Banks in Trouble Again, Stocks React to Mass. Election, Two Blood in the Streets” InvPublished: January 19, 2010 by RssFeed The 5 min. Forecast
January 19, 2010 11:12 AM by Addison Wiggin & Ian Mathias
 And so begins the U.S. banking crisis, part deux.The S&P 500 took a 1% hit on Friday -- its worst day so far this year -- thanks mostly to JP Morgan. Despite doubling last year’s profits, JPM issued a hesitant 2010 outlook. A surprise to the Street, but not to 5 Min. loyalists, the bank lost money in retail banking and credit cards last quarter and expects more losses this year.  Early this morning, Citigroup reported a $1.6 billion net loss for 2009 and a $7.6 billion loss in the last quarter. Just like JPM, losses in the retail and consumer credit businesses are capturing investor attention. Citi’s total loan loss reserves for those branches now exceed $36 billion. Hey, at least there isn’t some nationalized, insolvent mortgage insurer pumping bad loans onto big bank balance sheets. Uh-oh…Delinquent loans at Fannie Mae are up 163% over the last year. According to their latest report, Fannie’s delinquency rate climbed to 4.9% in October, from 1.8% in October 2008. From a purely public relations perspective, we issue a sarcastic “chapeau!” to the Treasury… nationalizing Fannie and Freddie the way they did (Christmas Eve, confusing and opaque language, when the housing front was momentarily quiet) was a crafty move. Better to fill the palace moat before the lynch mob shows up.  “The poorer-than-expected quality of the mortgages that Fannie and Freddie guarantee will lead to hundreds of billions in credit losses,” Dan Amoss forecasts. “The frequency and severity of these credit losses over the next few years will take Wall Street by surprise…“Consider the situation by visualizing Fannie’s and Freddie’s balance sheets. Since the beginning of the financial crisis, the Treasury and Federal Reserve have teamed up to reinflate the assets, liabilities and equity of these institutions. The Treasury pumped new equity (in the form of preferred stock) into them as needed, while the Fed used newly printed money to buy up the GSEs’ debt and the mortgage-backed securities that they guarantee. Now the market prices of the assets on the GSE balance sheets no longer reflect the actual quality of the underlying assets. “Make no mistake: Despite the Fed inflating these asset values, the real underlying asset value is being eaten away by credit losses. “These credit losses will blow huge holes into the GSEs’ balance sheets, overwhelming the thin slices of capital several times over. When this capital vanishes, the U.S. Treasury Department will float more government debt and use the proceeds to refill the capital shortfalls.”  The market opened up this morning with some snapback from Friday’s drubbing.We’re watching health insurance stocks with some amusement this morning. The much-hyped election today for Ted Kennedy’s vacant Senate seat has -- for better or worse -- become the political bellwether for the health care bill getting beaten up in committee right now. If Scott Brown pulls the upset, Senate Democrats will lose their mega majority and it’s possible the bill will never see the president’s pen. So ahead of today’s election results, check out this sector snapshot from this morning:   Here’s a shattered preconception: Companies that acquired other business in 2009 outperformed the MSCI World Index by an average 3.2%. It’s rare these days that shares of the buyer don’t take a real hit on the day of acquisition.Take Kraft as today’s example: After finally reaching a deal with Cadbury (and thus creating the world’s largest confectioner), shares of KFT opened down 2%. But as a study from Towers Watson and the Cass Business School confirmed yesterday, from a longer-term persepctive -- like an entire year -- M&A is not nessecarily a share killer. “Even though it will cost them $19.5 billion in cash and stock,” notes Jim Nelson, who holds KFT in the Lifetime Income Report portfolio, “this deal would be huge for your Kraft holdings. The combined company would see revenues near $50 billion, see immediate cost savings -- which Kraft estimates would be around $625 million per year -- and, most importantly, grow as a true international food giant with businesses in many key developing markets. “And Kraft continues to pay us while this deal wraps up. The company issued its latest dividend last Wednesday -- just as it has every year since 2001.”  “2009 was the worst year for U.S. dividend investors since 1942,” Jim adds.“The numbers don’t lie. Even with the last part of 2008 sending a boom of dividend suspensions out across the market as if they were TARP payments, the S&P 500 experienced the greatest drop-off of total dividends since the Second World War:  “This chart shows the annual change of S&P 500 dividends since records start being tracked in 1928. Only three years were worse than 2009’s negative 20.6% performance: 1942’s –21.1%, 1932’s –45.8% and 1938’s –48.9%. “Today’s environment is perfect for this type of investment. You see, many income companies are still trading at a fraction of what they should be. “And when it comes to proven investments, nothing compares with the profit potential of dividend-paying stocks. According to a famous Ned Davis Research study, dividend-paying companies outperformed those that didn’t distribute income to shareholders 2.5-to-1 in the 34 years ending in 2006. “This year could be quite promising for income payers. Many dividend-paying companies that cut their payments in 2008 could begin paying again. While we like a history of zero cuts, it’s important to keep our options open. We’ll let you know if we find any bounce-back income plays.” If you want the real scoop -- Jim’s absolute favorite dividend-yielding stocks from all over the world -- you need to check out Lifetime Income Report.  Speaking of “blood in the streets” investing, “Chinese investors are shopping for real estate in Dubai,” reports our friend Peter Cooper of ArabianMoney.net. “Toward the end of next month, representatives of more than 20 companies from the Chinese city of Wenzhou will visit Dubai to shop for property bargains.“Famed as a city of millionaire entrepreneurs, the good burghers of Wenzhou make two or three real estate shopping expeditions per annum, and last year visited France, Germany and the USA. And apparently, some 20,000 of the 150,000 Chinese living in Dubai are from Wenzhou… “The FT reports that Wenzhou buyers think Dubai is cheap because apartments in the Burj Khalifa are similarly priced to residential properties in their city, per square meter. But you have to wonder if these globally mobile property speculators are looking at prices from the right angle. “Could it not be their own property prices that are in a bubble, and unsustainably expensive, not Dubai that is now so cheap? Indeed, the 30% money supply growth in China last year -- and a similar hike in property prices in key urban locations -- is remarkably reminiscent of what happened in the Dubai boom the year before the crash.”  The dollar index is up about half a point this morning. The euro is mostly to blame… the PIGS there are really starting to stink. “Greetings from the Four Seasons Hotel in Sydney, Australia,” Chris Mayer writes from his excursion down under. “Along with a group of readers, I’m here exploring investment opportunities -- while also taking in the sights. There is plenty to do.“Australia has a great seat overlooking the unfolding boom in Asia. Australia holds many of the resources so needed by the Asian growth economies. Iron ore. Coal. Wheat. There is gold here. And uranium and nickel and lots more. There are massive natural gas deposits offshore. Its close proximity to these resource-hungry Asian markets is another advantage. “On Monday, we had our first investment meeting. We saw some thoughtful presentations, including one by a company that owns a promising (and huge) vanadium deposit. Vanadium is a metal used mainly to strengthen steel. And this company has a high-grade outcropping deposit, which means you can practically walk over and pick the stuff up off the ground. No deep mining shafts. Makes things simpler and less risky -- at least from an operational point of view. “I plan to do more work on this company and a few others that we heard from today, and perhaps this might lead to an exciting new recommendation. Tomorrow, we leave for Melbourne. We have more meetings there -- including presentations by a uranium miner and another by a geothermal company. “All in all, Australia is in a pretty good position. And there is plenty of opportunity here. I’ll have more on what we find soon.” Keep your eyes peeled.  “While I maybe a sucker in financing my daughter’s education,” a reader writes, continuing our recent discussion on higher ed., “she worked hard through private school to justify the expenditure for UCLA. I am sure that there are other parents out there that would also like to see their children avoid the coming deluge of adversity so poignantly scribed forth by the Agora editors. I went a step further to prepare my daughter for the work force by sending her abroad to study each summer. The thought was this would give her a leg up on others that have just graduated with only the four-year degree. This involved study in London, Paris, Spain and Morocco.“While graduating with a degree in English with minors in Spanish, French, Arabic and Islamic Studies, in four years, she still has not been able to find any job that pays well. In order to build her resume and not fall behind being employed in jobs that go nowhere, she has taken a job teaching English in South Korea. While it may not pay a king’s ransom, she will learn another language and have more international experience. I keep telling her that while things may seem hopeless here, you have to continuously improve; otherwise, you are falling behind in this global economy.”  “I went to my in state university,” another writes, “even though I got into better private universities, because it was the most affordable. Five years is what it took me to receive an engineering degree. I worked my tuchis off and had several part-time jobs during my studies. Believe me, in 1998, I would have loved to skip classes with my floor mates to get high and play GoldenEye tournaments all day, only to take Papa John pizza breaks and reload the tube. But I didn't, since from Day 1 I was on hook for my student loans, which covered 90% of university cost.“Eight hardworking years after graduation, as my profession is an outsourcing target -- I finally paid off all my loans. I did this through frugality and living beneath my means. Believe me, it is tough when a friend graduates with an anthropology degree and is a waitress and still has a nicer car than you. “If the cost of school to me had been zero, my approach and focus would have been much different. Perhaps this is why people do not respect handouts.” The 5: That, and those handouts have to come from somewhere, someone. There are usually strings attached. Cheers, Ian Mathias The 5 Min. Forecast P.S. Save this date: July 20-23, 2010. Once again, The 5 will be broadcasting live from the Agora Financial Investment Symposium in Vancouver, B.C. From the presentations, to the breakout sessions, to the parties, scenery and camaraderie -- this has been the highlight of our year for over a decade. This year promises to be no different. We’ve already begun to lock in a few of our more contentious speakers: Among an all-new star-studded cast of characters, we’ve invited our (first-ever) Pulitzer Prize-winning speaker, who will explain investment risks and opportunities in the energy market and the exploding global economy. We expect to hear from a 2010 U.S. congressional candidate -- one who actually “gets it” and can explain why most in Washington don’t -- plus, what he hopes to do about it. A well-known Moscow-based fund manager will offer a completely unique perspective on international investing, and some opportunities that you would not likely hear about elsewhere. And the senior-most executive from an international petroleum company that unveiled one of the largest oil discoveries in the last 40 years. And a gold and silver coin expert with exclusive connections to government mints in North America, Europe and Asia And possibly two different surprise returning guest speakers who’ve blown away previous audiences… and had such a good time themselves they want to come back and do it again! If you’d like to join us, it pays to commit early. We’ll give you a hefty discount on admission and, of course, you can save a lot on hotels, flights and that sort of thing. Please consider making the trip… it’s a great time. And you can’t beat Vancouver in July for the weather. Make a vacation out of it. We always try to.
__________________
Please note, the content of this page was automatically generated from an external source using RSS Feeds technology. Gold Speculator associates cannot guarantee or verify any information provided on this page. By using this site you are agreeing to the terms of our disclaimer. 
|
 |
Search Gold Speculator Articles
| Currently Active Users Viewing This Thread: 1 (0 members and 1 guests) | |
What do you think? Your comments are welcomed.
We appreciate all of your comments and feedback. You need to be registered in order to post comments. You can register here, or sign in. if you have a comment off topic you can post it in our forums section.
Linear Mode
