Category

Stocks

How to Bank Triple-Digit Gains During a Stock-Market Sell-Off

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

Monday's stock-market sell-off was a frightening affair that sunk 94% of the stocks listed on the New York Stock Exchange (NYSE). Every single stock in the Standard & Poor's 500 Index fell, and the 635-point freefall experienced by the Dow Jones Industrial Average was its sixth-largest point drop ever.

But in the face of this bloodbath, subscribers to Shah Gilani's Capital Wave Forecast were treated to gains of 456%, 455%, 371%, and 197% on four of their holdings.

Just how did Gilani manage to engineer four triple-digit gains in the face of a near-market meltdown?

He predicted reversals in both the U.S. and Chinese financial markets, employed a "put" option strategy for insurance – and then watched as his predictions came true.

"If I'm going to buy insurance, I want the best insurance at this price," said Gilani, a retired hedge-fund manager who is also a respected expert on the global financial crisis. "Part of a good cost-structure analysis is timing, which is tough. So I polished my crystal ball and said: ‘If something bad were to happen, when would that be?' I decided August, and chose some lesser-expensive puts."

Gilani's plan paid off with these four winners:

  • A 455.56% gain from Goldman Sachs October 2011 $85 Puts (GS111022P00085000), bought June 3 for 45 cents and sold Aug. 9 for $2.50.
  • A 455.24% gain from SPY August 2011 $115 Puts (SPY110820P00115000), bought for $1.05 on June 10 and sold Aug. 8 for $5.83.
  • A 371.26% gain from FXI $40 August 2011 Puts (FXI110820P00040000), bought May 10 for 87 cents and sold Aug. 8 at $4.10.
  • And a 196.72% gain from QQQ August 2011 $50 Puts (QQQ110820P00050000), bought June 10 for 61 cents, and sold Aug. 8 for $1.81.

"The days of putting together a portfolio and sleeping on it are over," said Gilani. "You could wake up to its value cut in half. Vigilance is the order of the day."

To continue reading, please click here...

Buy, Sell or Hold: Now's Not the Time to Connect to LinkedIn Corp. (NYSE: LNKD)

By , Money Morning - • Print | Email

Linkedin Corp. (NYSE: LNKD) made a lot of headlines this summer with one of the most successful initial public offerings (IPOs) since the dotcom bubble.

However, that IPO has left the company slightly overvalued. At current levels LinkedIn has a market cap of almost $10 billion and is trading at more than 30-times 2010 sales. And while the company has guided third-quarter and full-year revenue higher, it also has warned that it won't be profitable in 2011.

That's not to say LinkedIn doesn't have some real advantages – it does. The company has performed very well in some areas and operates in an attractive niche. But it's also facing some serious headwinds that include market saturation, pressure from short-sellers, and low revenue expectations.

For those reasons, LinkedIn is a "Hold" – at least until its share price more closely aligns with its fundamentals.

A Closer Look at LinkedIn

Let's look at the positives first.

LinkedIn has $106 million in cash and no debt. The company's second-quarter revenue more than doubled from last year to $121 million. Revenue from marketing solutions surged 111% to $38.6 million, and sales of premium subscriptions increased by 60% to $23.9 million.

These results are no fluke. As a social network focused on professionals, LinkedIn is a valuable resource for unemployed workers – and there are a lot of people looking for jobs right now.

To continue reading, please click here.

Telecom Corp. of New Zealand (NYSE ADR: NZT) is a Dividend Trap

By , Money Morning - • Print | Email

Telecom Corp. of New Zealand (NYSE ADR: NZT) is the classic example of a dividend trap. The stock has a hefty payout and it's been on a tear over the past year – but if you dig a little deeper, it's easy to see that the company's fundamentals are deteriorating.

That means you can't rely on its payout anymore than you can rely on Greek bonds.

This makes Telecom Corp. of New Zealand a "Hold" – at least until a needed pullback gives investors a chance to add more shares.

No doubt, uncertainty is the operative word in developed markets. The debt-ceiling debate in Washington came to an unsatisfactory conclusion that did little to alleviate the U.S. debt burden. Meanwhile, the bail out of the bail out of Greece has left Western investors with virtually no European alternatives for fixed-income investments.

That's why I've been looking around the world for higher-yielding, lower-risk investments. Truly, the yields on some stocks these days actually remind me of the old bond yields of yesteryear.

And at first glance New Zealand Telecom looks like it fits the bill. The stock has a forward annual dividend yield of 4.1%, and it's up 50% in the past year – compared to an 11% increase for the Standard & Poor's 500 Index.

But in this case, a closer look at the company reveals the following:

  • New Zealand Telecom's earnings are on the decline.
  • The stock's dividend was recently cut.
  • And it has a negative payout ratio.

To continue reading, please click here...

The Real Reason for Yesterday’s Stock-Market Sell-Off

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW - • Print | Email

On Aug. 11, 2010, the Dow Jones Industrial Average plunged 265 points, or 2.5%.

This Tuesday – almost exactly one year later – the Dow dropped … 265 points.

Those carbon-copy stock-market sell-offs weren't a coincidence. – as yesterday's (Thursday's) 512-point drop and further weakness will prove.

Although the Dow is more than 700 points higher than it was at this time a year ago, U.S. stock prices are currently following virtually the same trading pattern that they did in 2010: Last year and again so far this year the early-year gains came to a halt in May, and the markets then fell through August.

But here's where the story gets scary.

Last year, the U.S. Federal Reserve halted the stock market's summer swoon by opting for a second round of quantitative easing – an initiative most of us refer to as "QE2."

A year later, even after a week heavy with stock-market sell-offs, there's no guarantee we'll see another Fed rescue mission. And this time around, without a massive injection of quantitative easing – the much-ballyhooed QE3 – it could finally be all over for the stock market.

Where the Stimulus Really Went

Stocks have endured a real beating in recent days – yesterday's stock market sell-off was the worst one-day plunge in U.S. stock prices since December 2008.

When the Dow plunged 265 points on Tuesday, it was because of an unexpectedly large drop in the Institute for Supply Management's (ISM) Purchasing Manager's Index (PMI). The 265-point August 2010 sell-off was precipitated by the U.S. Federal Reserve's negative outlook on the American economy.

But both the August sell-offs were preceded by strong run-ups in stock prices. Those run-ups weren't sparked by an improved economic outlook – which is how it usually works.

Instead, the bull market that powered U.S. stocks off their March 2009 bear-market lows was the result of the massive monetary stimulus put in place by Washington and the U.S. Federal Reserve.

The U.S. monetary stimulus – billions of dollars worth- went into banks and other financial institutions – and not into the economy.

That's why stocks have benefited – even in the face of an economy in which growth has been lackluster, if not downright flat.

To continue reading, please click here…

Read More…

Preserve Your Wealth with these Large-Cap Dividend Stocks

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

Congressional leaders yesterday (Tuesday) finally settled on a debt deal, but the ineffective compromise is not enough to prevent a blow to the U.S. markets and the dollar – meaning it's time to preserve your wealth with large-cap dividend stocks.

While the coming period of market uncertainty could be a great opportunity for rational investors to explore newly created investing options, there must also be a focus on wealth preservation.

To that end, Money Morning Contributing Editor Shah Gilani joined FoxBusiness' "Varney & Co." programTuesday to explain why the debt-ceiling deal's weakness makes defensive investing with large-cap dividend stocks imperative.

"The sideshow may be over, but there's no agreement on paring down our debt," said Gilani. "The problem isn't going to be fixed by just cutting spending."

Indeed, investors remain exposed to the fragile U.S. economy and volatile financial markets.

"To be safe in these uncertain times I like a simple well-rounded and ‘tight' portfolio," said Gilani. "I like the new stuff, but in times like these I also like to be defensive – better safe than sorry."

To continue reading, click here...

Helicopter Ben is at It Again: Four Ways to Protect Yourself From the Fed’s Next Flyover

By , Money Morning - • Print | Email

The circus known as the debt-ceiling debate may have left town – at least for the time being – but there's still one sad clown left standing squarely in the center of the ring.

I'm talking about U.S. Federal Reserve Chairman Ben S. Bernanke – otherwise known as "Helicopter Ben."

Bernanke got the nickname "Helicopter Ben" from a speech in 2002, in which he announced that deflation was a real worry (this was just when house prices were taking off) and that one possible solution would be to fly around the country dropping $100 bills from helicopters.

Strange as it sounds, that might actually have been a better approach than the one he ended up taking.

Attack From the Sky

Small towns in the Midwest and the working poor of such downtrodden urban environments as Cleveland and Detroit could certainly use a visit from the kindly flying Santa Claus. At least those Americans would have put the money to good use.

But so far, Bernanke's helicopter has only hovered over Wall Street, and his generosity has had a negative effect on the U.S. economy as a result.

His first two rounds of quantitative easing had three major consequences:

  • Higher inflation.
  • Higher unemployment.
  • And higher borrowing costs for average Americans.

In fact, the only thing Bernanke's policies have managed to suppress is economic growth.

U.S. gross domestic product (GDP) increased by just 1.3% in the second quarter – an indication that an already wobbly economic recovery could tip completely over in the second half of the year.

But if you think that means we'll get a reprieve from Helicopter Ben's razor-sharp rotors, you're wrong. To the contrary, he's gearing up for another flyover – a third round of Treasury purchases (QE3).

To continue reading, please click here...

Coin Seigniorage: One Solution to Debt Ceiling

By , Money Morning - • Print | Email

Global Economic Intersection article of the week

The debt limit crisis is upon us. Treasury Secretary Geithner says the U.S. Government will not be able to meet all its obligations on August 3, unless the debt ceiling is increased by Congress. The Secretary says he is out of moves to extend this date. I don't think that's true. I think he can use proof platinum coin seigniorage to supply all the money needed to spend Congressional Appropriations. I do not know if the Administration knows about this idea yet. It may, and it may simply have been unwilling to mention it for its own reasons. But just in case it doesn't know, and also for the sake of the rest of us, I'm making another attempt to state the case for using coin seigniorage, so that as many people as possible know that the President has an alternative to the "shock doctrine", make a deal approach to cutting essential spending and services including the social safety net, in return for getting $2.6 Trillion more in debt issuance authority.

Read More…

Sturm, Ruger & Co. Inc. (NYSE: RGR) Hitting the Bull's-Eye

By , Money Morning - • Print | Email

Sturm, Ruger & Co. Inc. (NYSE: RGR) designs and manufactures firearms in the United States. Ruger, as it's known in the industry, produces retail firearms.

Ruger sales represent an investment in personal security, entertainment, and an investment in the capacity to bring home meat from hunting.

That makes the company a great "tell" on the psychology of Main Street.

Ruger has just released second-quarter earnings, and it is no surprise that the stock is regularly setting 52-week highs. The company is hitting the bull's-eye with its top-line internal growth and bottom-line results.
So it's time to buy Sturm, Ruger & Co. Inc. (**) – as fear and uncertainty continue to roil the economy and stock market.

Targeted Execution

A quick look at the company reveals that Sturm, Ruger & Co. Inc.:

  • Has no debt.
  • Is regularly raising its dividend.
  • Is actively buying back shares, with more purchases to come.
  • Has a large short position to be squeezed.
  • And offers a viable takeover target.

To continue reading, click here.

The Debt-Ceiling-Debacle: The Surprising Way a Default or Downgrade Could Crush the Global Economy

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW - • Print | Email

If there's a "worst-case scenario" for this whole debt-ceiling debacle, this is it.

After studying everything that could happen due to a downgrade of the United States' top-tier AAA credit rating, and the potential default on its debt, we found a scenario that would result in forced asset sales that are so widespread that global stock-and-bond markets would plunge – and economies around the world would crash.

Tangible evidence that this frightening scenario could really play out surfaced on Monday, when the Chicago Mercantile Exchange (CME) announced it was increasing the "haircut" that it applies to U.S. government debt posted as collateral by traders transacting on the exchange.

The retail investors who didn't just ignore this announcement altogether probably dismissed it as a boring bit of administrative housekeeping by the CME. In truth, however, this kind of re-evaluation of U.S. Treasury securities, widely used as loan collateral, could trigger global margin calls and widespread asset sales. If that occurs, it's only a matter of time before the ripple effects of escalating margin calls could weigh down asset prices around the world.

Let's take a look at how and why this could happen.

The "Haircut" Nobody Wants

Because U.S. Treasury bills, notes, and bonds are considered "risk-free" they are every lender's preferred collateral class.

All of America's too-big-to-fail banks, major securities broker-dealers and giant hedge funds – and most of the world's biggest financial institutions – hold hundreds of billions of dollars of U.S. Treasuries that they use as collateral to borrow in the overnight and term "repo" market.

Traders use their U.S. Treasury securities to borrow more money to buy still more Treasuries, as well as other more-speculative securities. The intention is to leverage the capital they have by borrowing against balance-sheet assets to take on bigger positions.

But what happens if there's no debt-ceiling deal by Tuesday – the theoretical day after which the country won't be able to pay its bills?

The actual answer to that question may not matter as much as the uncertainty that's been created. In fact, even with a deal – meaning there's no default – it's likely the United States is facing a reduction in its top-tier AAA credit rating.

To continue reading, please click here …

Read More…