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Debt Crisis

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Take Profits – Then Take Cover

By , Global Credit Strategist, Money Morning • @MichaelELewitt -

2017 market crash

Investors should not be fooled by the strong performance of stocks last week. Fundamentals have not changed and still present major headwinds to a market recovery.

Oil ended the week at $29.64 per barrel (BTI crude), which is still too low to save struggling fracking companies from the junk heap. The junk bond market backed away from 10% yields but is still a disaster zone. And major hedge funds are still nursing double digit losses.

What we saw was a classic short-covering rally inside a bear market that has further to run. Readers should not let their guards down and let themselves get fooled into diving back into dangerous waters.

If they do, they will drown.

America Is About to Import a Global Debt Crisis

By , Associate Editor, Money Morning • @TaraKateClarke -

keyword: global debt crisis

A global debt crisis is coming. The warning signs have been emerging for months.

"This market instability is not going away. It's been building for six years. It can only end one way - with a 'Super Crash,'" Money Morning Global Credit Strategist Michael E. Lewitt told readers back on Sept. 8. "It's not just China that's creating this next (much worse) sell-off. It's also the massive, $200 trillion global debt bubble that's driving the world economy to its knees."

Now, it seems, major media outlets are finally catching on...

This week, an award-winning investigative journalist for Salon wrote a well-researched piece that concluded "trillions of dollars of investment in emerging markets has been fueled by cheap credit - and the bill's coming due"...

U.S. Debt: Greece Is Not the Only Country with a Debt Problem

By , Contributing Writer, Money Morning -

U.S. Debt

Policymakers need to start being more honest about how the U.S. debt works.

It's an age-old debate among the members of Congress. How do we cut the budget? How do we reduce the debt?

But that debate is being framed in the wrong way.

Financial News Today: Greek Debt Talks Send Mixed Messages

By , Associate Editor, Money Morning • @JimBach22 -

financial news today

Financial News Today: The Greek debt talks looked promising today (Tuesday) - for a little bit.

That was before conflicting reports and a German rebuttal pulled the rug out from under positive momentum.

But Greek debt talks are just the beginning. Here's what you need to know.

How the Greek Debt Crisis Will Affect U.S. Markets

By , Associate Editor, Money Morning • @DavidGZeiler -

dow jones today

As remote as the Greek debt crisis may seem, ripples from whatever happens there definitely will hit U.S. markets.

The new leftist government of Greece is currently tangling with the European Central Bank. While both sides seem very far apart, Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks the ECB will blink first.

To find out what Fitz-Gerald thinks of the Greek debt crisis and what it means for investors, watch this video.

Eurozone Debt Crisis: Now It's a Hopeless Game of Whac-a-Mole

By , Associate Editor, Money Morning • @DavidGZeiler -

The Eurozone debt crisis that was supposed to have blown over long ago instead has become more like an endless game of Whac-a-Mole, with both new and old problems popping up faster than European leaders can bop them.

As Europe's finance ministers gathered in Dublin today (Friday), they faced at least half a dozen major issues threatening the fiscal health of the Eurozone.

Although Europe's leaders, in concert with the International Monetary Fund (IMF), have succeeded in keeping a lid on each successive crisis over the past three years, that streak can't survive in the face of the new and old fiscal woes that have been peppering the Eurozone.

U.S. investors can't let those past successes deceive them into thinking the Eurozone is no longer a worry.

When the Eurozone debt crisis finally implodes - and sooner or later, it has to - it will hammer stock markets around the globe.

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The Trillion Dollar Trick

By , Contributing Writer, Money Morning -

Minting a trillion-dollar platinum coin to pay our debts may seem ridiculous. But in fact, our government has done the same thing for the past five years, creating more than $1 trillion out of thin air each year.

Stock Market Today: Do You Own This 30% Winner?

By , Associate Editor, Money Morning -

It was no surprise that the stock market today was quiet with little volume and not much movement.

In a day when the U.S. markets closed at 1 p.m. positive economic reports on motor vehicle sales and factory orders sent the markets slightly higher, and one company was up more than 30%.

Factory orders for U.S. factories rose 0.7% which was the first increase in bookings in three months. Last month's revised figure showed a 0.7% drop and economists had expected a 0.1% increase for June.

Many major automakers reported increased sales with U.S. automakers Chrysler, Ford and GM leading the way.

With the market off tomorrow and a shortened day today, traders expect a subdued state until Friday's latest unemployment numbers are released.

The major news came from British banking empire Barclays PLC (NYSE ADR: BCS).

Barclays PLC (NYSE ADR: BCS) announced Tuesday that its CEO Robert Diamond would resign effective immediately in the wake of the scandal involving lending rate manipulation.

Barclays was fined $450 million last week by British and U.S. regulators and is among other banks involved in similar lawsuits concerning rate fixing during the financial crisis of the past four years.

British Chancellor George Osborne cheered the resignation of Diamond calling it the "right decision" and encouraged banks to move forward and continue lending.

"We need our banks to be focused on lending to the economy, not on the scandals of the past, and I hope this will be the first step towards a new culture of responsibility in British banking which is what the British people want to see," Osborne told BBC Radio 4's "Today" program.

Diamond, who became CEO on Jan. 1 2011, is set to face British lawmakers tomorrow for questioning. Barclays stock fell 16% on June 28 when the scandal broke and is down almost 2% today.

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Can the U.S Economy "de-couple" from the Eurozone Debt Crisis?

By , Global Investing Specialist, Money Morning -

As the Eurozone teeters on the edge of a breakup, it begs the question: Can the U.S economy "de-couple" from the Eurozone debt crisis?

Ultimately, the answer comes down to fate of the euro. It's the linchpin to everything.

From the point of view of one who has travelled fairly frequently in the Eurozone I can tell you I find the euro very convenient indeed.

In my London merchant banking days, when I used to go on marketing trips around continental Europe, I found that while the excellent European train service was a pleasure to use, the proliferation of local currencies made travelling a pain.

There was nothing more annoying than to be on a long-distance train that had just crossed the border from Belgium to Germany at Aachen, only to discover that I could not enjoy the excellent Deutsche Bundesbahn bockwürst and fine local beer because I had only sterling and Belgian francs in my wallet, but no deutschemarks!

The other problem was that after a long trip I ended up with my wallet stuffed with small amounts of ten different currencies, none of which could be changed back into anything useful because the bank charges ate up their value.

In southern Europe, local exchange controls were a pain too.

Walking through Madrid airport with $25,000 of legitimately earned pesetas in bills which could not be transferred to Britain through the banking system was far too exciting for my liking.

From a British merchant banker's point of view, it was thus very convenient when all the local foreigners converted to the same currency, rather than lots of different ones.

After that, you needed only two compartments in your wallet: one for British money and the other for foreign money. Then you could travel all over Europe without worrying about changing currencies.

It was a very 19th century feeling, almost as good as being back on the gold standard!

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Investing in Silver Still a Shiny Option

By , Contributing Writer, Money Morning -

After the U.S. Federal Reserve's announcement last week that it would keep doing Operation Twist, silver prices dropped 4% the following day.

Adding to the white metal's decline was weakening in U.S. manufacturing, a declining Chinese factory sector and worries about the Eurozone.

It wasn't a great week.

Jeffrey Sica, chief investment officer of SICA Wealth Management LLC, said to Reuters, "When you see slowdown in China and in the United States and the debt crisis accelerate in Europe, it leads people to believe that we will have significant depreciation, especially when commodities and precious metals prices have been so tied into the monetary policy."

Since last week's decline, silver prices have been mixed and yesterday (Wednesday) they closed down 0.13% to $26.91.

The markets have a slew of economic data to review and mull over this week along with the two-day European Council meeting that begins Thursday in Brussels.

Despite last week's slump, there's still reason to be investing in silver. Its prices in the first quarter fared better than the other precious metals.

As legendary investor Jim Rogers told a financial advisor summit Wednesday, the likelihood of more central bank action around the world is bullish for silver.

"Governments print money - that's all they know," said Rogers. "So own real assets like silver... and you'll survive."

Rogers said of all the precious metals if he had to buy just one, it would be silver.

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Stock Market Today: Europe Concerns Ruling the Day

By , Associate Editor, Money Morning -

The factors weighing on the stock market today should sound pretty familiar to investors by now. The Eurozone debt crisis - with its carousel of struggling countries thirsting for a bailout - worsens every day.

Today the Spanish government made a formal request for more financial aid for its struggling banking sector. In a letter to Euro group Chairman Jean-Claude Juncker, who is also Luxembourg's prime minister, Spain's Economy Minister Luis de Guindos asked for up to 62 billion euros ($77 billion) in financial assistance for the recapitalization of the Spanish banks that require it.

This move was expected as yields on the Spanish 10-year bonds have been under tight scrutiny as they hover around the alarming 7% line.

Members of Germany, France, Italy and Spain on Friday agreed on a set of growth-enhancing policies equal to about 125 billion euros, or 1% of Eurozone gross domestic product. The European summit takes place later this week and investors are expecting less and less to come from the meeting.

In a bit of good news that doesn't seem to be impacting the sell-ridden market today, new single family home sales grew 7.6% to their highest level in two years. New sales were at a seasonally adjusted 369,000-unit annual rate, almost 20% higher year-over-year, but still a far cry from where sales should be in a healthy economy.

Here are some companies making headlines today.

Chesapeake Energy Corp. (NYSE: CHK) is in the news again and this time for anti-trust violations. Reuters reported today that Chesapeake, led by CEO Aubrey McClendon, conspired with its top competitor Encana Corp. (NYSE: ECA) to suppress land prices. The two companies apparently agreed through numerous emails to avoid bidding against each other at public land auctions to drive land prices for oil and gas fields down.

If these reports are true Chesapeake and Encana violated both federal and state anti-trust laws.

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The 2012 IPO Calendar: How to Spot the Winners

By , Contributing Writer, Money Morning -

You might find yourself eyeing the 2012 IPO calendar with a bit more scrutiny after the Facebook (Nasdaq: FB) fiasco.

Although Facebook has been nabbing the most attention for disappointing its investors, it's hardly the first IPO to do so. It's all part of the fickle IPO process.

In fact, about 40% of the IPOs to hit the market over the past 12 months have seen their share prices fall below their IPO prices.

Facebook isn't the only factor to blame -- U.S. unemployment is up, the Eurozone debt crisis is sapping bullish spirit, and the upcoming U.S. presidential elections in November are adding to market uncertainty.

But avoiding IPOs altogether could also be a huge mistake.

Just ask those who bought the Google (Nasdsaq: GOOG) initial public offering. The Google IPO priced at $85, started trading at $100, and now trades around $560.

So how can you put yourself in the 60% group and earn a profit in the process?

With the right research and guidance, you can spot winners just like Google.

Do Your IPO Research

Investing in IPOs is like buying and selling any asset: due diligence is required.

An IPO, like a credit-default swap or subprime mortgage, is the ideal financial instrument for a limited set of circumstances. It is up to the individual or the institution to determine if the IPO they are considering is suitable for a long-term investment or a short-term flip.

If it qualifies as just a short-term flips, that is enough to tell you not to buy.

Whatever the investment objective, however, information is readily available for the necessary and needed due diligence.

For example, on March 17, 2011 Michael J. De La Merced wrote an article in The New York Times about the IPO of FriendFinder Networks (NYSE: FFN).

In his Timespiece,"FriendFinder Braves Choppy Market with IPO, Again," De La Merced did an excellent job of detailing his concerns with the stock, ranging from the disposition of the proceeds of the IPO to the accounting at the company to the number of times it had attempted to go public before and had to withdraw the offering.

FriendFinder Network IPO priced at $10 a share last year; it's now selling for around $1.15.

Other times an IPO can be hurt by factors having nothing to do with the financials of the company or the overall economic situation.

Take the Carlyle Group (Nasdaq: CG), a Washington, DC-based private equity group, which went public in May. Until Election Day in November, private equity groups will be vilified by the Obama Administration, unions and others due to Republican presidential candidate Mitt Romney's work with Bain Capital.

There is no way that can aid the share price of Carlyle Group. Now trading around $21 a share, Carlye Group has slipped from its IPO high of $22.45.

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Why the Eurozone Debt Crisis Never Really Went Away

By , Associate Editor, Money Morning • @DavidGZeiler -

How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?

Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.

But while the crisis faded into the background, it never really went way.

Remedies that were sold as solutions haven't solved a thing.

The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.

"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.

In fact, the Eurozone debt crisis is getting worse.

Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.

Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.

And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.

"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."

The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.



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As Greek Debt Default Nears, Investors Need to Take Cover

By , Associate Editor, Money Morning • @DavidGZeiler -

At this point a Greek debt default is virtually unavoidable, and it could happen in a matter of weeks.

The ensuing chain reaction will upend markets around the world and will almost surely lead to more defaults among the European Union's (EU) other debt-plagued nations, collectively known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

The bond markets have already passed sentence, with the yield on two-year Greek bonds spiking to an astronomical 76% yesterday (Tuesday). Yields on 10-year Greek bonds rose to 24%.

By comparison, the 10-year bond yields of another PIIGS nation, Italy, rose to 5.74%. Meanwhile, bond yields for the EU's strongest economy, Germany, have dropped below 2%.

The credit default swap (CDS) markets, where investors can insure their bond purchases against default, agree with the bond markets' verdict. As of Monday it cost $5.8 million and $100,000 annually to insure $10 million worth of Greek debt for five years, which means the CDS market now considers default a 98% probability.

Most European stock markets have been hammered over the past several weeks, with some dropping as much as 25%.

"Default is inevitable," said Money Morning Global Investment Strategist Martin Hutchinson. "Greeks are paid about twice as much as they should be, and that gap can't be solved by austerity."

How Soon is Now

In recent weeks Germany has shown more reluctance to dig deeper into its own pockets to bail out Greece and the other PIIGS. At the same time, Greece has struggled to implement the austerity measures that are required if it is to continue receiving aid from the European Central Bank (ECB) and the International Monetary Fund (IMF).

Greece's budget deficit has increased 22% this year, while its economy is projected to shrink more than 5%.

Every new development appears to bring Greece closer to the brink of default - and some see that happening in the very near future.

"My guess is there will be a Greek debt default by the end of this fiscal quarter - yeah, that means very soon," said Money Morning Capital Waves Strategist Shah Gilani.



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Don't Look Now but the National Debt Could be $23 Trillion by 2021

By , Global Investing Specialist, Money Morning -

There was a lot of back-patting in Washington this week after U.S. President Barack Obama signed a debt-ceiling deal that he and members of Congress claim will reduce the national debt.

But here's the truth: This deal does nothing to reduce America's debt burden. In fact, the $14 trillion we owe now could every easily exceed $23 trillion by 2021.

That's a 62% increase.

It only takes a little bit of number crunching to see what I mean.

The deal brokered by Congress cuts spending by just $917 billion over a 10-year period, with a special congressional committee assigned to find another $1.5 trillion in deficit savings by late November.

Even if you round up, that $2.5 trillion in "savings" over a 10-year period is inconsequential when you consider that President Obama added nearly $4 trillion to the national debt in just a few short years in office.

How can you make any progress on the debt front when you're adding $4 billion in new liabilities every day?

And the story is even worse than that: According to the Congressional Budget Office (CBO), even the $2.5 trillion the government claims to be saving is quickly vaporized by inflation and lost economic output.

CBO: Contrary to Barack Obama

The CBO in January estimated that a 0.1% reduction in growth rates would increase the deficit by $310 billion over the next 10 years, while a 1% increase in inflation rate would increase the deficit by $867 billion.

The CBO projects the average growth rate from 2011 to 2016 will be 3.25%, and the non-partisan group has the average rate of inflation pegged at 1.55% over that same period.

However, growth in the first half of 2011was 0.8% and the personal consumption expenditures (PCE) inflation index - the type of inflation the CBO looks at - was 3.5%.

So let's do the math.

If growth and inflation statistics magically revert to CBO expectations - which would be a long shot considering how much they're already off - then the budget deficit over the next 10 years would rise by $928 billion. That alone is more than enough to wipe out the $917 billion of initial savings in the debt-ceiling bill.



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