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Stocks

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.

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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.

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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.

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Retail Currency Investing: The Three Secrets to Success

By , Money Morning - • Print | Email

In the global capital markets, the "forex" (foreign-exchange, or "FX") market is where the real action is.

It trades continuously – 24 hours a day – on weekdays. And it dwarfs the stock-and-bond markets.

Average daily turnover in the global forex markets is greater than $4 trillion. Daily trading volume at the New York Stock Exchange trades about $25 billion, meaning the world's FX market dwarfs the United States' single-biggest stock exchange.

Even the bond market – which includes the average-daily-trading volume of more than $800 billion in the U.S. portion – is eclipsed by its forex counterpart.

In fact, you could combine the daily trading volume from all the world's stock exchanges – and still not equal the daily activity in the worldwide FX market.

Even the bond market – which includes the average-daily-trading volume of more than $800 billion in the U.S. portion – is eclipsed by its forex counterpart.

But as a veteran of this market, it's the stories I get to hear firsthand that fascinate me the most. That's why I so enjoy speaking at the forex conferences that are held all around the world.

Take the last big currency event that we held, where I met a high-tech-firm CEO whom I'll refer to as "John."

When I met John, he was just about to sell his very prosperous business for a rather large sum of money – millions of dollars, in fact.

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OGX Petroleo e Gas Participacoes SA (PINK: OGXPY) Could Be the Next Exxon Mobile

By , Money Morning - • Print | Email

OGX Petróleo e Gás Participações SA (OTC PINK: OGXPY) is probably the biggest oil and gas company you've never heard of.

That's understandable, considering it has not yet produced a single barrel of commercial oil. But this Brazilian company could soon be on par with the likes of Exxon Mobil Corp. (NYSE: XOM), CNOOC Ltd. (NYSE ADR: CEO) and state-owned local rival Petroleo de Brasileiro SA (NYSE ADR: PBR).

Since its initial public offering (IPO) in 2008, OGX's resource base has more than doubled from 4.8 billion barrels of oil equivalent (boe) to 10.8 billion boe. It has drilled 52 wells in the last 20 months, with a success rate of over 90%, as it prepares for its first commercial production this fall.

OGX's first long-term well test is expected to produce about 20,000 barrels of oil a day starting this fall. And the company already has ordered the long lead items needed to ramp up production to 150,000 boe per day by 2014. From there, OGX is expected to ramp up its production to 1.4 million boe per day in 2019.

In simple terms, this oil and gas company is conducting the largest private sector exploratory campaign in the history of Brazil.

So it's time to buy Petróleo e Gás Participações S.A. (**).

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Second-Quarter Earnings Prove "Glocal" Companies are the Best Investments

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

The second-quarter earnings season has delivered some healthy activity, but the true standouts are the big U.S. companies that have learned to profit from emerging markets.

These are what Money Morning Chief Investment Strategist Keith Fitz-Gerald refers to as "glocal" companies – firms that have a global and local presence. And they offer investors a way to profit from emerging-market growth, while also safeguarding against turbulence at home.

Indeed, as U.S. debt issues continue to weaken the U.S. dollar, "glocal" companies are profiting from increased exports, selling to markets like China and India and their growing middle class.

So, let's look at some of the most promising prospects.

Earnings Season Shows Boost in Profit from Emerging Markets

So far this season, earnings at companies in the Standard & Poor's 500 Index are the highest they've been in four years, according to S&P analyst Howard Silverblatt. About 75% of companies that have reported have exceeded analysts' expectations, and many raised earnings' forecasts for the rest of the year.

Earnings per share are up 19% from a year earlier for the 122 S&P companies that reported earnings as of July 22. And much of the increase is from companies with strong exposure to emerging markets.

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Suntech Power Holdings (NYSE ADR: STP) Outshines Other Solar Cell Makers

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

Suntech Power Holdings Co. Ltd (NYSE: ADR STP) is the one company that's best-equipped to withstand the biggest challenge facing the solar cell industry – falling prices and squeezed margins.

Make no mistake: The solar sector has suffered of late.

Several stocks have shed as much as 20%, as a result of margin concerns and a drop-off in generous European government subsidies.

And Suntech has been no exception. It's fallen nearly 25% since April 1.

But China-based Suntech Power has advantages its rivals do not – and that makes it more of a bargain than a flop.

Surprisingly, that advantage is not low labor costs, which accounts for less than 4% of the cost of building solar cells, but rather technical advances in manufacturing.

For years Suntech has scouted out research, such as a two-decade-old project at Australia's University of New South Wales, which it has adapted to enhance its manufacturing process. Those efforts have increased efficiency and beefed up performance of the solar cells themselves.

"They were trying to commercialize [that technology] the entire time," Stuart Wenham, Suntech's Chief Technology Officer, told Technology Review. "It took Suntech to turn those laboratory processes into production processes."

One such process cut solar panel costs by 10% to 20%; another increased manufacturing efficiency by 10%.

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Money Morning's "Deadbeat States" Warning Hits Fed's Radar

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

Earlier this year, Money Morning Contributing Editor Martin Hutchinson advised muni-bond investors to beware the effects of "deadbeat states" – and now the U.S. government is heeding that warning.

The Federal Reserve Bank of Philadelphia this spring cited Martin Hutchinson in a recent regulatory publication, where it warned financial institutions about the looming danger in municipal bond investing.

"Martin Hutchinson, contributing editor to Money Morning, indicates that the problem facing the municipal bond market is the emergence of ‘deadbeat states,' citing the beating that state and local government finances have taken during this economic downturn in particular," wrote Philadelphia Fed Examiner Becky Goodwin in the Supervision, Regulation and Credit Department second-quarter newsletter. "Making matters worse, Hutchinson cites larger debt loads in states, which cannot be covered due to the reduced property tax stream resulting from record housing defaults."

At mid-year 2010, state budget shortfalls totaled $200 billion – the largest gap in recorded history, according to the Center on Budget and Policy Priorities. These shortfalls could trim to $103 billion by fiscal year 2012, but progress is likely to stall since states face fewer options to adequately address their budget issues.

Worse, the U.S. government will likely implement more spending cuts as it battles over the debt ceiling, which means states planning to turn to federal aid when they need extra funding will be turned away.

"States expecting Congress to authorize more assistance are going to be left with a very large hole to fill," said Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform.

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California Man Wins Inaugural "Predict the Dow" Contest ... With Help From a Surprising Source

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

Kenneth Alkire, a California man who's working as a Defense Department contract worker in the Middle East, is the winner of Money Morning's inaugural "Predict the Dow" contest.

Alkire, 60, predicted a second-quarter close of 12,414.27 for the Dow Jones Industrial Average – a stunning guess that was only seven-hundredths of a percentage point (0.07) away from the actual second-quarter adjusted close of 12,414.34. For this near-perfect guess, Alkire wins a top-of-the-line Apple Inc. (Nasdaq: AAPL) iPad2 (MSRP $829).

When posting his prediction on the "Predict the Dow" Website (www.PredictTheDow.com), the San Diego County resident said he believed U.S. stocks "would go up a little – and then down," and noted somewhat grimly that "it is not a pretty picture for the future with the debt ceiling rising."

In a telephone interview, Alkire's wife Diane – the family's actual investing aficionado – revealed that her husband's guess was more sentimental than scientific. He figured the market would go up in the near term, so he predicted a second-quarter Dow close north of 12,000. But he filled out the rest of his prediction in a manner that was intended to honor his late daughter, Nicole, who passed away in 2000, Diane said.

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Don't Miss Your Chance to Profit from the Best Coal Stocks

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

U.S. and European debt concerns have triggered some dismal market performances – but there is still one energy sector that's moving up.

And that's coal.

The Dow Jones U.S. Coal Index, which tracks 69 energy and coal-related companies, has climbed 60% in the past year and 13% in the past month.

So what's the key motivating factor moving the world's best coal stocks higher?

Simply put, it's a combination of shrinking supplies and rising demand.

Indeed, Coal prices are up more than 20% in the past year and many experts say increasing consumption from emerging economies like China – the world's biggest coal consumer – and India will push prices even higher.

China's rapid growth has been the main driver behind an average 3.8% annual increase in global coal demand since 2000. In fact, the country accounted for about half of the world's coal consumption in 2009. And a China Energy Research Institute report recently estimated that country's economic growth, urbanization, and rising middle class would increase coal demand by 700 million tons to 1 billion tons by 2020.

India's coal imports are expected to double to 100 million tons by 2012. And Japan also will boost demand attempts to rebound from the tragic March 11 earthquake and tsunami.

Growing demand isn't the only reason to believe prices will soar, either. Because as worldwide demand surges, global coal supplies are rapidly falling.

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