Archives for July 2013

July 2013 - Page 5 of 18 - Money Morning - Only the News You Can Profit From

Peter Thiel's Solution to the Student Loan Bubble Makes a Lot of Sense


Peter Thiel, Co-Founder of PayPal

"Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the '90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned – you had to own a house in 2005, and you had to be in an equity-market index fund in 1999." ~ Peter Thiel on higher education for NRO.

Peter Thiel is a highly successful entrepreneur, venture capitalist, hedge fund manager, and perhaps most notably co-founder of Internet giant PayPal.

He is also a staunch libertarian, and anything but meek about sharing his philosophic point of view.

When it comes to higher education in America today, Thiel is less than impressed:

"It's basically extremely overpriced. People are not getting their money's worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there's this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that's what everybody's doing."

Like Thiel, we at Money Morning believe that America has been swallowed by a student loan bubble.

We've given you the numbers. We've discussed its uncanny similarity to subprime. We even tracked one student's epic journey to discharge his student loan debt.

And, like Thiel, we've thought up some reasonable alternatives to the blind pursuit of higher education.

For instance, we suggested starting a business. There is something about real-world experience that can't be replicated in higher education right now.

Just look at the commentary by some of the business elite.

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Goldman Sachs' "Warehouse Shuffle" Just Cost You $5 Billion

It's just another game for Goldman Sachs Group (NYSE: GS) – a "warehouse shuffle" that moves aluminum around while the big bank collects rent on the metal.

Although the rent on the stored aluminum – Goldman isn't allowed to actually own the commodity – is just pennies a day, the vast amount of the metal it has stored in its 27 Detroit warehouses and the "warehouse shuffle" strategy that enables it to extend the rental period for months on end adds up.

Through the Metro International Trade Services subsidiary it bought in 2010, Goldman has accumulated 1.4 million tons of aluminum, which it stores at about 48 cents per ton per day. That's about $672,000 per day of revenue – nearly half a billion a year.

Experts say the warehouse shuffle game ultimately raises the price of aluminum to manufacturers – everything from beer and soda companies to automakers. That extra cost, about $5 billion over the past three years, is passed on to consumers – you and me.

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Facebook (Nasdaq: FB) Earnings: It's All About Mobile

One of the most closely watched earnings reports comes after the close Wednesday when Facebook Inc. (Nasdaq: FB) earnings for the second quarter are released.

Wall Street analysts expect the company to post earnings of $0.14 per share on revenue of $1.62 billion, up from $0.12 per share on $1.18 billion in revenue from the same quarter a year ago.

After scouring the numbers, the key question will be how well the company is monetizing its massive mobile user base.

Why Gold Mining Stocks are a Buy Now

We were all shocked by the sudden, untimely death of James Gandolfini. Gandolfini was an immensely gifted actor who changed the face of television entertainment in the role of Anthony "Tony" Soprano, a deeply troubled gangster-in-therapy, who had to balance obligations to his family… and his Family.

By all accounts, James Gandolfini was generous and kind to family and friends alike. It has been reported that he left a large legacy, in excess of $70 million, to be divided between them. His net worth is an estimate, and his asset inventory hasn't yet been disclosed, but he did alright for a middle class kid from North Jersey.

Sadly, however, his nearest and dearest won't see anywhere near the full amount he left behind.

After 32 Years this Bull is Officially Dead

It's been quite a year so far for income hunters, and there's no doubt there will be even more excitement as we near 2014.

There's no doubt U.S. stock investors have done well this year; the broad market Standard and Poor's Index is up 18% as I write.

But for bond investors, it's safe to say the long bond bull market that began in 1981 has ended.

And when a bull with that size tail comes to an end, there are significant consequences for all investors.

Ten-year Treasury bond yields are up from 1.76% to 2.53%. On that basis, by the end of the year, if market behavior repeats itself, 10-year Treasuries could be yielding 3.30%. That has important implications for the U.S. economy, for the Fed and for investors in every sector, in almost every country.

But this bond market bonanza's end isn't a shocking development.

Death Tax Woes: Don't Make the Same Mistake Tony Soprano Did

We were all shocked by the sudden, untimely death of James Gandolfini. Gandolfini was an immensely gifted actor who changed the face of television entertainment in the role of Anthony "Tony" Soprano, a deeply troubled gangster-in-therapy, who had to balance obligations to his family… and his Family.

By all accounts, James Gandolfini was generous and kind to family and friends alike. It has been reported that he left a large legacy, in excess of $70 million, to be divided between them. His net worth is an estimate, and his asset inventory hasn't yet been disclosed, but he did alright for a middle class kid from North Jersey.

Sadly, however, his nearest and dearest won't see anywhere near the full amount he left behind.

It turns out that James Gandolfini was generous – to a fault. His wish was that his legacy, in the form of real estate and other assets in the United States and Italy, be distributed in large chunks, the largest in a trust for his 13-year old son, Michael and 8-month old daughter, Liliana. His widow, Deborah Lin, is set to receive 20% of his estate. The will stipulates that the shares to be doled out after taxes.

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Why Companies Aren't Hiring Now

The stock market was rattled on Tuesday by underperforming manufacturing data.

The Richmond Federal Reserve Index, which measures manufacturing performance in the upper Southeast and mid-Atlantic regions, fell to -11 in July, down from a 7 in June. This signals a significant drop in new orders and shipments.

This comes just a week after the Philadelphia Federal Reserve Index reached a two-year high, which had rallied the market. Such a drastic swing in confidence in the manufacturing sector suggests that uncertainty will stretch into the late summer.

The data comes at a pivotal time for the Obama administration. For the eleventh time in his presidency (by ABC News' count), Obama announced that he will pivot back to the economy in an effort to create jobs, with a strong emphasis on U.S. manufacturing.

Even though the New York Stock Exchange (NYSE) recently touched all-time highs, American companies are reluctant to hire, particularly with greater uncertainty on the horizon. Perhaps if the President wishes to create new jobs, the administration should address the primary reasons why companies are not hiring in ways that would reflect strong economic growth, as the markets falsely reflect.

Here are five reasons why companies are not hiring right now.

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Eight New Cities on the Verge of Bankruptcy

Detroit is the largest municipal default in the history of the US.
The city owes $9.2 billion in pensions, $1.9 billion to creditors and is $18.5 billion in debt.

The city's infrastructure is collapsing. Almost half of its streetlights are not working and aren't being repaired.

The average time for Detroit police to respond to an emergency is just under an hour. Crime has spiked. Many in the city have resorted to carrying firearms for their personal protection.

The city bankruptcy epidemic is likely to spread around the country, resulting from years of overspending on wages and pensions in order to keep public employee unions happy and city politicians re-elected.

We take a look at 8 U.S. cities on the verge of bankruptcy:

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