What to Expect From Carnival Cruise Lines for the Rest of 2012

So far in 2012, Carnival Cruise Lines (NYSE: CCL  ) and its investors have dealt with highs and lows. In January, a tragic accident caused the stock's price to fall 15.8% in a single day, but it has slowly climbed its way back up and is now up 5% for 2012, but what can investors hope to see for the rest of the year? Let's take a look.

52-Week High	$38.83
52-Week Low	$28.52
Market Cap	$26.72 billion
Price/Earnings Ratio	19
CAPS Rating (out of 5)	**

Source: Yahoo! Finance.

Gas prices are a big concern for the cruise industry. High oil prices can eat away at a company's profits in no time. Currently, only 38% of the company's fuel consumption for 2012 is hedged, which gives it a great opportunity to take advantage of the lower fuel prices we're seeing right now.

This unexpected turn could help make up for some of the losses the company has dealt with this year and gives them an edge over competitor Royal Caribbean Cruise Lines (NYSE: RCL  ) which had 55% of 2012's fuel consumption hedged, as of April 20.

While Carnival does expect net revenue to be down for 2012 compared to 2011, the company is already seeing a strong recovery from January's accident. Since March, fleetwide bookings excluding Costa are up 8% compared to the prior year, and booking volume for Costa is up more than 25% for the same period.

Unfortunately for the rest of 2012 advance bookings are trailing their prior-year comparison. While there is room for this to improve throughout the rest of the year, it's not a great start to the second half of 2012. Neither Carnival nor Royal Caribbean is beating the market so far, and it's unlikely they'll be able to for the rest of the year given the cruise industry's tough dynamics.

RCL data by YCharts

Beyond 2012, though, the cruise industry has great prospects. As more and more baby boomers enter retirement, they'll be looking for ways to relax and travel. Cruises offer just that at a variety of price points. Global tourism is another developing area where cruise companies are likely to benefit.

Carnival's P/E ratio, though, is a bit high for a company in such a strained industry right now, especially when you compare it to Royal Caribbean's 9.4. While the company has recovered admirably, it's probably not the best place for your money right now.

There are lots of great stocks that will help boost your portfolio this year, though. Carnival may not be one of them, but our analysts have found one that they not only think will provide great returns, but will end up being the top stock for 2012. They put everything you need to know in a free report -- all you need to do is click here to read it now.

Contrarian Ideas: 4 High-Yield Stocks Sold by Institutional Investors

Here we present a list of four high-yield stocks that have seen net selling by institutional investors over the last quarter. These stocks are now rallying, begging the question, "Will the big money managers who have missed out on recent gains get back into these stocks?"

We express net institutional selling as a percent of share float, and rallying stocks are those trading above their 20-day, 50-day, and 200-day moving averages.

We also created an equal weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. As the chart shows, over the last month the list of stocks mentioned below has steadily outperformed the market average. To access a complete analysis of this list's recent performance, click here.

Do you think money managers will chase these recent gains? Use this list as a starting point for your own analysis.

List sorted by net institutional selling as a percent of share float.

1. Lorillard, Inc. (LO): Cigarettes Industry. Market cap of $15.70B. Dividend yield at 4.76%. The stock is currently 5.16% above its 20-day moving average, 15.83% above its 50-day MA, and 32.43% above its 200-day MA. Net institutional shares sold over the current quarter at 5.6M, which is 3.90% of the company's 143.44M share float. Current ratio at 1.66 and quick ratio at 1.5. The stock is a short squeeze candidate, with a short float at 8.17% (equivalent to 5.13 days of average volume).

2. Advance America, Cash Advance Centers Inc. (AEA): Credit Services Industry. Market cap of $376.41M. Dividend yield at 4.14%. The stock is currently 8.36% above its 20-day moving average, 11.91% above its 50-day MA, and 19.70% above its 200-day MA. Net institutional shares sold over the current quarter at 1.6M, which is 3.41% of the company's 46.86M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 3.03). The stock might be undervalued at current levels, with a PEG ratio at 0.69, and P/FCF ratio at 3.4.

3. Chunghwa Telecom Co. Ltd. (CHT): Telecom Services Industry. Market cap of $31.15B. Dividend yield at 4.93%. The stock is currently 2.11% above its 20-day moving average, 4.67% above its 50-day MA, and 24.03% above its 200-day MA. Net institutional shares sold over the current quarter at 7.6M, which is 1.58% of the company's 479.95M share float. CHT appears to have good liquidity to back up its dividend -- current ratio at 2.22 and quick ratio at 2.11. The stock has gained 77.13% over the last year.

4. Duke Realty Corp. (DRE): REIT. Market cap of $3.80B. Dividend yield at 4.52%. The stock is currently 3.63% above its 20-day moving average, 8.03% above its 50-day MA, and 22.58% above its 200-day MA. Net institutional shares sold over the current quarter at 1.4M, which is 0.56% of the company's 251.60M share float. The stock has had a good month, gaining 10.25%.

*Institutional data sourced from Fidelity, dividend yield and all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

First Solar Cements Its French Connection

By Ucilia Wang

First Solar (FSLR) is looking at building its second European factory in a French town near Bordeaux.

The cadmium-telluride solar panel maker and Paris-based EDF Energies Nouvelles (EDFEY.PK) are close to reaching a deal with the town of Blanquefort to build a manufacturing plant there, First Solar said Monday.

The two companies will jointly pay for building the factory. EDF plans to provide half of the financing for building a factory with an annual capacity of more than 100 megawatts, the two companies said back in July, when they first announced the factory plan.

First Solar and EDF previously had pegged the cost of the factory plan at €90 million. But the two companies said Monday the cost would be about €100 million ($150 million) instead.

The French factory would be the second in Europe for First Solar, which operates a manufacturing plant in Germany. Its other factories are in Perrysburg, Ohio and Malaysia.

The Tempe, Ariz.-based solar panels maker recently said it would invest $365 million to add eight manufacturing lines of 53 megawatts each in Malaysia next year.

EDF would be entitled to the entire output of the factory's products for the first 10 years, First Solar said.

Until recently, the EDF had invested mostly in wind farms in Europe and the United States. But the company said it wants to spend more on developing solar power plants.

Last week, it said it had lined up 500 million ($716.2 million) from the European Investment Bank to pay for building solar power plants in France and Italy between 2010 and 2012.

Both France and Italy have national incentives to encourage solar energy generation. The incentives are called feed-in tariffs, which are electricity rates that utilities must pay to any solar power plant owners.

Back in July, First Solar said the factory would be up and running in full production by the second half of 2011. The target has been moved to early 2012.

In a separate announcement on Monday, First Solar said it has completed a 21-megawatt solar power plant in Blythe, Calif., and the plant has been brought online.

The company, which jumped into the project development business in earnest earlier this year, already has sold the Blythe project to NRG Energy (NRG).

NRG is now selling the solar electricity to Southern California Edison until a 20-year agreement. The power plant is roughly 200 miles east of Los Angeles. NRG has hired First Solar to operate and maintain the power plant.

First Solar has been using its project development business to create sales for its solar panels in North America. In April, it spent about $400 million to buy unfinished projects from OptiSolar, a California company that had trouble raising enough money to continue its business.

One of First Solar's next power plant projects is to complete a 48-megawatt farm near Boulder City, Nev., for Sempra Generation (SRE). Sempra plans to sell the electricity from the plant to Pacific Gas and Electric Co (PCG).

First Solar plans to start building the solar farm, which will be called the Copper Mountain Solar Facility, next year and complete it before the year's end.

ProShares Launches 2X Leveraged, Inverse Biotech ETFs

ProShares, a leading provider of leveraged and inverse ETFs, announced the launch on Friday of the first ETFs with leveraged and inverse exposure to the biotechnology sector. The Ultra Nasdaq Biotechnology (BIB) will seek to provide 200% of the return on the NASDAQ Biotechnology Index for a single day. The UltraShort Nasdaq Biotechnology (BIS) will seek daily returns equal to -200% of the daily movement in the same benchmark.

The biotech sector is one of the most crowded corners of the ETF industry. There are currently five variations of biotech ETFs, including funds from iShares (IBB), Merrill Lynch (BBH), State Street (XBI), PowerShares (PBE), and First Trust (FBT). In aggregate, these ETFs have more than $3 billion in assets and trade well more than 1 million shares daily. The largest and most heavily-traded of the biotech ETFs, IBB, tracks the performance of the NASDAQ Biotechnology Index to which the new ProShares ETFs are linked.

The biotech sector has been one of the top performers in 2010, as a wave of M&A activity and positive regulatory developments have provided a boost. The profitability of biotech companies often hinges on the prospects for a few key products, so it’s not uncommon for stocks in this sector to see big single day jumps or slides on news of FDA approval or rejections. In addition, recent developments surrounding health care legislation have heightened interest in biotechs. “We’re pleased to provide investors with ProShares ETFs benchmarked to the most popular biotech index,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares’ investment advisor. “Many investors have strong opinions on the biotech industry, and these ETFs provide them with leveraged or inverse exposure to the sector to help them act on their views.”

Boom Continues…For Now

ProShares has been one of the most active ETF issuers on the new product front in 2010, already introducing more than a dozen new ETFs this year (including leveraged Treasuries, 3x ETFs linked to four popular indexes, and a line ofChina, real estate, and materials products) . This pace is expected to slow considerably in coming months, as the SEC recently announced that that it will be conducting an investigation into the use of derivatives by ETFs and mutual funds. During the review, the SEC won’t be approving any new leveraged or inverse ETFs, slowing down one of the fastest-growing corners of the ETF industry. According to the February figures from the National Stock Exchange, leveraged and inverse ETF assets exceeded $31 billion, representing an increase of nearly 20% from the same period a year earlier.

Disclosure: No positions at time of writing.

Apple: Don’t Be Bitter, Say Bulls, ’4S’ A Meaningful Upgrade

Street response is trickling in to Apple’s (AAPL) press event earlier today, during which time the company unveiled the “iPhone 4S,” featuring faster electronics and integrated natural language voice commands.

The debate this afternoon pivots around whether the new model is a disappointment, overall, or a useful upgrade to an already successful product.

As for the stock, Apple shares have staged a decent turnaround going into the close, now down $2.10, or 1%,at $372.50, up from the lowest level of the session of $354.24.

Piper Jaffray’s Gene Munster this afternoon reiterates an Overweight rating on Apple shares, writing that “the bottom line is that while investors may be disappointed by the lack of a redesigned iPhone, we believe the iPhone 4S will meet or exceed unit expectations, as it represents the first iPhone launch at two major US carriers (Verizon and Sprint) along with KDDI in Japan.”

Munster writes that based on a survey his firm conducted in August, there is pent-up demand for an iPhone refresh that should again lead to long lines for the 4S.

RW Baird’s William Power reiterates an Outperform rating on the stock, writing that “The iPhone 4S appears to be a solid product, with several meaningful upgrades, though there were no significant upside surprises.”

“While today’s launch may have proved a bit underwhelming relative to recently growing expectations, we continue to expect solid growth over the next couple of years and view valuation as attractive.”

Brian White of Ticonderoga Securities reiterates a Buy rating and a price target of $666, writing, “We would be buyers on any weakness today.”

White thinks the 4S’s “interesting new or enhanced features [�] should drive a healthy upgrade cycle.”

Becton, Dickinson: Dividend And Growth Potential

By Carson Ko

Becton, Dickinson and Company (BDX) is a global medical technology manufacturer. BDX develops, manufactures and sells medical devices such as needles, syringes, prefillable drug delivery system, specimen and blood collection systems as well as analysis and research machinery for pharmaceutical and biotechnology companies.

Becton, Dickinson and Company’s clients range from consumers, retailers, blood banks, clinical laboratories, hospitals, and Governmental and nonprofit public health agencies. BDX’s major competitors include Baxter (BAX), Covidien (COV), Boston Scientific (BSX), C.R. Bard (BCR), Hologic (HOLX), Gen-Probe (GPRO) and Retractable Tech (RVP). Below is a chart (click to enlarge) showing the trailing twelve months revenue comparison among BDX’s competitors. Although BDX is not the biggest fish in the pond, with 17% of the industry, it has a long history within the segment and has been able to maintain consistent revenue growth close to 10% annually.

Diversified Revenue Stream:

BDX’s operations are separated into three main divisions: BD Medical, BD Diagnostics, and BD Bioscience. Although BD Medical is still the major contributor of the company’s income (50%), each of the divisions brings in a significant piece of revenues to diversify any regulatory impacts. All the divisions were able to sustain a good amount of growth in the past few years despite the globe economy slow down.

click to enlarge

For the last 10 years to 2008, all three divisions were able to secure high single digit to mid-double digit growth. Due to the slowdown in 2009, growth fell to a 0.1 percent combined. However, the growth rate since has returned to approximately 5%.

Overall, BDX’s revenue has been increasing at a higher rate in the international market (see table below). For the past few years, BDX’s products have been selling more and more to areas other than United States. Also, their emerging market sales, which account for ~22% of sales, grew about 13% compared to the prior year. The company also sees Strong growth in the Asia Pacific region versus prior years, led by China at ~27%.

Stable Revenue, Earnings and Cash Flow Growth

Becton, Dickinson and Co has been on many dividend income screens for a while due to their ability to consistently increase dividends for the last 10 years. At the time of this writing, their dividend yield has reached 2.3 percent. While this is not high among dividend payers overall, it is higher than others in their industry.

This gives investors exposure to a fast growing industry but also an income stream from dividends. The company has consistently maintained a payout ratio in the upper 20 percent range. Combined with continuous revenue and free cash flow growth, BDX should continue to provide stable dividends and stock appreciation.

BDX has strong brand recognition in hospitals, research labs and other clinical areas. They also have sizeable infrastructure to fend off new competition. Although surgical products are commodity-like and mainly compete on price, BDX was able to maintain and increase its gross margin percentage and operating margin percentage in the past 10 years (see table below, click to enlarge). The company has already proven itself to be competitive even in a recession.

Risk

Since BDX has more than 55% of their revenue coming from foreign countries, their earnings are subject to exchange rate fluctuation. Under the current economy, a stronger dollar will hurt future earnings and affect valuation if there is no hedging program. Also, higher oil and resin pricing will increase BDX’s bottom line and eat into their profit margin. Western Europe’s market growth will continue to be a challenge with the current financial outlook. Healthcare reform also adds a layer of uncertainty to future forecast.

Industry Driver

The aging population and increase in life expectancy in the developed world will continue to drive the sales growth of the medical device industry. Emerging market countries are great opportunities for additional unexplored revenue streams. Continued medical improvements and advancements in technology will also help favor industry growth.

Valuation

Accounting for the current European economic situation and forecasting a stronger US dollar exchange rate, I anticipate the BD Medical division will have a slower 4% revenue growth while BD Bioscience and Diagnostic’s revenue stream could grow at 5% annum after foreign exchange adjustment. After 5 years, growth rates may return to 5% for BD Medical and 6% for the other two divisions provided the company continues its rapid growth in emerging markets. We have seen SG&A spending increases but they reasonable and in-line with expectations.

Conclusion:

I like Becton because of its discounted value and defensive nature. Even with a gloomy outlook in Europe and future dollar appreciation, the company shows respectable upside potential. Having an industry-beating dividend yield of +2% only adds to its attractiveness. The company has already scheduled November 9th for its 4th Quarter result release. Analysts on the street don’t expect much change on management’s earning guidance. For those looking for stability in a time of uncertain market forces, BDX is at its historically low P/E and merits further consideration.

Disclosure: I am long BDX.

Your Next Laptop Is Worth Waiting For

Thinking about buying a laptop? Think again, says WSJ's Personal Technology Columnist Walt Mossberg in his annual spring laptop review.

If you're thinking of buying a new laptop this spring, my advice is to think again. Unless your laptop is on its last legs and you have to move quickly, there are compelling reasons to wait until at least the summer, and probably the fall, to buy a new machine, especially if you are looking for a Windows PC, but even if you are in the market for a Mac.

That makes this annual spring buyer's guide a bit different. People always worry that buying tech products today carries a risk of obsolescence. Most of the time, that fear is overblown. But this spring really is a bad time to buy a new laptop, because genuinely big changes are due in the coming months.

Enlarge Image

Close Microsoft

Windows 8, the most radical new version in years, will likely be out this fall, accompanied by new PC designs.

On the PC side, Microsoft is set to introduce Windows 8, the most radical new version of Windows in years, probably in the fall. PC makers will be introducing new laptop designs to take advantage of it. While Windows 8 will work with a mouse or touch pad and a keyboard, it will be heavily oriented toward tablet-type touch-screen navigation. Many PC makers are planning convertible Windows 8 models for the holiday shopping season that can act as either tablets or regular clamshell laptops.

If you buy a traditional Windows 7 laptop now, Microsoft says it will very likely be upgradable to Windows 8, but you won't find the new styles of laptops on store shelves now. Even if you buy one of the rare touch-screen laptops now, Microsoft says it will likely work with the touch features of Windows 8, but it may not be optimized to do a great job with the new software. Also, in my view, it is always better, especially with Windows computers, to buy a new machine if you want a new version of Windows.

On the Mac side, Apple also is bringing out a new operating system, this summer. Called Mountain Lion, it won't be as big a change as Windows 8, partly because Apple already has integrated a lot of touch gestures and tablet-type features into the Mac using the touch pad, and has given no indication it plans touch screens.

Enlarge Image

Close Apple

While current Macs will most likely be upgradeable to Mountain Lion, you risk missing out on new hardware if you buy a machine now.

However, Apple is overdue for redesigned laptops, especially in its MacBook Pro line, and it is a good bet that new, possibly heavily redesigned, models will begin appearing later this year. Current Macs will likely be upgradable to Mountain Lion, but if you buy now, you'll miss out on the likely new hardware.

There is another factor that calls for waiting. Intel, whose processors are used by most Windows PC makers and by Apple, is on the verge of introducing a new family of chips, called Ivy Bridge, which the chip maker claims will offer much faster graphics performance without sacrificing battery life. While some Ivy Bridge laptops will be available very soon, the new chips won't show up in large numbers of consumer laptops until around June. So, even before Windows 8 appears, many consumer laptops you buy now will be outclassed by similar machines that will be introduced this summer.

There is a silver lining. If you watch prices carefully, you may find bargains on Windows 7 laptops running the current Intel processors—which are plenty capable—as the newer models get closer. And PC makers are likely, at some point, to offer free upgrades to Windows 8.

• Keeping Close Track of Chats, Word for Word

With all of that in mind, here is a cheat sheet to choosing a laptop now, if you must. As always, these tips are for average consumers doing common tasks—email, Web browsing, social networking, general office productivity, photos, music, videos and simple games. This guide isn't meant for corporate buyers or for serious gamers and media producers.

Tablet or laptop

Tablets can reduce your reliance on a laptop and allow you to wait to buy a new one. Tablet users often find they use their laptops less often for daily tasks like email, Web browsing, or social networking.

Price

Windows PC makers are trying to nudge up the price of their laptops, since they feel they make too little profit on them. You can buy a stripped-down Windows laptop for under $300 and an adequate model for around $500. But a well-equipped model typically runs between $600 and $900. The cheapest Mac laptop, the 11-inch MacBook Air, costs $999, and prices quickly climb to $1,200.

Windows vs. Mac

Windows 7 laptops offer more variety in styles, and often more ports and larger hard disks, at less cost. But Apple laptops are sturdy, sleek and offer better built-in software. They have excellent customer support and can even run Windows, at an extra cost.

Also, Mac users have only the rare virus to contend with, while Windows users must worry about hundreds of thousands of potential attacks. Finally, Apple's slim, light, speedy MacBook Air, which starts at $999, is a gem. It isn't only a great traveling machine, but it can be used as your main machine.

Ultrabooks

Nearly every PC maker now has a MacBook Air-type model called an ultrabook. I have yet to find one that is quite as good as the Air, especially on my battery tests. But I like the ultrabooks a lot, and think most consumers will, too. The main downsides to the ultrabooks are that they are relatively pricey—some top $1,000—and have less storage. Like the Air, most use fast solid-state drives instead of hard disks, and these top out at just 256 gigabytes.

Memory

Get at least 4 gigabytes of memory, or RAM, on a new Windows computer. On a Mac, you can get away with 2 gigabytes, but 4 GB is better.

Processors

Intel's chips—even the new ones coming soon—are called the i3, i5, and i7. An i5 is fine for most consumers, and even an i3 will do. But a laptop with chips from AMD is also fine.

Graphics

Usually cheaper machines have weak graphics hardware and costlier ones have better graphics. Better graphics can make a machine faster.

Hard disks

A 500 gigabyte hard disk should be the minimum on most PCs, except bargain and very light models. As always, be wary of sales pitches and don't buy more laptop than you need.

—Find all of Walt Mossberg's columns and videos at the All Things Digital website, walt.allthingsd.com. Email him at mossberg@wsj.com.

What Are the Implications of Political Unrest in the Middle East?

For decades the Middle East has been ruled by totalitarian regimes. The United States’ foreign policy toward these regimes has been determined largely by two factors: The oil reserves in these countries and/or their policy toward Israel. Indeed, until Saddam Hussein invaded oil-rich Kuwait he was not considered a threat. After all he was a sworn enemy of Iran.

Many times the United States has found itself on the wrong side of principle by supporting regimes with terrible human rights records and not a shred of democracy. But this is the way of international relations. For decades democratic India was more closely allied with communist USSR while the United States was a closer friend of non-democratic Pakistan. The situation changed only about a decade ago.

A Review Of Swings In Energy Commodities ETFs In 2011

By Abraham Bailin

Following the financial crisis of late 2008, commodities were driven ever higher by bouts of substantial monetary debasement, a consistently uncertain global macroeconomic outlook, and the market's search for diversification. Through 2011, however, the asset class hasn't been nearly so flush. Since late April, GreenHaven Continuous Commodity Index (GCC), an equal-weight broad-basket commodity futures offering, lost just less than 18%. This places annual performance for 2011 at negative 9.2%, which approximates the return of its competing broad-basket commodity offerings. Here we highlight the most noteworthy moves within the commodity asset class during 2011.

Top-Performing Energy Commodities Keep Broad-Basket Offerings Afloat
Whereas GCC maintains an equal-weight to each of its 17 constituent commodities, the most popular products in the space lean far more heavily toward energy exposure. Contrast GCC's 18% energy allocation with that of the largest broad-basket commodity ETF, PowerShares DB Commodity (DBC), which allocates 55% of its portfolio to energy. IShares S&P GSCI Commodity-Indexed Trust (GSG) holds an even-larger 71% energy exposure. As it turns out, an energy-heavy weighting paid off in 2011. DBC and GSG fell just 2.6% and 3.3% for the year, respectively.

The best individual performer in the commodity asset class during 2011 was United States Brent Oil (BNO), which tracks a basket of front-month Brent futures, with a 19.5% return in 2011. BNO was closely tailed by its sister offering, United States Gasoline (UGA), which rose 14.8% over the same period.

Brent and WTI Break Stride
West Texas Intermediate is a U.S.-based crude oil whose pricing is heavily tied to the supply and demand construct around the major Cushing, Oklahoma oil hub. Brent is a European crude that comes from the North Sea and is distributed across the globe. In 2011, WTI inventories at Cushing climbed to record levels, while at the same time, WTI consumption had been steadily decreasing for half of a decade. The two forces worked in tandem to place downward price pressure on the WTI.

Overseas, Brent prices have been bolstered by decreased North Sea crude production and the Arab Spring which took a swath of crude production offline, namely from Libya. While the crude markets are truly global, given the geographic proximity of Europe to Libya, it's only intuitive that the loss of Libyan production would place larger strain on Brent supplies than WTI.

Prior to 2011, the price of WTI crude oil had routinely ranged between $1 and $2 higher than its European counterpart, Brent crude. The reason that WTI had historically garnered a premium is that it is lighter and sweeter than Brent. Because of this, it can produce a higher percentage of refined products and is easier to refine. Earlier this year, however, the spread reversed. At the time of this writing, front month Brent is trading at an $8 premium to WTI.

Not only were spot prices impacted, but so, too, were the futures forward curves of the two crude oil markets. Academic literature published by Yale University's Professor K. Geert Rowenhorst indicates that the yield produced by rolling from a near to expiration contract into the next one out has a very strong inverse relationship to inventory levels. Given the surging inventories at Cushing, United States Oil (USO), which tracks front month WTI futures, has been subject to a negative roll yield for quite some time, a situation we refer to as contango. On the other hand, the futures forward curve of Brent crude has gone into backwardation. That is to say that the prices of contracts progressively further from expiration become less expensive. For BNO, rolling into new contracts allowed the fund to effectively sell high and buy low, producing a positive roll yield. It comes as no surprise, then, that while BNO rose 19.5% in 2011, USO was down 2.3%.

Natural Gas Offerings: Laggards of the Lot
While swelling inventories at Cushing worked to depress WTI prices relative to Brent, the supply situation for natural gas is far more bearish. Both proven reserves and storage of natural gas sit at or near all-time highs; circumstances that have made for severely depressed prices. As was the case for WTI, this naturally leads to a persistent state of contango.

At the time of this writing, the annualized cost of rolling a natural gas futures position forward was nearly 30%. That means that an investor holding a year-out futures contract would need to see spot natural gas increase by 30% just to break even. It should come as no shock then, that in 2011, United States Natural Gas (UNG) and iPath DJ-UBS Natural Gas ETN (GAZ), both of which track front month natural gas futures, were down 46.1% and 53.2%, respectively.

A Cautionary Note
Let us be very clear. Exchange-traded products that track commodities using only front-month futures are best left to those inclined to speculate over the very short term. Holding these products over longer periods, perhaps with the intent of bolstering exposure to a particular commodity, leaves the investor vulnerable to taking losses even when the spot commodity appreciates. Again, this comes on the basis of negative roll yield.

The problems that arise under the guise of contango can be mitigated to a large degree by the use of a dynamic contract selection methodology. PowerShares DB Oil (DBO), for instance, uses the DB 'Optimum Yield' strategy to select non-front-month WTI crude contracts. In doing so, they avoid the largest contango related drawdown. This nearly always occurs at the very front of the futures curve, while remaining close enough to expiration to realize a high degree of sensitivity to spot price fluctuations. That said, we would always recommend that long-term passive investors use broad-basket exposure to fulfill a commodity allocation within their portfolio.

Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including BlackRock, Invesco, Merrill Lynch, Northern Trust, and Scottrade for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

My wife and I recently sold our condo in Miami Beach to buy another one. The one we sold was a studio -- or "junior one bedroom" -- in a historic art deco building, a short walk from Ocean Drive and the popular News Cafe. It fetched $95,000.

Inside the April Issue

• Fix Your 401(k)
• 10 Things Campaign Managers Won't Tell You
• 9 to 5 -- at 75
• Real Estate: When High Rents Are a 'Buy' Signal

Was that cheap? Expensive? People offer all sorts of conflicting opinions about any real estate move -- especially right now, and especially in a shattered market like Miami. But the answer is surprisingly easy to find.

We didn't want to be landlords, but we had credible offers to rent our studio for $1,100 a month, or $13,200 a year. (A few years ago, we would have only gotten about $900 a month). Deduct $5,000 a year for taxes and condo fees and maybe $1,000 for other costs, and that leaves about $7,000 in profit. That's a net rental yield of 7.4 percent on our buyer's purchase price. In an era when 10-year Treasury bonds pay 2 percent and a 30-year mortgage may cost just 4 percent, it ain't hay. Ultimately, it seems our buyers got a good deal, and nationwide, many other people could be doing equally well.

Two-thirds of U.S. families own a home, says the Federal Reserve, and their home typically accounts for two-thirds of their assets. Residential investment is also a major driver of the economy. And yet for all this importance, so many people focus on the wrong things. They ask when the market will bottom out. They fret about the "shadow inventory" of unsold foreclosures. They steer clear of cratered markets like Phoenix or Las Vegas until they see a "return of confidence," but they jump into New York or San Francisco's sky-high prices without a second thought.

Real estate is a simple asset to understand. If you buy a home, you can live in it without paying rent, or you can rent it out to someone else. It has no other use. It has no other value. Rent is to housing as earnings are to stocks. The only sensible way to approach real estate is to compare the price with present and future rents. That's it.

Time to Buy?

Some real estate economists say that when home prices are 15 times annual rents or lower, it makes more sense to buy than to rent. That's now the case in about three-quarters of American cities. Some of the price-to-rent ratios:

• 6: Las Vegas
• 8: Sacramento
• 10: San Antonio
• 13: Miami
• 15: Chicago
• 24: San Francisco
• 36: New York

In early 2008, I first visited Miami to report on the housing bubble for The Wall Street Journal. I checked out some of the brand-new superluxury high-rises downtown, overlooking Biscayne Bay. Prices had already plunged. But, as I calculated, renting one of these places still cost only half as much per month as owning one.

Dean Baker, economist at the Center for Economic and Policy Research, offers a simple rule of thumb. "Based on a historical examination of the price-to-rent ratios," he says, home prices are close to fair value when they are about 15 times gross annual rents. By this measure, Baker says, some of the hardest-hit markets -- such as Detroit and Phoenix -- are now very cheap, and places like Washington, Boston and San Francisco look expensive.

Home prices are down a third from their 2006 peak, according to the Standard & Poor's/Case-Shiller 20-city housing index. From the gloomy way people talk about the housing market, you'd think rents were falling too. They're not. According to the Department of Labor, rents have been rising steadily for years, aside from a brief lull in 2009 and 2010. They rose 2.5 percent nationwide last year, to a new high.

Naturally, the economics of all this will vary from property to property. From my own admittedly anecdotal experience, you seem to get the highest rental yields from the smallest properties in the best locations (like a studio a short walk from Ocean Drive).

Trulia, the online real estate company, estimated in a report last summer that it was cheaper to buy than to rent in three-quarters of all major U.S. cities. Average prices were just six times rents in Las Vegas. Meanwhile, prices were 36 times rents in New York and 24 times in San Francisco. Good luck with that.

Also See

• Foreclosure Sales Flood Market
• 5 Markets Beating the Housing Bust
• 3 Ways Home Insurers Charge More, Cover Less

If you live in a place where prices are cheap compared with rents and if it fits your circumstances, buying a home now is a compelling financial move. It's a smart investment because it offsets a hidden liability: You will always need somewhere to live. If you don't buy, you will need to find rent money every year, and rents have historically risen -- and will likely continue to rise -- at least in line with inflation.

It's incongruous that while investors have been bidding up the price of inflation-protected Treasury bonds to crazy heights, they have been shunning real estate. A home is also, in a sense, an inflation-protected bond, with rents as the coupon. Very long-term studies of real estate have typically found -- depending on the data -- that house prices have either tracked inflation or beaten it by one or two percentage points a year.

If you're shopping for a home, don't ask the real estate broker what's happening to prices locally. Ask what's happening to rents. That should tell you most of what you need to know.

The Winning Move for E*TRADE?

E*TRADE Financial (Nasdaq: ETFC  ) has gone through a lot this year. Under pressure from major investors, the discount brokerage company announced it would put itself up for sale in the hopes of putting a stop to its steadily eroding stock price.

Yet when E*TRADE said last month that it had chosen to stay independent, I said there was one thing it needed to do to stay competitive in the industry: make a partnership with an exchange-traded fund provider to offer commission-free ETFs to its customers. And now, E*TRADE has announced plans to do just that -- and it has put together an impressive lineup of ETFs in its new commission-free program.

Below, I'll reveal why E*TRADE's new ETF offerings vault it back into contention among the industry's top brokers. But first, let's review how E*TRADE got so far behind -- and what its competitors have already done.

Two years late?
The whole idea of commission-free ETF trading started two years ago, when Schwab (NYSE: SCHW  ) created its own line of ETFs in-house for customers to use. Next up was Fidelity , which used a slightly different strategy: Rather than focusing on its own ETFs, it went to outside provider BlackRock to offer a menu of 25 popular iShares ETFs to its customers. It later expanded the list to 30.

Next, other brokers got on board. Vanguard already had an extensive lineup of ETFs, so it was simple to open them up to brokerage customers at no charge. Scottrade chose to offer Morningstar-based index ETFs from its FocusShares affiliate, while Interactive Brokers (Nasdaq: IBKR  ) offered outside ETFs with a unique leveraged spread strategy. And TD AMERITRADE and Firstrade chose to go across ETF-brand lines to pick the cream of the crop of funds, with TD choosing an extensive list of more than 100 ETFs while Firstrade stuck with a simple set of 10.

So what was left for E*TRADE? That's where I got it wrong: State Street (NYSE: STT  ) and its SPDR line of ETFs are still without a dedicated brokerage partner.

Finding wisdom
Instead, E*TRADE went with three separate providers to put together a menu of more than 90 ETFs. WisdomTree has built a strong reputation in the industry for certain innovations, including its fundamental-weighted index ETFs that track metrics such as earnings and dividends rather than market cap. It also has started focusing on international investments, offering foreign-aimed ETFs like WisdomTree Emerging Markets Equity (NYSE: DEM  ) and WisdomTree Emerging Markets Local Debt (NYSE: ELD  ) .

In addition, E*TRADE has added funds from Global X, which had also made a deal with Interactive Brokers. Global X's funds let investors drill down on individual sectors, countries, and investing strategies. For instance, its Global X Lithium ETF (NYSE: LIT  ) has become a popular way to play the increasing demand for lithium-ion battery technology and alternative energy.

Finally, the broker is also using 10 ETFs from Deutsche Bank's db-X. They include five target-date funds and five international equity ETFs.

Will it help?
Clearly, despite offering a wide array of ETFs, E*TRADE chose not to tap into the raw asset play that State Street would have brought. To me, that suggests that State Street simply isn't interested in partnering with a discount broker -- raising the possibility that it may try to offer its ETFs directly at some later point, although it may merely be trying not to alienate any of its institutional clients who might chafe at State Street singling out any one institution over another.

E*TRADE clearly had to make a move to be competitive in the ETF world, and this represents a strong step. While lacking the sheer diversity of TD AMERITRADE's ETF smorgasbord, E*TRADE did a good job of bringing together ETFs that will help its customers build diverse and eclectic portfolios. Given how late the company was to the party, E*TRADE did pretty well.

Learn more about ETFs from The Motley Fool. This free special report reveals three ETFs with huge growth potential; read it now before it's gone!

Are you looking for a better broker? Check out the Fool's Broker Center and find out which brokers are the best for you.

VIX Drops to a Learners Permit in Options

Your daily options trading wrap up.

Frederic Ruffy is busy today so we asked Joe Cusick, senior vice president and options analyst with Options Express, to provide a brief on today�s trading activity.

Cusick�s Commentary - RISK ON — trading in a growthflationary (growth & inflationary atmosphere) market is really on! This market clearly had more pent up demand than expected. The headlines in the last two sessions were what most market watchers thought would bring this rally to its knees but then in rode earnings, thanks INTC, and positive EU debt auctions in Portugal and Spain (THE P & S in PIIGS), where the Spanish auction was the more impressive. This was more than enough a catalyst to get the overnight and early morning markets right where we left them two weeks ago, ready to challenge their highs. This rally has some legs with earnings power behind it.

A busy day but one trade that stood out for Cusick was a spread in the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT). The ETF is designed to correspond with the price and yield of a 20 Year US Treasury bond. TLT closed at 92.68, down .60.

Customer traded 50,000 contracts on each side of a three-way, multi-month spread, selling the TLT June 101 Calls, buying the TLT Sep 98 Calls and selling the TLT Sep 101 Calls.

�The trader collected premium of 14 cents for the June calls, and, net-net, paid 32 cents for a spread that may be worth $2.68 by September,� said Cusick. The trader believes TLT �should be static before June expiration but see some moves higher by September.�

Market Sentiment

Stocks were broadly higher following a round of mostly upbeat corporate earnings reports. Intel (NASDAQ: INTC) led stocks higher after upbeat earnings report late Tuesday. Freeport-McMoran (NYSE:FCX), Wynn Resorts (NASDAQ: WYNN), and United Technologies (NYSE: UTX) are among the others rallying around earnings. Economic news included a report on Existing Homes Sales that showed an increase to an annual rate of 5.1 million in March, from 4.92 million in February and better than the 5 million that economists were expecting. Gold closed just under $1500. The Dow Jones Industrial Average added 194 points and the tech-heavy NASDAQ gained 57. The CBOE Volatility Index (CBOE: VIX) is down .67 to 15.16. Overall options volume was high.

Bullish Flow

Dow component Verizon (NYSE: VZ) sees an interesting trade ahead of earnings. Investor sold 10,000 VZ January 32 Puts at $1.18 to buy 10,000 VZ January 42 Calls at 85 cents. Collected 32 cents on this bullish risk-reversal and, since volume exceeds open interest in both contracts, this looks like a new position. It’s not a straight bullish bet, however, as it was tied to 492,000 VZ shares. VZ reports earnings tomorrow before the market opening.

Natural gas producer Williams Companies (NYSE: WMB) sees massive spread trade. Shares are up after natural gas gained 6 cents to $4.33. Prices have rallied 7.2% since April 8. An investor apparently sold 35,000 WMB May 17 Calls at $14.40 and bought 35,000 WMB January 22.5 Calls at $9.35. They paid $5.05 for the spread and are possibly rolling a position out a few months and up a few strikes. WMB shares have risen 54 percent since late-October.

Bearish Flow

Put volume is picking up in the SPDR S&P 500 ETF (NYSE: SPY) despite the equity market rally today. Options volume in the exchange-traded fund through midday is 971,000 puts and 478,000 calls. SPY APR Weekly 132 Puts, which expire at the end of the week and stop trading after tomorrow (Friday is a holiday), was active. One top trade is a spread, in which the investor apparently bought 20,000 SPY May 132 Puts at $1.55 and sold 20,000 SPY May 130 Puts at $1.04. If so, 51 cents was paid for the spread and the investor might be looking for SPY to give up today’s gains and fall back to $130 or less through the May expiration (in 30 days). SPY closed at $133.10 today.

Implied Volatility Mover

The VIX plummeted to its lowest levels since July 2007 today. The market’s “fear gauge” hit a morning low of 14.30 and closed at 15.16. VIX options expire today and the settlement value is 14.86, which means that any April call option with a strike price greater than 15 is expiring worthless. As of yesterday, strikes ranged from 10 to 80, with substantial open interest in the April 23, 25 and 30 calls.

Unusual Volume � (at midday)

Intel (NASDAQ: INTC) options volume is running two and a half times its daily average, with 121,000 contracts traded and call volume accounting for about 65% of trades.

TiVo (NASDAQ: TIVO) options volume is eight times its average daily, with 245,000 contracts traded and call volume representing for 76% of the activity.

IShares Long-term Bond Fund (NYSE: TLT) options volume is running five times its daily� average, with 161,000 contracts traded and call volume accounting for 97% of the activity.

Increasing options activity is also being seen in Qualcomm (NASDAQ: QCOM), Johnson & Johnson (NYSE:JNJ), and IBM (NYSE:IBM).

10 Health Reform Provisions Implementing in 2012

Many changes in the health-care system take effect in 2012. (Photo: AP)

The Henry J. Kaiser Family Foundation helpfully explains the provisions of “2010 Patient Protection and Affordable Care Act,” better known as health care reform, that will be implemented this year. A quick review is in order for those with affected clients, as well as advisors who are also small business owners themselves. Pay special attention to Nos. 2,  4, 5 and 8.

Provisions for 2012

1) Accountable Care Organizations in Medicare

Implementation: Jan. 1, 2012

According to the foundation, this provision allows providers organized as accountable care organizations that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program.

2) Medicare Advantage Plan Payments

Implementation: Jan. 1, 2012

This reduces rebates paid to Medicare Advantage plans and provides bonus payments to high–quality plans.

3) Medicare Independence at Home Demonstration

Implementation: Jan. 1, 2012

This creates the Independence at Home demonstration program to provide high-need Medicare beneficiaries with primary care services in their home.

4) Medicare Provider Payment Changes

Implementation: Begins calendar, fiscal, or rate year 2012, as appropriate

This adds a productivity adjustment to the market basket update for certain providers, resulting in lower rates than otherwise would have been paid.

5) Fraud and Abuse Prevention

Implementation: Jan. 1, 2012

This provision establishes procedures for screening, oversight, and reporting for providers and suppliers that participate in Medicare, Medicaid, and CHIP; requires additional entities to register under Medicare.

6) Annual Fees on the Pharmaceutical Industry

Implementation: Jan. 1, 2012

This imposes new annual fees on the pharmaceutical manufacturing sector.

7) Medicaid Payment Demonstration Projects

Implementation: Jan. 1, 2012 through Dec. 31, 2016

This provision creates new demonstration projects in Medicaid for up to eight states to pay bundled payments for episodes of care that include hospitalizations and to allow pediatric medical providers organized as accountable care organizations to share in cost-savings.

8) Data Collection to Reduce Health Care Disparities

Implementation: March 23, 2012

It requires enhanced collection and reporting of data on race, ethnicity, sex, primary language, disability status, and for underserved rural and frontier populations.

9) Medicare Value-Based Purchasing

Implementation: Oct. 1, 2012

This establishes a hospital value-based purchasing program in Medicare to pay hospitals based on performance on quality measures and requires plans to be developed to implement value-based purchasing programs for skilled nursing facilities, home health agencies and ambulatory surgical centers.

10) Reduced Medicare Payments for Hospital Readmissions

Implementation: Oct. 1, 2012

This provision reduces Medicare payments that would otherwise be made to hospitals to account for excess (preventable) hospital readmissions.

PIMCO Launches Broker-Dealer, So Advisors Can Buy Direct

Asset-manager PIMCO said early Monday that it has launched a U.S. distribution platform -- PIMCO Investments LLC, a new broker-dealer -- which means that both financial advisors and individual investors no longer need to buy its funds via parent firm Allianz Global Investors.

“By establishing a fully integrated distribution platform, we intend to provide greater access to PIMCO’s global investment solutions, intellectual capital and investment analysis, which are the core of our approach to delivering consistent risk adjusted returns to PIMCO’s clients,” said COO Douglas Hodge in a news release.

The new distribution platform is part of PIMCO’s aim to expand its retail results and interaction with financial advisors, the company says.

“PIMCO’s Global Wealth Management organization now has more than 200 professionals who are fully dedicated to serving financial advisors and their clients,” said Jon Short, head of the firm’s global wealth management business and New York office, in a statement.

“We have significantly expanded our focus on the retail segment through this effort and will enhance our partnership with advisors through our dedicated focus on providing superior client service, knowledge sharing and investment performance,” Short added.

PIMCO, known for its bond funds, is currently the fifth-largest U.S. fund family in terms of assets under management, net of proprietary fund of funds, according to the Financial Research Corp. It had about $460 billion in AUM as of Dec. 31, 2010, and is led by CEO Mohamed El-Erian (left).

Its assets grew 26% in 2010 and 96% over 2009-2010, says FRC.

The PIMCO Total Return Fund was the best selling fund in 2010 with $26 billion in net inflows and also topped the charts in 2009, with $53.3 billion in net inflows.

Polarized Greece girds for crucial election

MARKETWATCH FRONT PAGE

Greece will go to the polls Sunday for the second time in two months, and the outcome of the parliamentary vote could hold the key to the future of the euro zone. See full story.

Next clash for health-care stocks already in sight

Cost-cutting efforts in medicine are locked into place, regardless of how the Supreme Court rules on the nation�s 2010 health-care overhaul, and that�s likely to put pressure on device makers, analysts say. See full story.

Next clash for health-care stocks already in sight

Cost-cutting efforts in medicine are locked into place, regardless of how the Supreme Court rules on the nation�s 2010 health-care overhaul, and that�s likely to put pressure on device makers, analysts say. See full story.

Health law without mandate may hike costs

If the Supreme Court throws out a central part of the health-reform law later this month, it is likely to disrupt but not totally derail changes to the medical and insurance system that are already under way. And it may mean higher premium costs. See full story.

Health-care stocks facing a judgment day

When the Supreme Court rules on the health-care overhaul rule, shares of companies in the sector are likely to be hit by the ruling. See full story.

MARKETWATCH COMMENTARY

This story is what�s happening across the United States, as daily newspapers cut back to stay alive, writes media columnist Jon Friedman See full story.

MARKETWATCH PERSONAL FINANCE

When it comes to IRAs, timing is everything. Robert Powell looks at five rules that could derail your retirement-savings plans. See full story.

FOREX-Euro drops to 2-week low with EU summit ahead – Reuters

Trading Point

FOREX-Euro drops to 2-week low with EU summit ahead Reuters NEW YORK, June 26 (Reuters) – The euro fell to it lowesta gainst the dollar in more than two weeks o n Tuesday as Spanishbond yields rose and hopes faded … WORLD FOREX: Euro Sags As Traders Look To EU Summit, Rupee …Wall Street Journal FOREX-Euro undermined by low expectations for EU summitYahoo! Eurosport UK Forex Market Review � Yen stronger after flight to safety as euro …Trading Point Action Forex all 1,853 news articles »

{forex} – Forex News

Revealed: A Top-Ten Stock for 2010

It's become an annual tradition among the research staff of Market Advisor -- StreetAuthority's longest-running publication.
 
Every December, through phone calls, emails, and meetings -- heck, everything short of smoke signals -- the office is abuzz with chatter.
 
You see, December is when we hammer out our "Top Ten Stocks" for the coming year. This is our chance to put our collective heads together to pinpoint the ten stocks -- no more, no less -- that we believe will be the best investments for the coming year.
 
When you put your neck on the line with only a handful of picks -- which our Market Advisor subscribers can track throughout the year -- you better be right. If you're not, your performance is there for everyone to see.
 
Fortunately, our picks haven't disappointed. And you couldn't be happier if you're a subscriber.
 
Last year we outperformed one of the strongest bull markets of the past decade. While the S&P 500 returned +26.5%, our "Top Ten Stocks" cleared that hurdle, delivering +36.7% for subscribers.
 
Our picks included Mexican airport operator Grupo Aeroportuario del Pacifico (NYSE: PAC), which returned +45.8%... gold ETF Market Vectors Gold Miners (NYSE: GDX), which saw +36.7% returns... and Brazilian electric utility CPFL Energia (NYSE: CPL), which returned +72.1%.
 
But this wasn't some flash in the pan thanks to the bull market. Since we've started publishing our annual "Top Ten Stocks" report in 2003, our picks have given readers a compounded return of +96.6% through 2009. That compares to just +41.3% for the S&P 500.
 
With this performance in mind, I wanted to share a little tidbit with you -- a "sneak preview" if you will. I've selected one my favorite picks from the 2010 edition of "Top-Ten Stocks" to share with you.
 
The Silver Stock Set to Soar
You've probably heard a lot of talk about gold lately -- and for good reason. Gold is an indisputably reliable hedge against economic uncertainty. And given the unsteady dollar and ripe conditions for runaway inflation, it's no surprise that spot prices have ascended.
 
But you may be surprised to know that silver has actually climbed almost twice the rate of its yellow sibling. Yet, silver can still be had for just 1/60th the price of gold, a ratio well beyond historical norms.
 
My staff and I are confident that silver prices could easily rally another +50%. Aside from shielding investors from inflation, silver is also prized for its electrical and thermal conductivity and other unique properties. With commercial applications ranging from photography to medicine, industrial usage eats up approximately 60% of the world's supply each year.  

 

None of this has gone unnoticed by retail investors. According to the U.S. Mint, the public scooped up 16.1 million American Eagle one-ounce silver coins in the first half of 2009, a sharp increase of +75% over the previous year. But you can do much better than bullion...

As the world's largest silver streaming company, Silver Wheaton (NYSE: SLW) buys future silver production from gold miners for relatively fixed prices, often below $4 an ounce. These deals are a win-win for both parties: The mine owners get upfront cash for what they consider to be a byproduct, while Silver Wheaton gets mounds of silver without having to shell out a penny for mine exploration or maintenance.

Management recently locked up an agreement that will hand over 25% of whatever silver is dug up from Goldcorp's (NYSE: GG) Penasquito mine in Mexico. That deal alone is expected to yield 7.2 million ounces of silver annually for the next 22 years. The firm has 16 other agreements in place that will generate 17 million ounces of silver this year and as much as 40 million by 2013.

That increased production could send sales soaring +135% within the next four years without any increase in silver prices. Keep in mind, the company has minimal future capital expenditures, so any incremental sales growth will be converted into earnings.

5 Dividend Plays For You To Judge

This list is meant to serve as a starting point for investors. A lot of data has been provided so it should be relatively easy for an investor to scroll down the list and decide if the stock warrants further attention. If you find the stock appealing, you can dig deeper and see if meets with your investment criteria. To help the novice investor we have put out this guideline which could prove to be useful in the selection process. "Our suggested guidelines when searching for new investment ideas." Navios Maritime Partners would fall under the "speculative category" but it appears to be putting in a bottom and could make for a good long-term investment for those willing to take a risk. Furthermore, it does offer a rather enticing yield of 13.3%.

Company: Danaher Corp (DHR)

Brief Overview

Percentage Held by Insiders = 16.8

Levered Free Cash Flow = 1.83B

Number of Institutional Sellers 12 Weeks = 2

Relative Strength 52 weeks = 55

Cash Flow 5-year Average = 2.57

Profit Margin = 13.77%

Operating Margin = 17.51%

Quarterly Revenue Growth = 31%

Quarterly Earnings Growth = 42.8%

Operating Cash Flow = $2.8B

Beta = 1.08

Percentage Held by Institutions = 67.8%

Short Percentage of Float = 2.3%

Growth

Net Income ($mil) 12/2011 = 1793

Net Income ($mil) 12/2010 = 1152

Net Income ($mil) 12/2009 = 1152

Net Income Reported Quarterly ($mil) = 613

EBITDA ($mil) 12/2011 = 2735

EBITDA ($mil) 12/2010 = 1777

EBITDA ($mil) 12/2009 = 1777

Cash Flow ($/share) 12/2011 = 2.99

Cash Flow ($/share) 12/2010 = 2.35

Cash Flow ($/share) 12/2009 = 2.35

Sales ($mil) 12/2011 = 13203

Sales ($mil) 12/2010 = 11185

Sales ($mil) 12/2009 = 11185

Annual EPS before NRI 12/2007 = 1.92

Annual EPS before NRI 12/2002 = 2.12

Annual EPS before NRI 12/2009 = 1.77

Annual EPS before NRI 12/2010 = 1.77

Annual EPS before NRI 12/2011 = 2.31

Dividend history

Dividend Yield = 0.2

Dividend Yield 5 Year Average 03/2012 = 0.18

Annual Dividend 12/2011 = 0.08

Dividend 5 year Growth 03/2012 = 13.72

Dividend sustainability

Payout Ratio 03/2012 = 0.03

Payout Ratio 5 Year Average 03/2012 = 0.03

Payout Ratio 5 Year Average 12/2011 = 0.03

Performance

Next 3-5 Year Estimate EPS Growth rate = 14.57

5 Year History EPS Growth 03/2012 = 9.1

ROE 5 Year Average 03/2012 = 13.04

ROE 5 Year Average 12/2011 = 13.45

Return on Investment 03/2012 = 9.24

Debt/Total Cap 5 Year Average 03/2012 = 21.22

Current Ratio 03/2012 = 1.67

Current Ratio 12/2011 = 1.5

Current Ratio 5 Year Average = 1.64

Quick Ratio = 1.08

Cash Ratio = 0.35

Interest Coverage Quarterly = 18.66

Notes

The stock appears to be putting in a bottom. Consider selling puts with strikes in the 48-50 ranges to lower your entry cost. You could sell puts with 2-6 months of time left on them. The further out you go, the higher the premium.

Company: Navios Maritime Partners LP (NMM)

Brief Overview

Percentage Held by Insiders = 9.23%

Levered Free Cash Flow = -5.89M

Cash Flow 5-year Average = 2.4

Profit Margin = 34.18%

Operating Margin = 40.94%

Quarterly Revenue Growth = 12.1%

Quarterly Earnings Growth = 2%

Operating Cash Flow = 133.98M

Beta = 1.48

Percentage Held by Institutions = 24.6%

Growth

Net Income ($mil) 12/2011 = 65

Net Income ($mil) 12/2010 = 61

Net Income ($mil) 12/2009 = 34

Net Income Reported Quarterly ($mil) = 17

EBITDA ($mil) 12/2011 = 139

EBITDA ($mil) 12/2010 = 109

EBITDA ($mil) 12/2009 = 59

Cash Flow ($/share) 12/2011 = 2.86

Cash Flow ($/share) 12/2010 = 2.49

Cash Flow ($/share) 12/2009 = 2.24

Sales ($mil) 12/2011 = 187

Sales ($mil) 12/2010 = 143

Sales ($mil) 12/2009 = 93

Annual EPS before NRI 12/2007 = 0.15

Annual EPS before NRI 12/2008 = 1.56

Annual EPS before NRI 12/2009 = 1.66

Annual EPS before NRI 12/2010 = 1.51

Annual EPS before NRI 12/2011 = 1.4

Dividend history

Dividend Yield = 13.30

Dividend Yield 5 Year Average = 11.33

Dividend sustainability

Payout Ratio = 4.73

Payout Ratio 5 Year Average = 1.08

Performance

Next 3-5 Year Estimate EPS Growth rate = 5

ROE 5 Year Average = 24.89

Current Ratio = 1.29

Current Ratio 5 Year Average = 2.26

Quick Ratio = 1.10

Cash Ratio = 1.04

Interest Coverage = 7.50

Notes

Only individuals willing to take on a bit of risk should consider this play as it is more speculative in nature. It does, however, offer a great yield and it has held up much better than many of its peers. Additionally, net income, EBITDA, sales and cash flow have all be trending upward for the past three years. It also sports a decent quick ratio of 1.10, a current ratio of 1.20 and pretty good interest coverage ratio of 7.50

Consider waiting for a test of the $12.00 ranges before jumping in. Alternatively, if you are bullish, you could sell puts at strikes you would not mind owning the stock at. You will either get in at a price of your choosing, or you will get paid for trying to via the premium.

Company : Ternium SA (TX)

Levered Free Cash Flow = 228.45M

Brief Overview

Relative Strength 52 weeks = 28

Cash Flow 5-year Average = 5.57

Profit Margin = 5.09%

Operating Margin = 13.93%

Quarterly Revenue Growth = 2.2%

Quarterly Earnings Growth = -22%

Operating Cash Flow = 691.89M

Beta = 2.04

Short ratio = 1.10

Growth

Net Income ($mil) 12/2011 = 650

Net Income ($mil) 12/2010 = 780

Net Income ($mil) 12/2009 = 767

Net Income Reported Quarterly ($mil) = 160

EBITDA ($mil) 12/2011 = 1472

EBITDA ($mil) 12/2010 = 1642

EBITDA ($mil) 12/2009 = 921

Cash Flow ($/share) 12/2011 = 6.27

Cash Flow ($/share) 12/2010 = 5.8

Cash Flow ($/share) 12/2009 = 3.61

Sales ($mil) 12/2011 = 9157

Sales ($mil) 12/2010 = 7382

Sales ($mil) 12/2009 = 4959

Annual EPS before NRI 12/2007 = 0.39

Annual EPS before NRI 12/2008 = 2.93

Annual EPS before NRI 12/2009 = 1.58

Annual EPS before NRI 12/2010 = 3.1

Annual EPS before NRI 12/2011 = 3.42

Dividend history

Dividend Yield = 3.9

Dividend Yield 5 Year Average = 3.49

Dividend 5 year Growth = N/A

Dividend sustainability

Payout Ratio = 0.32

Payout Ratio 5 Year Average = 0.26

Performance

Next 3-5 Year Estimate EPS Growth rate = 2

ROE 5 Year Average 12/2012 = 12.66

8. Current Ratio 12/2011 = 2.01

9. Current Ratio 5 Year Average = 3

Quick Ratio = 1.74

Cash Ratio = 1.37

Interest Coverage Quarterly = 8.28

Company : Energy Transfer Partners (ETP)

Brief Overview

Percentage Held by Insiders = 3

Relative Strength 52 weeks = 53

Cash Flow 5-year Average = 4.97

Profit Margin = 23.75%

Operating Margin = 17.56%

Quarterly Revenue Growth = -22.6%

Quarterly Earnings Growth = 350.9%

Operating Cash Flow = 1.31B

Beta = 0.95

Levered Free Cash Flow = -543.81M

Percentage Held by Institutions = 21.8%

Short Percentage of Float = 3.1%

Growth

Net Income ($mil) 12/2011 = 669

Net Income ($mil) 12/2010 = 617

Net Income ($mil) 12/2009 = 792

Net Income Reported Quarterly ($mil) = 1115

EBITDA ($mil) 12/2011 = 1631

EBITDA ($mil) 12/2010 = 1398

EBITDA ($mil) 12/2009 = 1520

Cash Flow ($/share) 12/2011 = 5.67

Cash Flow ($/share) 12/2010 = 5.34

Cash Flow ($/share) 12/2009 = 6.32

Sales ($mil) 12/2011 = 6850

Sales ($mil) 12/2010 = 5885

Sales ($mil) 12/2009 = 5417

Annual EPS before NRI 12/2007 = 3.31

Annual EPS before NRI 12/2008 = 4.09

Annual EPS before NRI 12/2009 = 2.51

Annual EPS before NRI 12/2010 = 1.47

Annual EPS before NRI 12/2011 = 1.48

Dividend history

Dividend Yield = 8.0

Dividend Yield 5 Year Average = 7.9

Dividend 5 year Growth = 1.56

Dividend sustainability

Payout Ratio = 0.75

Payout Ratio 5 Year Average = 1.68

Performance

Next 3-5 Year Estimate EPS Growth rate = 12.05

ROE 5 Year Average = 19.14

Current Ratio = 1.10

Current Ratio 5 Year Average = 1.15

Quick Ratio = 0.61

Cash Ratio = 0.19

Interest Coverage Quarterly = 9.33

Important facts investors should be aware in regards to investing in MLPs

Payout ratios are not that important when it comes to MLPs generally pay a majority of their cash flow as distributions. Payout ratios are calculated by dividing the dividend/distribution rate by the net income per share, and this is why the payout ratio for MLPs is often higher than 100%. The more important ratio to focus on is the cash flow per unit. If one focuses on the cash flow per unit, one will see that in most cases, it exceeds the distribution declared per unit.

MLPs are not taxed like regular corporations because they pay out a large portion of their income to partners (as an investor you are basically a partner and are allocated units instead of shares) usually through quarterly distributions. The burden is thus shifted to the partners who are taxed at their ordinary income rates. As ordinary income tax rates of investors are typically lower than the income tax assessed on corporations, this arrangement is advantageous to the MLPs and generally most investors.

MLPs issue a Schedule K-1 to their investors. Unrelated business income (UBI) above $1,000 is taxable in an IRA. This information will appear Box 20 in the schedule K-1. UBI is typically a very small number usually well below $1000 and in some cases negative. If the MLP pays out distributions in excess of the income it generates, the distribution is classified as a "return of capital" and tax deferred until you sell your units. For more information, on this topic investors can visit the National Association of Publicly Traded Partnerships

Company: Nustar Energy (NS)

Brief Overview

Levered Free Cash Flow = -123.01M

Cash Flow 5-year Average = 5.74

Profit Margin = 3.1%

Operating Margin = 4.33%

Quarterly Revenue Growth = 40.6%

Quarterly Earnings Growth = -7.5%

Operating Cash Flow = 250.65M

Beta = 0.77

Percentage Held by Institutions = 29.7%

Short Percentage of Float = 0.7%

Growth

Net Income ($mil) 12/2011 = 222

Net Income ($mil) 12/2010 = 239

Net Income ($mil) 12/2009 = 225

Net Income Reported Quarterly ($mil) = 26

EBITDA ($mil) 12/2011 = 478

EBITDA ($mil) 12/2010 = 483

EBITDA ($mil) 12/2009 = 461

Cash Flow ($/share) 12/2011 = 5.57

Cash Flow ($/share) 12/2010 = 5.64

Cash Flow ($/share) 12/2009 = 5.82

Sales ($mil) 12/2011 = 6575

Sales ($mil) 12/2010 = 4403

Sales ($mil) 12/2009 = 3856

Annual EPS before NRI 12/2007 = 2.58

Annual EPS before NRI 12/2008 = 4.07

Annual EPS before NRI 12/2009 = 3.03

Annual EPS before NRI 12/2010 = 2.89

Annual EPS before NRI 12/2011 = 2.97

Dividend history

Dividend Yield = 8.4

Dividend Yield 5 Year Average = 7.80

Dividend 5 year Growth = 3.86

Dividend sustainability

Payout Ratio = 1.7

Payout Ratio 5 Year Average 12/2011 = 1.36

Performance

Next 3-5 Year Estimate EPS Growth rate = 6.45

ROE 5 Year Average = 8.87

Current Ratio = 0.92

Current Ratio 5 Year Average = 1.77

Quick Ratio = 0.65

Cash Ratio = 0.07

Interest Coverage Quarterly = 2.33

Conclusion

A great way to get into a stock that you are bullish on is to sell puts at strikes you would not mind owning the stock at. Investors looking for other ideas might find this article to be of interest Silver Wheaton: Get In At $20 Or Grab An Extra 13% .

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: It is imperative that you do your due diligence and then determine if the above plays meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Importance Of Investments

Investment plays an essential part in the economy and also helps the corporations in raising their capital. Most of the corporations get advisory services from the company, in addition to the newly found importance of Investment banking; due to this commercial banks do not perform these tasks. Mutual funds offer various investors, who may not have enough money to invest, but need an ability to invest. Investment is more than a tool which monitors and manages the investment personally and at a very low risk.

The existence of capital of every company increases when a service, commodity or in simple language a product is purchased to produce goods for human consumption. Eventually the capital goes on decreasing as and when it is used. A proportion of this capital always gets ruined.

This is when economists look out for better investment plans as a backup, for the growth of the company and to replace the capital that has been depreciated. The investment expenditure depends entirely on the company’s potential benefits and the cost of buying capital goods which will not turn into a liability for the company.

The existing companies are always in the process of launching a secure financial portal for its customers, which enables them to carry out online trading and investment activities, which is cost effective and convenient for the consumers. The cost to the company comes into picture at times and ends up affecting the employees. By taking simple and easy measures you can make that timely investment for a better future.

Interest rate also plays an important part in the common man as well as a company’s growth. Higher and varying interest rates cause paying off the debt a little more expensive for the companies. It becomes necessary in this case to invest into plans which are beneficial for an individual and for a company as a whole. Seeking the right advice from the right place can be a dilemma for many because money matters.

Reliance is one of the companies providing such beneficial plans. Reliance Money has decided to distribute the network to more and more rural areas. It mainly deals with sales of financial commodities like mutual funds, life insurance as well as general insurances.

This initiative in the Indian rural areas is providing employment to over 50,000 people thus helping their own business grow. New things to look out for in the company are, Super Trade which has a free trial of ten days for existing customers giving them the whole idea and enabling them to take an informed decision, desk facility which is available at every branch, and various tariff structures etc. giving the whole idea of useful investment plans.

To know more about Reliance Money one of the leading financial organization in India, check the Reliance Money website for the latest information.

Is T. Rowe Price the Right Stock to Retire With?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Sometimes when you're looking at a company to help manage your assets, you're better off buying shares of the company itself rather than that company's funds and other investing vehicles. Looking at its long-term track record of strong performance, T. Rowe Price (Nasdaq: TROW  ) definitely looks like one of those cases. Below, we'll look at how T. Rowe Price does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

• Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
• Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
• Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
• Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
• Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at T. Rowe Price.

Factor	What We Want to See	Actual	Pass or Fail?
Size	Market cap > $10 billion	$13.3 billion	Pass
Consistency	Revenue growth > 0% in at least four of past five years	4 years	Pass
�	Free cash flow growth > 0% in at least four of past five years	4 years	Pass
Stock stability	Beta < 0.9	1.64	Fail
�	Worst loss in past five years no greater than 20%	(40.6%)	Fail
Valuation	Normalized P/E < 18	17.86	Pass
Dividends	Current yield > 2%	2.4%	Pass
�	5-year dividend growth > 10%	16.7%	Pass
�	Streak of dividend increases >= 10 years	24 years	Pass
�	Payout ratio < 75%	39.4%	Pass
�	�	�	�
�	Total score	�	8 out of 10

Source: S&P Capital IQ. Total score = number of passes.

T. Rowe Price gives conservative investors almost everything they'd want with its score of 8. Even though the stock market has generally been a mixed bag for investors, this asset management company has made the most of the volatility and has looked particularly healthy lately.

The financial sector is full of land mines, with banks carrying bad assets and economic threats around the world. But through it all, T. Rowe Price has managed to epitomize blue-chip excellence, with half a trillion dollars under management and a definite niche in the no-load mutual fund industry.

The trick is to make sure that you win no matter which way the market goes. Just as private equity companies Blackstone (NYSE: BX  ) and Fortress Investment Group (NYSE: FIG  ) routinely generate huge profits from their asset-based fees, fund companies like Franklin Resources, Legg Mason (NYSE: LM  ) , and T. Rowe Price pull in the cash from annual management fees.

Interestingly, though, T. Rowe Price has been a big player in the social networking space, grabbing up stakes in Facebook, Groupon, Twitter, and Zynga, among others. Given the popularity of Chinese Internet plays Renren (NYSE: RENN  ) and E-Commerce China Dangdang (NYSE: DANG  ) , as well as the U.S. IPO of LinkedIn (NYSE: LNKD  ) , getting in early is a calculated bet that could help T. Rowe Price cash in if social media manages to go public before the bottom falls out of the market.

For retirees and other conservative investors, a near quarter-century record of steadily rising dividends is probably the best sign of a good thing. Although its shares have bounced around quite a bit during the recent turmoil, T. Rowe Price still deserves strong consideration for retirement portfolios.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add T. Rowe Price to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the 13 Steps to Investing Foolishly.

Indian cotton ban a temporary apparel headwind?

NEW YORK (MarketWatch) � The apparel industry, which is counting on deflation in cotton prices to give it a second-half margin tailwind, may be faced with a temporary setback.

India, the world�s second-largest producer of the commodity after the U.S., banned cotton exports immediately until further notice. The country represents about 20% of the global cotton production, said Jefferies & Co. apparel analyst Randal Konik.

�Today�s news is very likely to have a bullish impact on the commodity�s price in the near term,� Konik wrote in a report. �It appears that India�s cotton was oversold prior to the announcement, causing further short covering in the near term.�

Click to Play Translating Olympic Innovations for the Masses

Months before the summer Olympics gets underway, jostling by athletic giant Nike to keep its industry lead has already begun. The products being introduced for the athletes can translate into huge sales potential for the masses. Andria Cheng reports.

Cotton for May delivery �jumped 4 cents, or 4.5%, to 92.23 cents a pound, hitting the ICE Futures U.S. exchange�s upper limit for a one-day gain. On a closing basis, it�s on track to make its biggest one-day move in just over a year.

Cotton prices, which rose to a peak of above $2 a pound last year, hurt apparel companies� profit and raised their costs as they juggled whether to pass on the higher costs to their still budget-conscious retail customers and shoppers.

Companies including athletic-gear giant Nike Inc. NKE �, Wrangler jeans maker VF Corp. VFC �, fashion designer Ralph Lauren Corp. RL �, teen retailer Abercrombie & Fitch Co. ANF �and Kmart parent Sears Holdings Corp. SHLD �were among those that cited a negative impact of last year�s cotton cost inflation on their margin.

As cotton costs have declined before the Indian export ban, VF and Abercrombie had been among those that projected a gross margin lift in the second half. See related story on the apparel industry�s other cost pressures.

With the jitters the ban has stirred in the market, Konik said he�s not concerned and still expects a cotton deflation benefit this year.

�Don�t worry just yet,� he said, adding he continues to be bullish on his coverage of the specialty retail universe. �The longer term supply and demand is less imbalanced versus last year and that specialty retailers should continue to see big tailwinds in the second half driven by easy (comparisons.)�

He said for one, the ban still has the potential to be revised as the move could significantly hurt India�s credibility in the trade market, leaving room for possible reviews and moderations to the ban.

Meanwhile, global supply is slightly higher than it was last year, helped by higher production in Pakistan.

�We think it�s possible for other countries to step up their exports to fill some of the shortage from India,� Konik said.

On the other hand, he said global demand decreased slightly from last year as apparel retailers have diversified into other fabrics.

That �puts them in a relatively better position to tackle the sourcing environment going forward if the cotton shortage continues,� Konik said.

�$1 cotton is most likely to prevail rather than last year�s peak of $2. The temporary increase in cotton prices is unlikely to outweigh the huge cotton tailwinds retailers will see in (the second half.)�

The stock market reaction also indicated investors are keeping a wait-and-see attitude.

VF was little changed. Jones New York parent Jones Group Inc. JNY �was down 1.4%. Nike inched up 0.3%. Ralph Lauren edged lower 0.3%. Abercrombie & Fitch rose 1.9%.

Futures Rise After CPI, Strength in Europe

Stock futures rose early Friday as the consumer price index was flat in November, with the core rate rising 0.2%. European stocks were trading higher, and U.S. banks rode that momentum despite an announcement by Fitch Ratings late on Thursday of downgrades to major banks including Morgan Stanley (MS), Bank of America (BAC) and Goldman Sachs (GS).

Dow futures rose 69 points to 11,891; S&P 500 futures rose 8.7 points to 1,220.4.

Tech stocks are in the spotlight this morning, with Research in Motion (RIMM) falling 10% on a weak forecast, and social-game company Zynga (ZNGA) set to start trading today.

Cablevision (CVC) fell 9% after its COO suddenly resigned.

Earnings Preview: Tyco International

Tyco International (TYC) is expected to report Q1 earnings before the market open on Thursday, January 28 with a conference call scheduled for 8:30 am ET.

Guidance

Analysts are looking for EPS of 59c on revenue of $4.21B. The consensus range is 47c-65c for EPS, and $4.13B-$4.26B for revenue, according to First Call. On January 18, Tyco raised its Q1 estimates to 63c-65c for EPS and $4.25B for revenue, citing improved operating results in each of the company’s business segments. The company’s pending acquisition of Brink’s Home Security is expected to add 7c per share in the first full year after closing, and 14c in the second year.

Analyst Views

On January 20, Sterne Agee raised its price target on the stock to $45 from $40, and maintained its Buy rating on the company. Recent action in the stock has been positive. Tyco is up approximately 50% since July, and touched a 52-week high of $38.88 on January 19. With such a large move, a significant amount of good news has already been priced into the stock. Investors will be looking to see if Q1 earnings justify continued buying going forward.

No Banks, No Recovery

More and more information is coming out about the problems that exist in the banking sector. About ten days ago, Elizabeth Warren, the Chair of the Congressional Oversight Panel, in testimony given to the U. S. Senate Committee on Finance, revealed more than anyone else in Washington, D. C. had done up to the time about the serious problems that existed in the banking sector. (See my post “Elizabeth Warren on the Troubled Smaller Banks.")

Now, it seems as if almost every day we learn more about the difficulties still facing the banks.

The problem that goes along with the problems in the banking industry is that there will be little or no real economic recovery in the United States if the banking industry is not present in making business loans. Without any financial support, the economy will just not be able to grow.

My initial concern for the banking industry came from the behavior of the Federal Reserve System. For at least ten months, I have been arguing that the Fed was keeping its target interest rate low because of the problems that existed in the commercial banking system, especially among the smaller banks. Although the Fed stated that the reason for keeping its target rate so low was the fact that the economy was not picking up steam in terms of recovering from the Great Recession, I felt that their policy stance was caused by something deeper within the banking system. I believed that the asset values being carried on the balance sheets of a large number of banks were so inflated relative to market values that there was a major solvency issue within the banking industry, especially amongst the smaller banks.

FDIC data gave us confirming information on this: as of March 31, 2010, the FDIC placed 775 banks on its problem list. With the five banks closed last Friday, 106 banks have been closed this year, a rate of 3.5 banks per week. Expectations are for this rate of closure to continue for at least 12 more months.

Warren stated in her written testimony that quite a few small banks had received TARP funds and, “Notwithstanding the fact that those small banks that received TARP funds were required to prove their financial health, fewer than 10% have managed to repay their TARP obligations, and 15 percent have failed to pay at least one of their outstanding dividends.”

Furthermore, in her oral testimony, she admitted that “3,000 small banks faced serious problems in the future related to the residential housing market and the wave of commercial real estate loan resets forthcoming in the future.” One could therefore argue that, given this estimate and the FDIC problem list banks, about 1 out of every 2 banks in the banking system faces “serious problems.”

And Congress is working on a new program that would send $30 billion to “struggling” community banks. (See “Community Bank Bailout: Program Risks $30 Billion to Save Weak Banks.") Saturday, President Obama described this new bailout program a “common-sense” plan to help spur on bank lending to small business owners.

This, of course, is the “new” Washington line to justify the help. Give the money to the small banks and they will lend to small businesses.

What about the $1.0 trillion in excess reserves that are currently held by the banking system?

What a weak cover, Mr. President!

Further information is coming from the banking system, information on the loan sales that commercial banks have recently made. Peter Eavis has a very insightful piece in the Wall Street Journal this morning concerning some specific loan sales and how these sales have impacted bank balance sheets. (See Eavis’ article here.)

The bottom line: a lot of the assets that commercial banks carry on their balance sheets are seriously over-valued. When these assets are finally sold, large write downs take place which are absorbed by a reduction in bank earnings. Eavis concludes his article with this comment:

“More loan sales would be welcome. Not only because they relieve banks of burdensome assets, but also because they might inject more reality into the balance sheets seen by investors.”

What does this say about the state of the banking industry? What does this say about the Federal Reserve’s efforts to keep its target interest rate close to zero? Maybe the Fed doesn’t want commercial banks to sale the over-valued assets from off of their balance sheets?

Furthermore, all this is before the “wave of commercial real estate loan resets” forthcoming in the future that Elizabeth Warren talks about. It is also before another 500,000 foreclosures Realty Trac Inc. expects to occur before the end of the year 2010. And, how many foreclosures will take place in 2011? Historically there have only been about 100,000 foreclosures every year in the United States.

It is very difficult to see the United States economic recovery accelerating if the banking system is sitting on the sidelines. The part of the banking system to worry about is the 8,000 banks that do not make the list of the 25 largest domestically chartered banks in the country. These make up approximately one-third of the banking assets in the United States. About 1 in 8 of these banks are on the FDIC’s list of problem banks, and at least 3 in 8 of these banks are on Elizabeth Warren’s list of banks that face “serious problems.”

And, as we know the 25 largest banks have a lot of cash on hand but are not lending it out. Many of the largest non-financial companies in the United States have a lot of cash on hand but are not currently doing anything with it. It would seem that these organizations are looking to use this cash for something other than economic expansion. Could it be that they see the coming period as one in which there will be major consolidation of industry and a restructuring of the economy. (See my post “The Source of Economic Success.”) This will certainly not result in much economic growth or a reduction in the unemployment rate.

Fitch Downgrades Greece to BBB-, With Negative Outlook

Fitch, the ratings agency, has decided enough is enough and has downgraded Greece to BBB-. This is still investment grade despite obvious signs that Greece is no longer an investment grade risk. Not only are the Greeks now (unsuccessfully) marketing their bonds in the US as an emerging market play, the yield on Greek debt is now well above many other countries that are rated non-investment grade.

This downgrade is inevitable, as I indicated in February when the Greek banks were downgraded.

So you see, the Greek government’s anticipated budget cuts, ‘fiscal austerity’ will affect the real economy, which in turn decreases demand for credit and weakens the banking sector. The lower demand for credit, in turn, further weakens the real economy. Anticipating all of this, the ratings agencies pile on, downgrading the banks, increasing their cost of capital. And on it goes. Let’s not forget the capital flight we are now seeing either. That has to weaken Greek banks.

Here’s my question: when does this affect the Greek sovereign credit rating? That has to be next because the scenario I just scoped out would indeed suggest lower tax revenue and more budgetary pressure.

Sure sounds like a death spiral to me.

-Greek death spiral hits bank credit ratings. What should the EU do?

My assumption is that this is going to get worse. Brown Brothers Harriman’s Win Thin says:

Showing impeccable timing, Fitch just downgraded Greece two notches to BBB- and maintained a negative outlook. This is the lowest investment grade rating, and one more would put Greece in junk territory. Fitch has been the most aggressive, and was the first to cut Greece to BBB+ back in Dec. S&P followed suit in March, but Moody’s inexplicably still has Greece at A2 (equivalent to A). This is a very aggressive move by Fitch, as our model shows Greece at BBB/Baa2 but clearly, the situation remains very fluid.

As EM watchers know, countries can get caught up in a vicious circle whereby market skepticism (which leads to higher borrowing costs) actually ends up pushing that country over the edge of the abyss. The Europeans appear to have really missed the boat on this one up big time. A big, timely rescue package with an announcement shock effect was needed and they didn’t deliver. We’ve seen this in EM crises in the past. When officials get cute and try to muddle through, markets will test them. Meanwhile, EM policy-makers are thinking, how did you developed world guys mess this up so badly? We think the EU should have asked Brazil, Korea, and others in EM on how to stabilize market sentiment when sovereign risks are rising. And as long-time EM observers, we would NEVER, ever underestimate the threat of contagion.

These guys know their emerging market, so watch for signs that contagion increases with Greece now downgraded to near-junk.

Here are my questions:

• Who has been selling Greek sovereign CDS? The rumour is that German Landesbanks and AIG had done while CDS spreads were low. I guarantee you a default will be a huge problem for CDS markets. Why aren’t we hearing about collateral problems due to the vaulting CDS spreads of Greece?
• The Greek yield curve is inverted from 3M to 5YR. There’s no way they can sell 6 and 12 mo. bills next week in this case. It would seem the end is nigh unless someone pulls a rabbit out of the hat at the weekend. IS there any chatter about what happens if Greece can’t get these funds?

Anyway you look at it, the chances of another panic are increasing. Not to worry though. In America, Dow 11,000 is coming, retail sales are up by decade high percentages, and happy days are here again.