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  • The Drama of the Euro Plays out in German Courts

    By Paul Quintaro

    Germany's highest court has begun hearing a challenge to the bailout agreements the country made with struggling Euro Zone member states, according to Reuters.

    Ruling conservative politicians have argued that the bailout goes against the German constitution. While it isn't likely that the challenges will affect Germany's current bailout operations, this case may decide future precedent.

    Some German citizens are upset with the country having to foot such a large piece of the bailout. The country's economic strength and wealth have made it the automatic lead donor for bailing out the weaker EU countries, but this role might have an uncertain future.

    If the court rules that the bailouts are unconstitutional, it may completely prevent Germany from giving aid to any struggling European countries. This could weaken the market's perception regarding the strength of the euro.

    With one currency representing multiple countries, the Euro might have unique problems in maintaining its strength.

    Within a single government, like the United States, disagreement is tempered by the checks and balances of the federal government. With the European Union, the overarching laws of the EU might come into conflict with the individual laws of each country, creating hang-ups that would not exist in a single country, and possibly damaging the currency and confidence in the euro in a way that might never happen for the U.S. dollar.

    Considering that Germany is the wealthiest member of the EU, whatever decision is reached will have a powerful impact on the broader European economic situation. Other countries may hesitate to help bailout Greece if they have to foot a larger portion of the bill. France's population could react extremely negatively to any additional burden that they would have to take on.

    Mid-sized European economies might recoil from burdens that will impact their own economic vitality.

    The ruling of the German high court could also set a precedent outside of Germany. Conservative action in Germany might invigorate political movements in other countries. The right-wing could be galvanized by a visible, public victory in this case. A victory would also rally conservative political clout within Germany, perhaps setting the tone for the fiscal future of the country.

    If things play out in this way, disunity may be the new rule within the EU, and that could see euro weakening in the face of other currencies. With other problems simmering around the edges of the EU, a rash of bad news could drive down the currency in the markets.

    However, with government officials, such as Finance Minister Wolfgang Schaeuble on the side of the bailout, there are allies of the plan to support Greece and other struggling EU members. Additionally, other countries may apply pressure to Germany to make decisions with a broader European interest in mind, and considering the interdependence of the EU, pressure may not go unnoticed.

    With such a large economy and so many countries interested in the well-being of the euro, the German court's decision will play out in front of the intensive gaze of an international audience. Whether this next act sets the stage for tragedy or success depends on more than just the German judiciary. A significant portion of the world is invested in the euro, and the tension may run high as these economic crises continue to unfold.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: Germany, Euro
    Jul 06 10:53 AM | Link | Comment!
  • How To Play $50 Silver

    By Jonathan Chen

    Silver Wheaton's (NYSE:SLW) CEO Randy V.J. Smallwood is out with some interesting comments regarding the silver space and where he sees silver prices going.

    In a Dow Jones interview, Smallwood said that he expects silver prices to be "well above" $50 an ounce in the next 2 or 3 years. At last check, spot silver was around $35, so this implies a rise of approximately 40% in the next few years, as currencies around the world weaken due to easy monetary policy, as well as strong demand for the metal. In the interview, Smallwood also said that he sees gold going to $2000 an ounce in the same time frame, which will pull silver up with it.

    If silver stays in the range that it is now for the next year or so, Smallwood said that he expects deal in the space, which could be beneficial for companies like First Majestic Silver Corp. Ordinary Shares (NYSE:AG), and other smaller silver producers.

    Smallwood said that he likes the U.S., Mexico, and Peru as places for silver mining, as the majority of projects are in North and South America.

    The $11 billion company would use the potential price spike to build its war chest and thus buy smaller targets in an effort to expand its reach. It would also use the increase in cash flow to continue to grow its dividend, which it began paying earlier in the year. The dividend is 3 cents per quarter.

    So how to traders play a potential spike in silver prices? Aside from going long the obvious Silver Wheaton, traders can also go long the iShares Silver Trust ETF (SLV), or a specialty ETF such as ProShares Ultra Silver ETF (AGQ). AGQ is a leveraged ETF, and can have wild price swings over the course of a few days or weeks, so traders need to be wary of this.

    Other smaller silver miners could also benefit from a spike in prices, as the chances for being acquired become greater with higher silver prices.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: AGQ, SLV, AG, SLW
    Jun 27 1:32 PM | Link | Comment!
  • Can FedEx Deliver For Your Portfolio?
    By Jonathan Chen

    FedEx (NYSE:FDX) just delivered strong results, and could potentially deliver a nice bundle of profits to your portfolio.

    Shares of FedEx Corporation (FDX) are jumping this morning, up more than 2% in pre-market trading after the Memphis-based company reported better than expected earnings, and guided sharply higher than where Wall Street was expecting.
    The company reported fourth quarter earnings of $1.75 per share on $10.55 billion in revenues. Wall Street had been expecting earnings of $1.72 per share on $10.42 billion in revenues. For fiscal year 2012, FedEx said it expects to earn anywhere between $6.35 and $6.85 per share. Wall Street is expecting full year earnings of $6.50.
    “During fiscal 2011, an improved economy, strong customer demand and decisive actions to grow our business led to increased volumes and yields across all transportation segments,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “With this positive momentum, moderate economic growth and subsiding cost headwinds, FedEx is well positioned to deliver strong earnings growth in fiscal 2012.”
    Shares are awfully cheap at these levels, trading below 14 times 2012 earnings. Historically, FedEx has traded around 20 times earnings, getting a premium over UPS (NYSE: UPS), as the company is growing faster than its "Brown" competitor. The company just increased its quarterly dividend to 13 cents per share, up from 12 cents per share prior. This indicates the strength that FedEx's board has in the company's ability to sustain strong free cash flow, and generate strong net income for the sustainable future.
    “Our actions to improve yields continue to drive revenue and earnings growth across our transportation segments,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “FedEx Ground maintained its exceptional performance this quarter, increasing volume, yields and margins, while FedEx Freight returned to profitability. Even with higher planned capital spending in fiscal 2012, margins, cash flows and returns are expected to improve year over year.”
    Shares are trading at 1.1 times earnings growth, again indicating that shares are more than reasonable at these levels. Shares have returned 17% over the past 52 weeks, just under the S&P 500's return of 18%.
    Investors are breathing a sigh of relief this morning, as FedEx is saying that the economy going forward is not as bad as some have feared.
    FedEx. Delivering packages and profits for you.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: FDX
    Jun 22 9:51 AM | Link | Comment!
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