation.

The technological advances, while helping businesses boost productivity dramatically, have cost the U.S. economy millions of jobs.

An investigation by the Associated Press found that most of the millions of jobs lost to the Great Recession did not migrate overseas, but simply disappeared – victims of smart robots and improvements to software that have made many jobs obsolete.

"The jobs that are going away aren't coming back," Andrew McAfee, principal research scientist at the Center for Digital Business at the Massachusetts Institute of Technology and co-author of "Race Against the Machine," told the Associated Press. "I have never seen a period where computers demonstrated as many skills and abilities as they have over the past seven years."

But while many have blamed the bulk of the job losses on the bad economy, the impact of automation on the U.S. workforce will just keep getting worse.

According to a story in Wired, 70% of the jobs that exist today will vanish by the end of the century.

"Everything that humans can do, a machine can do," Moshe Vardi, a computer scientist at Rice University, told the Associated Press. "Things are happening that look like science fiction."

Stock Market Today: Why a Pullback Isn't the Real End of a Rally

The stock market today (Monday) took a breather after a robust rally last week that left the Dow Jones Industrial Average just 155 points from its all-time high of 14,165.

In early afternoon trading Monday, the Dow gave back 125 points, the Standard & Poor's 500 Index shed 14, and the Nasdaq lost 38.

The pullback came on the heels of strong gains in January in which the Dow added 5.9%, marking the index's best performance for the first month of a year since 1994.

Most analysts remain bullish and aren't worried by Monday's declines, saying stocks were due for a temporary retraction and some profit-taking was in order.

"We should get a pullback. Markets have been on a tear and they have been on a tear for good, sound economic and earnings-driven reasons," Peter Kenny, managing director at Knight Capital in Jersey City, NJ told Reuters.

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