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Money Morning Mailbag: U.S. Credit-Rating Agency Fights Back to China's Attacks

Last week, the credit rating feud between Standard & Poor's Financial Services LLC and the Chinese firm Dagong Global Credit Rating Co. Ltd – which Money Morning Contributing Editor Martin Hutchinson examined late last month – heated up.

Harold "Terry" McGraw III, chairman and chief executive of S&P said that companies like Dagong joined up with politicians and other countries to unfairly attack U.S. ratings firms.

"If you're in a populist mood, you've got to find the villain," McGraw told the Financial Times in an interview in Beijing.

McGraw referred to comments made to the Financial Times in July by Guan Jianzhong, the chairman of Dagong.

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Whitacre Resigns, but Is GM Really Ready to Roll On with its IPO?

Whether it's because the company is ready to again stand on its own two feet, or because of undue political pressure, General Motors Co. looks to be preparing an initial public offering (IPO) that would repay billions to taxpayers who own a majority stake in the company.

The company yesterday (Thursday) reported a 44% increase in net profit and announced that Chief Executive Officer Ed Whitacre would step down from his post on Sept. 1.

Whitacre, who was named GM's chairman last year as the company emerged from bankruptcy protection, will be replaced by GM board member Daniel Akerson. Akerson has little experience in the automobile industry, but he boasts a solid track record of leading telecommunications companies.

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An Anemic Economic Recovery Keeps the Fed From Focusing on Inflation

With interest rates near zero and a balance sheet that's in excess of $2 trillion, U.S. Federal Reserve Chairman Ben Bernanke would be very glad to offload some of the Fed's obligations. But so far he's has been unable to do so, as an anemic economic recovery continues to monopolize his attention.

The central bank yesterday (Tuesday) announced that it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasuries. The move should help a weakening economy by keeping mortgage rates low. And while it also may boost inflationary pressures, the central bank feels it had little choice.

"Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months," the Federal Open Market Committee said.

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A Tale of Two Investments: U.S. Steel Scenario Illustrates the Power of Dollar-Cost-Averaging

To understand the potential defensive-investing benefits of dollar-cost averaging, let's take a look at two scenarios involving United States Steel Corp. (NYSE: X).

Thanks to the general downtrend in the market, the May 6 "flash crash," and the rapid subsequent rebound, U.S. Steel shares fell from a 52-week high of $70.95 on April 6 to just $52.81 at the market close on Friday, May 14.

Indications of some new life in the construction sector and an uptick in autos would seem to indicate that steel demand could rise – which would be especially good for U.S. Steel, which supplies both businesses.

You've got $10,000 to work with.

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Will the Fed Opt For More Stimulus as the Economic Recovery Founders?

Weaker-than-expected job growth is fueling speculation that the Federal Open Market Committee (FOMC) will unveil new stimulus measures to prop up the economic recovery when it meets today (Tuesday) for its regular rate-setting session.

Friday's July unemployment report was by most measures a disaster, providing the latest indication the economic recovery is running out of steam with 14.6 million Americans still searching for work.

The economy shed 131,000 jobs, as 143,000 temporary census workers fell off federal payrolls. Private-sector employment grew by 71,000 in July after a downwardly revised June increase of 31,000 workers.

The private sector so far this year has added 90,000 jobs a month on average, well below the 125,000 needed to keep up with population growth – let alone recover the eight million jobs lost during the recession.

"It's a double whammy because it causes people to take a psychological step back," Tig Gilliam, chief executive of staffing firm Adecco Group North America, told The Wall Street Journal. "Now, it looks like not only has the economy slowed, but maybe it wasn't as good when it was originally reported as we thought."

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With Mid-Term Elections Looming, Will Democrats Fire Back with a Second Stimulus

Data last week showed a job market that's careening down a steep street with no breaks. Yet investors were able to shrug off employment concerns, as the stock market actually ended the week up 1.5% due to that rockin' Monday on the first day of the month.

That's because there is growing speculation that the Democrats are plotting a surprise stimulus in the run up to November's mid-term elections.

Let me explain…


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Strong Second-Quarter Earnings Can't Keep the Bears at Bay

The second-quarter earnings season has gotten off to a strong start, but it's been no match for bears who are less than thrilled with future earnings prospects.

More than half of the companies on the Standard & Poor's 500 Index have reported second-quarter earnings results. And so far, they've been strong, with two-thirds of those companies beating earnings estimates, three-fifths beating on sales and almost half beating on both earnings and sales. 

As a result, the consensus second-quarter earnings per share estimate has climbed to $20.63 from $19.60 at the beginning of the month. Merrill Lynch analysts expect final second-quarter earnings per share to come in at $20.75 – a 5% sequential improvement from the first quarter.

That would be a deceleration from the 15% sequential growth seen between the fourth quarter of 2009 and the first quarter of 2010, but it's good growth nonetheless. In fact, it puts 2010 S&P 500 earnings at about $83 per share. And at current prices, that gives the market a price-to-earnings multiple of just 13.3-times – below the long-term historical average of 15. 

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It's Time to Keep America From Becoming Just Another Banana Republic

The great American tradition of individualism, entrepreneurship and revolution is being systematically undermined by a cadre of financial strongmen bent on turning us into just another "banana republic" – where a subdued and apathetic population is subjugated by a ruling class of wealthy oligarchs.

The gross irony is that the same capitalist system that molded America into the strongest, most productive and richest nation in history, has been transformed into a mostly private moneymaking enterprise whose beneficiaries are those who actually produce nothing but paper profits.

The story of America's transformation from great experiment to another banana republic is one in which economic crises were manipulated to create a political front for an elite banking class.

It's a story that's worth examining…

To find out why America is headed for banana-republic status, please read on...

Barnes & Noble Sale Won't Rid the Retailer of its Woes

Barnes & Noble Inc. (NYSE: BKS) announced late Tuesday that it would put itself up for sale. But even with its recent struggles analysts aren't sure of what the company hopes to accomplish.

"There are companies that do this because they have to and there are companies that do this because they have impatient shareholders and I'm not sure what's driving this kind of statement," Michael Norris, a senior analyst at Simba Information, told The Associated Press. "It just seems daft."

The company's board said that it believed Barnes & Noble stock was "significantly undervalued" and that it had established a special committee to review its options.

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Slight Job Gains Won't Shrink the High Unemployment Rate

Employment reports released this week show mixed results, but lead to the same conclusion: The high unemployment rate isn't improving any time soon.

U.S. private-sector jobs last month grew by only 42,000, according to a report issued yesterday (Wednesday) by payrolls processor Automatic Data Processing, Inc. (Nasdaq: ADP). ADP revised the number of jobs added in June to 19,000 from 13,000, which fell far short of economists' predictions of 39,000.

The ADP report "shows continued weakness in the jobs market, which is in part caused by the uncertainty in the economy and general business climate," said Gary Butler, ADP's chief executive, in a statement. "American businesses are on the cusp of recovery, but more effective incentives are needed to encourage business investment resulting in the creation of more jobs."

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