Don Miller, Associate Editor of Money Morning, reviews the process and implications of the Fed’s possible plan for raising intereste rates without actually raising the rate itself.

Don Miller (Money Morning): The U.S. Federal Reserve may take an unorthodox approach to raising interest rates by paying interest on bank reserves rather than relying on traditional open market remedies, as it exits from its long-term fiscal stimulus programs, Reuters reported today (Tuesday).

Paying interest on reserves is mostly untested and would represent an unexpected twist in the Fed’s response to the financial meltdown.

“In the old days … the Fed controlled the federal funds rate with open market operations,” Antulio Bomfim, a former Fed economist now with Macroeconomic Advisors LLC in Washington told Reuters. “Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising

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Grow Rich Automatically with the World’s Only Gold-Backed “Cash” The U.S. Treasury Dept. has finally approved the new gold-backed “cash.” And according to gold expert Peter Schiff, this new money, called “Gold Dollars,” is not only the best place for your savings today… it could prove very profitable. Why? Because every “dollar” you hold in your bank account is backed by 1 gram of solid gold, held in Fort Knox-like security. So when each gram of gold goes up in value, so does your cash! (Meanwhile, you can spend your money just like you would regular paper dollars.) For Schiff’s full report, please go here.

By Don Miller Associate Editor Money Morning

U.S. President Barack Obama took a swipe at Wall Street yesterday (Wednesday) as he unveiled a sweeping 85-page proposal to reinvigorate government regulation of the U.S. financial markets by giving the Federal Reserve new powers to supervise the …

By Don Miller Associate Editor Money Morning In a surprise move yesterday (Monday), Oracle Corp. (ORCL) pounced on the opportunity to buy Sun Microsystems Inc. (JAVA), for about $7.4 billion in cash, stepping in after Sun’s talks with International Business Machines Corp. (IBM) fell apart. The deal gives Oracle control of server and software maker Sun’s coveted Java programming language and brings to a close Sun’s 27-year reign as the maverick of Silicon Valley. Java is the dominant language of the Internet and runs on over 1 billion devices worldwide. The acquisition is in line with Oracle’s overall business strategy. Oracle, the world’s second-biggest software maker, has dropped $34.5 billion on buyouts since 2005, making it the most aggressive software company in the hi-tech field. "The deal would strengthen Oracle’s position against IBM. Oracle has done a good job ...

As Housing Starts Fall… Lenders Putting “Final Screws” Into Homebuilders

by Don Miller, Contributing Writer, Money Morning

Editor’s Note: We’ve been talking a lot about real estate in Investment U recently, specifically how it relates to Real Estate Investment Trusts (REITs). One of the other aspects of REITs that’s making them look more attractive is the housing market for new construction. As it declines and the financing dries up for builders, old construction will start increasing in value. That bodes well for REITs. Our colleagues over at Money Morning have taken a look at some of the issues facing builders that we feel are extremely relevant to the real estate market right now.

New Housing Starts Hit 50 Year Lows

New housing starts fell in December to the lowest levels since the government started compiling statistics in 1959, as surging unemployment continued to rock the real estate market. The numbers offer more evidence

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International industrial giant ABB Ltd. (ADR:ABB) is set to generate big business as governments around the world implement economic stimulus packages. Horacio Marquez says the company’s bullet-proof balance sheet, strong margins and solid cash flow will mitigate the fallout from the global credit crisis. And its strong long-term prospects make it a great buy today.

This from Money Morning:

Although ABB Ltd. (ADR:ABB) has been around for 120 years, it’s one of those rare companies that’s kept current with the times. It continues to do so and those efforts are generating tangible results.

Indeed, as Money Morning noted in its July 7 overview of ABB, the Zurich-based industrial giant is a virtual lock to benefit from the many billions in stimulus money governments around the globe will be directing into such infrastructure-related areas as highway, construction and power-generation.

These promising opportunities remain.  In fact

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China Overtakes Germany – Economically

By Don Miller, Contributing Writer, Money Morning

Editor’s Note: Our colleagues have been tracking the Chinese “dragon” for a while. As part of a balanced asset allocation strategy we recommend 30% in foreign stocks – and as the third largest economy, China certainly fits that bill. There has been a lot of interest in China, and the latest report from Money Morning confirms why. Take a look below at the reasons China should be on your radar – if it’s not already.

China Now the World’s No. 3 Economy, Supplanting Germany

An upward revision in China’s growth figures allowed it to leapfrog Germany to become the world’s third-largest economy in 2007.  Now the Red Dragon is snapping at Japan’s heels in the quest to become No. 2 in the world’s economic pecking order.

“I think it will take only three to four years for China to overtake Japan

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What’s Keeping Obama up at Night?

by Don Miller Contributing Writer, Money Morning

Editors Note: Inevitably the fanfare and excitement about our new administration will die down, and they will have to get down to work. President-elect Obama may have a laundry list of urgent jobs, but fixing the economy is priority one. The market’s problems are about to become his problems. Money Morning gives us a taste of the economic data that’s been keeping the president-elect and Wall Street up at night – and what we should be paying attention to as well.

Stock Market Gyrates as Reports Show Economy Deep in Recession

The stock market struggled to recover from a tumultuous 2008 yesterday (Tuesday) while digesting a trio of downbeat economic reports from the manufacturing, housing and service sectors.

The reports included separate data on factory orders and pending home sales for November, as well as the Institute of

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HIDDEN VALUE

Dear Value Seeker,

The center cannot hold.

At least it seems that way from where we’re sitting.

Yesterday, the Dow closed below its October lows, breaking through the psychological barrier of 8,000 points.

The S&P 500 ended the day at 806, its lowest reading in six years.

Who knows how low stocks can go from here.

Nicole Elliott, a technical analyst at Mizuho Corporate Bank, says the Dow will sink to 6,400 within the next few weeks.

There is chatter among quants of a “Bermuda Triangle” setting itself up in the Dow charts.

We’re not sure what this means exactly. But it sounds bad.

Word is the Dow is now bouncing around within this triangle, posting lower high after lower high.

We do know that the losses are getting scary.

The planet’s losses from the sell-off of equities have now reached more than $30 trillion – or more than twice the GDP

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Expect more pain in the housing market next year, says Don Miller. Rising unemployment will keep the foreclosures coming. And as the backlog of inventories swells, Don says homebuilders still look ripe for shorting in this environment.

This from Money Morning:

The U.S. housing market is already being pounded by the “perfect storm.” And the outlook for the New Year is for the stormy weather to continue – and probably to get worse.

As if a locked-up credit market and tidal waves of foreclosures weren’t already enough, we’re now watching unemployment climb and consumer confidence plunge.

But even when the housing market is taking on water, there are ways to stay afloat. Indeed, investors nimble enough to maneuver can even make money.

The watchword on this market, though, is caution.  If an investor decides to test the waters, beware of the extraordinary financial undertow.

Here’s a look at what’s happening now, and

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