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Stocks

Is the Soaring Stock Market Hiding a Darker Truth?

By , Executive Editor, Money Morning - • Print | Email

In my role as executive editor, I subscribe to dozens of newsletters, wire services, trade journals and news-bulletins. They roll into my e-mail box each day like an eight-hour-long avalanche.

Usually, I just open the ones that happen to catch my eye. One was this recent headline from a MarketWatch.com bulletin that said, "Dow closes at highest level since December 2007."

My first thought was that the bulletin should have said: "Dow closes at highest level since December 2007 – despite faltering economy, stubborn unemployment, accelerating inflation and the highest level of uncertainty we've seen in decades."

I guess they couldn't fit all that into the subject line box.

My second thought was that Martin Hutchinson was right – again.

You see, for the last couple of years the administration in Washington and the so-called experts on Wall Street have repeatedly told us that inflation isn't a problem. They continue to insist that the bailout plans and easy-credit policies that were used to end the financial crisis have yet to ignite the rise in prices that you and I refer to as "inflation."

However, in the Aug. 21 Private Briefing, Martin completely dismissed this Pollyanna point of view. There is inflation, he said. In fact, it's staring us right in the face – as a soaring stock market.

According to Martin, the "Real Dow" should be much lower.

Another Stock Market Bubble

With so much economic uncertainty – read that to mean, so much "risk" – there's no way stocks should be zooming like this, Martin said. The fact that they are is proof of a cheap-money-fueled "asset bubble" – a form of inflation, he explained.

The Permanent Wealth Investor editor also predicted that U.S. stock prices would continue their advance – especially if the U.S. Federal Reserve appeared willing to add additional stimulus.

And as the MarketWatch.com bulletin illustrated, that's precisely what happened.

Here's the thing: Now that "QE Forever" has arrived, this inflationary surge is about to get much, much worse.

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Apple iPhone 5 Now a Golden Goose for Verizon and AT&T

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

Since the debut of the iPhone in 2007, the profit parade has mostly been a one-way street – but after five years, the major wireless carriers finally figured out how to make money with the Apple iPhone 5.

That means another way for you to make money from the iPhone 5, without having to buy Apple Inc. (Nasdaq: AAPL) stock.

Apple has raked in billions while first AT&T Inc. (NYSE: T), and later Verizon Communications Inc. (NYSE: VZ), and Sprint Nextel Corp. (NYSE: S), had their margins slammed by the huge subsidies they sent to Cupertino.

But evolving consumer habits and the Apple iPhone 5's addition of LTE network technology will soon change that in a big way.

The carriers are hoping the much higher data transfer speeds of LTE – approximately 10 times faster than 3G – will coax iPhone 5 owners to use more data-heavy functions, particularly video.

"With these great networks coming on, [data] usage is going to go up. Revenues will go up," AT&T Chief Financial Officer John Stephens said at recent media and communications conference.

While the carriers will still have to fork over the same fat subsidies to Apple they always have, the new data equation means they'll make the money back much more quickly. And that will translate into bigger profits.

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The Best Place to Look For Income Today

By , Money Morning - • Print | Email

It's a good rule of thumb: when stocks yield more than bonds, stocks are the better buy because of the potential for growth.

Believe it or not, before the financial crisis in 2008 that was hardly the case. Going all the way back to 1958, bond yields always outpaced those of stocks.

But thanks to Ben Bernanke and friends, bond yields have been driven into the basement. What's more, the central banks of the world are doing everything in the power to keep them there.

That's why investors are increasingly turning to exchange-traded funds that specialize in dividend stocks as vehicles for income.

This makes good sense for a couple of reasons. First, bond markets aren't very transparent, which makes bond prices difficult to come by, so ordinary investors get ripped off if they buy corporate bonds directly.

Second, in today's markets you will do better in a high-dividend stock ETF–especially one with an international portfolio, than you will in a bond ETF.

Let me show you why that is…

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The Holy Grail of Neuroscience is Getting Closer All the Time

By , Defense + Tech Specialist, Money Morning • @Robinson_STI - • Print | Email

Our knowledge of the human brain is improving even faster than I thought.

Just last month, I told you about five new brain secrets you needed to know about. What amazes me is that in just a few weeks, top researchers have announced several major new findings.

Taken together, these latest advances mean we are getting much closer to the day when we will achieve the Holy Grail of neuroscience – complete knowledge of how the brain really works.

That's key because many of our worst diseases target the brain. Of course, I'm talking about dreaded ailments like Alzheimer's and Parkinson's. But the list also includes inoperable tumors as well as chemical imbalances that could be a major cause of mood swings and drug addiction.

I spend a lot of time reading about brain research for a very good reason. As I see it, the goal is to have a complete map of this highly complex organ. To do so, we need to know how every single brain cell works.

Some experts even foresee the day when we will reverse-engineer the entire brain. Doing that would allow us to create artificial intelligence systems that would be as smart as humans but less prone to their downsides – like anger, drinking binges, and the effects of stress.

I believe the brain ranks at the top of key breakthroughs that make the Era of Radical Change so exciting. Solving the brain puzzle we will rid mankind of many cruel diseases while making our physical world smarter and more in tune with the way our minds work.

Here is a look at three new breakthroughs pushing the limits of neuroscience.

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What Wall Street Will Never Tell You About Stock Buybacks

By , Money Morning - • Print | Email

Every time I hear a Wall Street analyst extolling the virtues of stock buybacks I just want to scream.

"Don't fall for the flim-flam," I think to myself, "demand the cash instead!"

That's why my Permanent Wealth Investor service focuses on the kinds of dividends you can actually hold in your hand. For me, cash is king.

Anything else is simply a magician's trick. It's a sleight of hand designed to make you think you're getting something when you really aren't.

Share repurchases or buybacks are the perfect example.

Behind the wondrous façade, stock buybacks are just a means for management to enrich themselves. The truth is buybacks are positively damaging to the interests of ordinary shareholders.

The Ruinous Truth Behind Apple's Stock Buyback

Take Apple Inc. (Nasdaq: AAPL), for instance. It's the stock everybody loves these days.

This $653 billion company recently announced a $10 billion stock buyback over three years, beginning October 1. Naturally, shareholders cheered, believing the buyback would boost the share price.

But consider this: Apple is buying back shares at several times book value, so the buyback will actually dilute Apple's book value per share.

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All Signs Now Point to Gold

By , Money Morning - • Print | Email

With another syringe of quantitative easing being injected into the U.S. economy's bloodstream, Ben Bernanke is giving the markets their liquidity fix.

The Federal Reserve's action reaffirmed the stance I've reiterated on several occasions that the governments across developed markets have no fiscal discipline, opting for ultra-easy monetary policies to stimulate growth instead.
The government's liquidity shot promptly boosted gold prices and gold stocks, as investors sought the protection of the precious metal as a real store of value.

In fact, since the beginning of 1984, as money supply has risen, so has the price of gold.

The dollar declined due to the Fed's easing, which isn't surprising, given the fact that gold and the greenback are often inversely correlated, and increasing money supply generally causes the currency to fall in value.

What's interesting is that currency decline was what Richard Nixon sought to avoid when he ended the gold standard in 1971 and announced that the country would no longer redeem its currency in gold.

During his televised speech to the American public, Nixon translated in simple terms the "bugaboo" of devaluation, saying, "if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today."

As you can see below, more than 40 years later, a dollar is worth only 17 cents.

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The Best Dividend-Paying Stocks to Buy Now

By , Money Morning - • Print | Email

Some investors fail to realize that successful investing is a matter of continuous performance, not instantaneous performance.

That's why we like dividend-paying stocks.

Over time, dividends and reinvestment can account for 85%-90% of total stock market returns.

In some cases, the dividends are so steady and increase so much that you actually make more in dividends than you paid to buy the stocks that produce them.

And as inflation concerns grow following QE3, investors need to make sure they are protected.

Money Morning's Global Investing Strategist Martin Hutchinson says dividend-paying stocks offer that protection.

"Do you know what the ultimate investment protection is? It's not gold, and it's certainly not Treasuries. It's dividend stocks," said Hutchinson.

But before you go hunting for the best dividend-paying stocks, let's set some ground rules for evaluating which ones are most valuable.

First, a good cutoff is a stock with a yield close to 3%, preferably higher, and a payout ratio less than 60%. Any higher payout ratio would indicate that the company cannot sustain the dividends, manage debt and grow at the same time.

Second, look for companies that have price/earnings ratios less than 25 and a solid history of paying and increasing dividends.

This establishes a solid benchmark for dividend stocks and their fundamentals. Sometimes a dividend stock can look great because it has a 10% yield, but you have to look at the other numbers to decide if it's a worthy investment.

To avoid those high-yield traps, check out this list of some of the best dividend-paying stocks to buy right now.

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This is a "Problem" Every Investor Ought to Have

By , Executive Editor, Money Morning - • Print | Email

Believe it or not, holding a stock with massive 100%- plus gain creates something of a problem.

Now I admit that talking about a stock that has doubled may seem like a crazy topic in this market – especially given the wall of worries facing the global economy.

But here's the thing: even though Private Briefing is only a year old, three of our recommendations have already doubled in price – or more.

These big gainers include:

  • Galapagos NV (PINK ADR: GLPYY): This company was our very first pick on our very first day of publication. Since then the shares of this Belgium-based baby biotech have risen as much as 133%.
  • NQ Mobile Inc. (NYSE ADR: NQ): Shares of this cybersecurity play soared as much as 146% after we recommended it in our "Five Stocks for 2012" special report, before they settled back.
  • And Pharmacyclics Inc. (Nasdaq: PCYC): Shares of this cancer-treatment biotech have zoomed as much as 148% (including 111% in only 90 days after we picked it as one of our favorite biotech plays). And Wall Street brokerages are only now sliding up their target prices to even higher levels.

Now clearly, this is a great "predicament" to be in. Even still, it begs the question: "What should I do when one of my stocks doubles in price?"

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When it Comes to QE3, Ben Should Have Tried the Helicopter

By , Money Morning - • Print | Email

At last Thursday's Fed meeting, Ben Bernanke finally played his last card.

With an open-ended promise to buy $40 billion a month in agency-guaranteed mortgage bonds, the Fed Chief turned QE3 into a much larger gift called "QE Infinity."

But the truth is he would have been better off if he had tried the helicopter.

For those who forget the reference, Ben's first foray into national fame came in November 2002, when he delivered his famous "helicopter speech" at the National Economists Club in a Washington, DC Chinese restaurant.

Little did I know that day that I was about to witness history as Bernanke said the risk of deflation was so great that the Fed should drop interest rates to zero and consider using further measures — such as dropping $100 bills from helicopters — to "stimulate" the economy.

Of course, I blotted my Fed copybook for the next decade by asking a snotty question since I objected to his central premise that the risk of deflation was either imminent or would be disastrous when it happened.

The idea that deflation was imminent at the time was simply ridiculous. Consumer price inflation, on official BLS statistics which consistently understate it by about 1%, was 2.5% in 2002, 2.0% in 2003 and 3.3% in 2004.

Even then, Bernanke's economics weren't that well connected with reality.

The Problem with QE1…QE2…QE3 and QE Forever

The reality today is that it just doesn't work.

Bernanke's various "quantitative easing" policies have benefited primarily Wall Street; the mechanism by which they have fed through to the real economy is at best very indirect.

Currently for example, the Fed is now set to buy a total of $85 billion a month in long-term bonds, through the new mortgage bond purchases as well as the remains of his "Operation Twist" strategy.

This is supposed to lower interest rates, which in turn is supposed to support the housing market and produce jobs.

However the principal effect of all this Fed activity is to support stock prices, commodity prices and other asset prices. That's why gold prices went on a tear after QE3 was announced, while interest rates have actually risen.

Traders have seen the limit of what the Fed can do to support the bond market and have begun to wonder whether the Fed's activities will bring inflation. The question is what will happen to the bond market once Fed purchases slow. If the Fed's efforts burst the bond bubble, $85 billion a month is nowhere near enough to begin to reflate it.

Meanwhile, in the real economy-the one where you and I live– not much changes.

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If You're Worried About Stock Market Crash 2013, Buy These

By , Money Morning - • Print | Email

The market has surged in recent action, but these gains haven't eradicated the chances of a stock market crash in 2013.

Global markets are up on news that central banks will deliver more stimulus measures, such as QE3 in the United States.

Even though stimulus measures trigger market rallies, they're actually admissions that economies are so weak they need government assistance.

As Federal Reserve Chairman Ben Bernanke recently stated, the economic conditions in the United States, particularly high unemployment, should be of "grave concern" to all.

Legendary investor Jim Rogers declared in an interview that, "In America, we have had recessions every 4 to 6 years at the beginning of the republic. 2013 is going to be a mess. It always has been, there's no reason it won't be this time too. Be careful…"

In order to heed Rogers' warning, investors should consider adding the following stocks to their portfolios.