Meg Whitman is aiming to be Hewlett-Packard's Lou Gerstner.

Gerstner was the CEO of International Business Machine (NYSE: IBM) from 1993 until his retirement in 2002, and is widely credited for IBM's turnaround.

How did he save IBM from going out of business and reverse its fortunes?

Well, among other things Gerstner made the difficult decision to lay off more than 100,000 employees shortly after his arrival.

And now Meg Whitman, CEO of Hewlett-Packard (NYSE: HPQ), has taken a page from IBM's playbook.

On Wednesday, Hewlett-Packard announced it would lay off 27,000 employees, or roughly 8% of its worldwide workforce, over the next two years.

HP hopes the layoffs will save the company $3 billion to $3.5 billion and it plans to reinvest those savings in research and development, innovation, and the overall quality and design of products.

Europe and the Oil Prices Slide

Contributing to Wednesday's decline were mounting concerns about the strength of the global economy.

European finance ministers gathered for an ad-hoc meeting in Brussels Wednesday night to discuss measures to prop up stagnant economic growth in the region and to confer about the dire situation in Greece.

Red flags have been raised warning of a "severe recession" in the 17 nations that use the euro, which Greece is threatening to leave.

Also weighing on oil Wednesday was the latest government report that showed U.S. stores swelled last week by 900,000 barrels to 382.5 million barrels. That was the highest level since 1990 and above forecast of supply growth of 750,000.

In May alone, oil has declined more than 15% and currently sits at its lowest level since Oct. 21.

Gas prices have dropped by some 26 cents since peaking in early April. The national average is currently $3.68 a gallon.

If the price trend continues then gasoline could dip as low as $3.50 by the Fourth of July. Meanwhile, the average price of diesel fuel is below $4 for the first time since February.

"This is a good thing for consumers, that's for sure," oil analyst Andrew Lipow told the Associated Press.

Oil Price Decline Temporary

Don't get too comfortable, however, with lower oil and gas prices.

Money Morning's Global Energy Strategist Dr. Kent Moors sees the slide as temporary.

He wrote just a week ago, "We are seeing a short-term pullback in prices as concerns over falling demand levels parallel the European confusion."

Moors wrote that the U.S. economy is "largely insulating itself" from what happens overseas, and that oil demand continues to be robust in the areas around the world that actually determine the pricing level.

"The current situation tends to benefit the value of the dollar against the euro," said Moors about Europe's debt debacle. "With virtually all international oil trades in dollars, that does mean prices may stabilize for a time. But it also means the concentrated asset wealth in oil transactions will increase."

"And despite the events in Europe, the ultimate value of oil contracts will increase as well-especially in a market where the essential rise in demand is occurring in those regions of the world not directly impacted by the Eurozone problems," Dr. Moors continued.

Other variables looming that could trigger an oil prices spike include Iran resuming its standoff with the West, and the possibility that OPEC could cut production if oil falls too low. Then there is the U.S. hurricane season which starts June 1; major storms are always a worry to oil rigs in the Gulf.

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Luckily, there's a way to hedge against any more declines in the price of natural gas and maximize the time value of money while buying at what proves to be a rewarding price.

That's with high-yield natural gas stocks. And there are a number of these companies that are very appealing.

Profit from High-Yield Natural Gas Stocks

The months ahead are an ideal time to buy dividend-paying stocks in the natural gas sector.

As detailed in a previous Money Morning article, "Why Investors Sell in May and Go Away," the prime time to sell is upon us. This usually pushes stocks down - meaning investors will have very attractive prices at which to buy.

For those investors looking for yield, here are some options.

BHP Billiton (NYSE ADR: BHP): BHP Billiton, an Australiannatural resource and mining conglomerate, is a very attractive natural gas play.Declining economic growth in Asia and the fall in the price of commodities has BHP Billiton off by 31% for the last year of trading. Now around $63, BHP Billiton is about one-third below its 52-week high.

But while investors wait for a rebound in natural gas prices and BHP stock, they'll enjoy a 3.5% dividend yield.

At present, the average dividend for a stock on the Standard & Poor's 500 Index is around 2%. Not only is the dividend yield for BHP Billiton almost twice the S&P average, its payout ratio of 25.6% is much lower. That is important as there is plenty of cash flow for BHP Billiton to increase its dividend or initiate stock buyback programs to further reward its shareholders.

PAA Natural Gas Storage (NYSE: PNG): For those seeking robust income streams from companies operating in other segments of the natural gas sector, PNG is a great option in the storage business.

PAA Natural Gas Storage, headquartered in Houston, TX,has a dividend yield of 7.8%. PNG owns and operates natural gas storage facilities in Louisiana and Michigan. On a quarterly basis, both sales growth (450.76%) and earnings-per-share growth (36.41%) are soaring.

"PNG is an outright distributor of gas to a wide spectrum of the market - from local gas companies, electric generating plants, and industrial users to main pipeline systems and liquefied gas producers," explained Money Morning Global Energy Strategist Dr. Kent Moors. "That combination of storage with distribution closer to the end user results in a higher dividend."

Niska Gas Storage Partners (NYSE: NKA): Niska, also based in Houston, TX,owns and operates natural gas storage assets. Customers paying for the usage of its storage facilities include power companies, financial institutions and pipelines, among others.Niska Gas Storage Partners pays a double-digit dividend of 11.4%.

When Niska reported earnings May 22, GAAP-reported sales were $57.3 million, 32% higher than the prior year's quarter. Earnings per share of 49 cents beat The Street estimates of 27 cents.

NKA has climbed 36% this year.



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As of the first quarter of 2012, Cupertino, CA-based Apple and South Korea-based Samsung accounted for nearly 100% of the profits and 74% of the revenues in the enormously lucrative mobile phone business, according to Raymond James analyst Tavis McCourt.

Both parties seek victories in the patent war to help seize - or protect - market share.

In a court filing earlier this month, Apple made this crystal clear:

"While the parties have been readying the case for trial Samsung has vaulted into first place in worldwide sales of smartphones, with massive sales of its copycat products. Samsung's infringement of Apple's intellectual property has already resulted in damages that reach billions of dollars. [...] It is critical to Apple to start trial on July 30, to put an end to Samsung's continuing infringement."

Such patent fights are common in the tech world. However, companies typically seek licensing fees rather than injunctions to block product sales - the approach Microsoft Corp. (Nasdaq: MSFT) uses.

When both companies have a patent gripe, as is the case with Apple and Samsung, a cross-licensing agreement often results.

But profits from smartphones and tablets would dwarf any licensing fees, so both companies have dug in.

Some experts also think that Apple, having made a lot of noise about going after those it feels are copying its products, could be as concerned with saving face, as protecting its intellectual property.

"It would take a very good sales job to come up smelling well from the settlement on Apple's side," Steven J. Henry, an intellectual property lawyer at Wolf, Greenfield & Sacks inBoston, told Bloomberg News. "That doesn't mean it won't happen, but the appearance is going to have to be that they were victorious."

Meanwhile, Samsung is eager to defend the gains it has made in the marketplace. Samsung accounted for 40% of all Android-based phones in the first quarter, which helped push it past Nokia Corp. (NYSE ADR: NOK) as the world's top phone maker. Other Android phone makers stood at 10% or less.

Apple vs. Samsung a Risky Fight

While both companies see the patent war as a means to gain an edge in the marketplace, the strategy is unlikely to work given the size, global reach and considerable resources that Apple and Samsung each bring to this fight.

In fact, these tech titans need to be careful how far they push the other.

"Each one has enough intellectual property to shut down the other's products," Mark Lemley, a Stanford Law School professor who specializes in intellectual property, told Bloomberg. "I don't think either one can let that happen.... The parties will need to settle at some point in the future; they can each do far too much damage to the other to allow this to continue forever."

Apple has a potent mobile computing patent portfolio, bolstered last year when it picked up some of Nortel's patents. With over $100 billion in cash, it also has extraordinarily deep pockets.

Samsung also has a strong patent portfolio. But its large number of LTE patents - those associated with mobile devices that connect to 4G wireless networks of telecoms like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) - make it a particularly dangerous adversary for Apple.

Apple launched its first 4G device -- the third-generation iPad -- in April. The iPhone 5, expected to launch in October, almost certainly will have 4G.

And then Apple will be vulnerable to a barrage of Samsung patent suits all over the world.

Prolonging this fight will only hurt both companies, while neither gets what it wants.

Unsatisfying as it may be, a settlement is ultimately in the best interest of both Apple and Samsung.

"The judge will try to get them to realize that it's better to come to some kind of business understanding than to just roll the dice and let judge and jury do their job," IP lawyer Henry told Bloomberg News. "[But] I think they're out to do more damage to each other before they get to the point of resolution."

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• BUY an out-of-the-money call option with a strike price $1.00 to $1.50 above the current price of the underlying SLV shares and an expiration date three to six weeks out. In this instance, with SLV at $27.34, that would mean buying a June $28.50 call, priced at about 44 cents a share, or $44 for the full 100-share contract.
• You would also simultaneously SELL an out-of-the-money put option with the same expiration date and a strike price a dollar or so below the current SLV share price. In this instance, that would mean selling the June $26.00 put, priced at about 40 cents, or $40 for the full contract.

The cost of the combined position is thus just 4 cents, or $4 total.

For simplicity's sake, I'm using single options in the example. In practice, you'll buy and sell one option pair for each 100 shares of SLV you want to purchase, and the cost will rise proportionately.

You will also have to post a margin deposit to cover the sale of the short put. In this case, that would be about $412 - but you'll get it back unless the put is exercised and you get to buy SLV at $26 a share.

And what do you get for your $4?

Quite simply, you get a position that takes the guesswork out of the decision to buy silver - or, in this case, shares in the SLV silver ETF - and cushions you against limited short-term volatility.

Between now and the June 15 option expiration, SLV share prices can fluctuate all they want between $26 a share and $28.50 a share, and it won't affect you one way or the other.

You can just calmly sit and watch, waiting for silver prices - and SLV - to make a more decisive move.

If it does, one of two things will happen:

• SLV will break out of the recent trading range to the upside, moving above $28.50 a share. You can then exercise the call and buy the shares at that price - regardless of how high SLV's price might have moved above that level. (Alternatively, you can simply sell the call just prior to expiration.)
• SLV will fail in its next rally attempt, with the price turning lower and falling below $26.00 a share. The put will thus be exercised and you'll have to buy SLV at that price - a substantial bargain over what you'd pay if you merely bought the shares today. (Again, if you prefer, you can just buy back the put shortly before expiration.)

Either way, you'll have avoided a lot of anguish over when to buy and whether you've made the right decision.

Plus, as Table 1 illustrates, if silver prices rally substantially, you'll make almost as much profit as if you'd laid out the $2,738 to buy the actual shares in the first place - and your return will be far, far higher.

Breaking Down the SLV Trade

For example, if SLV rose to $35, you'd make $766 in profit, or 28.0% on the shares.

But, on the option combo, your profit would be $646 (reduced by the out-of-the-money amount of the call, and the cost of the combo) - an incredible gain of 16,150% on your $4 cost.

Even if you count the $412 margin deposit as part of the cost, the return is still a whopping 155.2%.

Even better, if silver prices fall and SLV drops below $26.00 a share, your loss is actually $130 less than if you had purchased the ETF itself - simply because you avoid the entire decline from $27.34 to $26.00.

And, if silver goes nowhere, you're out ... yeah, four bucks.

As noted earlier, this play can be used with any number of options on SLV or the other silver-linked ETFs that have options, as well as with the options on the Comex futures, though the numbers - cost, reward and risk - will be substantially higher with those.

Be aware as well that the selection of option strike prices should involve a little more analysis than the generic guidelines offered here.

In reality, if you plan to seriously utilize this strategy with silver - or any other stock or commodity - you should first examine a technical chart for the underlying security, then buy calls with strike prices just above primary resistance levels and sell puts with strike prices just above major support.

That way, you'll be buying the underlying security only on a confirmed breakout, or at a bargain point where the price is unlikely to go much lower.


News and Related Story Links:

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  Option Margin Calculator

Real interest rates are running around negative 2% and thanks to ZIRP (Bernanke's Zero Interest Rate Policy), they're likely to remain so at least until late 2014.

And debt in the West (U.S., Europe, England, and Japan) has doubled in a little over three years to almost $8 trillion in a veritable monetary flood that's bullish for gold.

On top of all that, the demand for physical gold is still increasing.

According to the World Gold Council's (WGC) Q1 2012 trends review, they see record levels of Chinese demand, surging 10%, for a new quarterly high of 255.2 tonnes. They also see further growth, as the Chinese remain concerned about high inflation persisting.

The demand is so great that China has surpassed India as the world's largest gold consumer.

European demand has also held up well, with physical metals in the form of bars and coins selling at higher than historical levels.

And central banks keep doing their part, with net purchases totaling 80.8 tonnes, or about 7% of global demand. WGC believes there's been a secular shift, with central banks now set to remain net buyers of gold for the foreseeable future.

Yet, gold investors who are dismayed by its recent price action need to be psychologically prepared.

If we were to see a scenario similar to the 1970s bull market, gold could easily drop in half at any time.

That's exactly what happened when gold reversed from $200 in January 1975, and fell for 18 months to $100 in August 1976.

Certainly, a drop that big would have forced a lot of gold investors to sell. But the truth was that the best was yet to come.

From $100 in August 1976 until its peak in 1980, gold rose 8 times to over $800.

In fact, a chart of the entire current bull market shows that gold prices could easily pull back to $1,300 and still not violate its upward trend line.

A QE Boost to Commodity and Gold Prices

So yes, the markets are in a funk over Europe and less-than-stellar economic news here.

But this is déjà vu all over again. Since the financial crisis began, we've been here three times before. In fact, each time since then, the Fed has stepped in following a clear market pullback and opened the monetary spigots.

First came Quantitative Easing 1 (QE1), then QE2, then Operation Twist. Each one of these liquidity injections quickly sent the market soaring.



The Fed also promised to keep rates low until the end of 2014. Of course, Ben's been denying for months that more stimulus is coming. Yet recently released Fed minutes from its April monetary policy meeting showed more openness to another round of easing to coax the economy along.

But each time one of these injections ends (wears off), the market (junkie) goes into withdrawal, and looks for its next fix.

I've been saying for awhile that it's coming. With an election pending this November, odds are good we'll see QE3 before the end of summer.

With falling stocks, retreating commodity prices, and weak jobs reports, it'll make the QE3 sales pitch a much easier sell than your average time-share.

And based on the reaction the last three times, I'm pretty confident the commodities markets will smile at this one, too.

Still, it won't be enough. We're going to see a lot more central bank easy money. QE4, QE5, and QE-pick-a-number will not be far behind.

Get ready. Commodities and gold are about to come roaring back.

The commodities bull market is far from over.

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At the time there was a great deal of talk about how the Internet had revolutionized life to such an extent that AOL's Internet access and modest content businesses would provide immense synergy to Time Warner's magazine, cable TV, film and broadcasting assets.

In reality, the deal was a disaster for Time Warner.

In the aftermath, Time Warner reported a loss of $99 billion in 2002 because of AOL-related write-offs, Steve Case resigned as chairman in January 2003, and AOL was spun off again in 2009.

Time Warner's market capitalization fell from $350 billion to below $20 billion in the ensuing downturn. It is only $33 billion today.

In short, the AOL/Time Warner merger marked the peak of the dot-com bubble. The Nasdaq Composite index peaked at 5,048.62 two months later and has only recently risen above half that value.

The ability of AOL to be valued at more than the giant Time Warner came to be seen as an anomaly, and the difficulties experienced by the deal helped to puncture market euphoria.

Subsequent deals valuing Internet companies at bubble prices proved difficult or impossible to get done. The market began to slide from the spring on, with confidence finally ebbing away in the contentious 2000 election aftermath.

Facebook (Nasdaq: FB) is AOL Revisited

To me, the Facebook IPO looks very much like the AOL of 2000.

Its growth is already slowing, with first-quarter revenue down on the fourth quarter. Unlike Google (Nasdaq: GOOG) or Apple (Nasdaq: AAPL), it does not seem an essential part of the Internet scene.

Indeed even in Facebook's business sector, LinkedIn (NYSE: LNKD), the business connections social network with a market capitalization of $10 billion, has a more well-defined economic purpose.

Like AOL, Facebook's valuation was pushed beyond its natural limit, partly because the company had large numbers of well-connected shareholders who wished to exit at the maximum possible price.

The issue was too large, the issue price was set too high, and the Nasdaq trading glitch prevented the stock from getting the initial "pop" that might have convinced foolish retail investors that it was too good to miss.

The company has around $10 billion in cash, so it isn't worthless, but I would have a hard time assigning it a value of much above $15 billion-say $5 or $6.

Falling to $31 in its first trading days, Facebook is making good progress towards that modest goal.

If it falls below $19 or so before Goldman Sachs' private equity clients can get out, I shall smile with relief. There was altogether too much of an insider ramp by the well-connected at $19/share followed by a sale to suckers at $38 within a year or so.

Like the AOL/Time Warner merger, the Facebook IPO has messed up the market for the rest of the tech sector as a whole and social network companies in particular.

The underwriters were left with a lot of stock, and were chiseled down on commissions, so they won't be anxious to repeat the process.

Companies with massive private equity followings will find an unenthusiastic reception in the public markets, as investors will suspect that, like Facebook, they were gigantic "pump and dump" operations.

If Goldman's buddies lose money on Facebook, the appetite for late-stage private equity investment will be curtailed -- no bad thing as it is too often used as a substitute for a proper IPO to the general public.

Valuations, in any case, look likely to decline. To that extent the "social network" bubble will have burst, and probably the second Internet bubble also.

In the long run, the economy will benefit from this as resources are reallocated to more useful sectors; in the short run the process will inevitably be painful.

As investors, we might want to look at weeding our tech portfolio, however good our investments' long-term prospects may appear.

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What a "Grexit" From the Eurozone Means for Greece

What would most likely happen over the next two years is that the Greek economy would no doubt fall more steeply and more swiftly than it currently is.

But after a turbulent period, the Greek economy would grow much more rapidly than it would otherwise, according to Money Morning Global Investing Strategist Martin Hutchinson.

"To recover," Hutchinson says, "Greece needs to leave the euro, devalue its new drachma by about two-thirds, and recover an export and tourism sector that would quickly re-employ its people."

However, if Greece does stop using the euro and issues its own currency its drachmas will at once be significantly less than the euro.

That means banks and companies with foreign debts denominated in euros would be unable to pay their obligations, forcing them into bankruptcy, leading to an even steeper Greek recession.

In fact, the International Monetary Fund (IMF) forecasts the debt ridden Mediterranean nation's GDP would shrivel by more than 10% in the first year. But after a year, maybe two, the picture for Greece would improve and the economy would grow even faster than it would without the devaluation.

The reason, economists say, it that the devalued currency will make imported goods more expensive, forcing Greeks to purchase more domestic products. It will also make the country exports cheaper and more enticing to foreign buyers.

Analysts cite Iceland, which defaulted on its debt and now enjoys a fast growing economy, as an example.

Merrill Lynch also sees a silver lining amid the emerging chaos, noting beaten down European banks may rally following the default if total Armageddon doesn't occur as a result. Silver linings are usually an indication that the tempest won't last forever.

Another Eurozone Debt Crisis in the Making?

The nagging concern is the impact that a Greece bankruptcy would have on other nations.

The good news is those risks have actually diminished sharply in the last year and a half since much of the debt has been cleared off private sector ledgers and governments have taken over the arrears.

The EU and the IMF bailed out Greece for the first time in May 2010.

At the time, lenders in other EU nations held $68 billion worth of Greek sovereign debt, according to the Bank for International Settlements. If Greece had defaulted, lenders would have been out some $51 billion at a 25% recovery rate.

But over the next 15 months, those same holdings of Greek bonds dropped by $31 billion. This has dramatically curbed the possibility of a private sector contagion.

The sting would be felt most prominently amid governments. Fitch Ratings reports that public sector claims against Greece will top $450 billion in 2012. Germany's exposure is some tens of billions of dollars--nearly the German government's net borrowing for all of the current year, according to MarketWatch.

But how ever offhandedly some European officials talk of managing a Greek exit, the political and financial costs would embody an essential challenge to the EU and its integrity.

According to Simon Tilford, the chief economist at the Center for European Reform, "Anyone who thinks a Greek departure would be cleansing and not cause systematic contagion is deluding themselves. Already we've seen a sharp increase in spreads and the beginning of capital flight in other struggling euro zone economies, with the risks of a full blown banking crisis in Spain, where Moody's Investor Service has just downgraded 16 banks and four regions."

In short, it could turn into a crisis. In fact, BBC Business News says we can expect the following if Greece leaves the euro:

1. Greek defaults
2. Greek meltdown
3. Bank runs
4. Business bankruptcies
5. Sovereign debt crisis
6. Political backlash
7. Recession
8. Market turmoil

Holders of Greek debt would also take an immediate haircut and investors will speculate and be fearful of who is next in the current fragile financial environment. A Greek default would also reduce investor appetite for risk simply by depressing sentiment. It could also depress business confidence and capital spending in bigger Eurozone countries.

Above all, a Greek default would create uncertainty, because the scope and the duration of the contagion in the Eurozone would be largely unpredictable.

And we all know that markets hate uncertainty.

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The Gold Prices Pullback

After peaking at an intraday high of $1,920/oz. last September, gold is down almost 20% from that level. Gold has been down more than 2.5% Wednesday, crossing the $1,540 line.

The yellow metal has fallen during the past three months and can't seem to get up - a very rare sight.

Since 1957, gold prices have fallen three months in a row 65 times out of a total of 661 three-month periods, according to data compiled by Bloomberg and Standard and Poor's.

But as Fitz-Gerald explained, this is not really a bad thing in the bigger scheme of the gold market.

"People forget that gold prices fell by more than half from 1975 to 1976, and were down 17 out of 24 months," Fitz-Gerald wrote earlier this month. "At the same time, gold prices also recorded 10 three-month declines during the period. That was, incidentally, right before gold rose 721.25% to $850.00/oz.-- a peak gold hit on January 21, 1980."

What does this tell us?

"The point is, bear tracks always precede bull market runs," said Fitz-Gerald. "So I am not especially concerned by this pullback in gold."

Time to Buy Gold?

So when will the gold price slide stop, and when should you buy?

As I write this article, gold has been trading between $1,530 and $1,540, and could be on its way to $1,500.

Fitz-Gerald thinks that's a good entry point if you're a short-term trader.

On May 11 he wrote, "... gold has broken under $1,600 for the first time since December 30 and we've seen the first close under $1,600 this year. If it busts $1,500/oz., backing up the truck for gold is probably a pretty good idea. At $1,300 it's time to load up."

For long-term investors, Fitz-Gerald recommended making measured investments. These could include, for instance, increasing allocations to bullion, gold certificates, coins or ETFs as the price drops.

Whether you buy gold at $1,500, $1,300, or $1,600 you will make a decent profit when gold reaches $2,000.

As Fitz-Gerald points out, it is only a matter of time before people come back to gold.

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Investors never got the first-day trading pop that was widely expected.

While the offering raised a whopping $16 billion, and shares did manage to eke out a paltry 1.5% gain in the first day (mostly cushioned by Morgan Stanley trades), shares tumbled 19% in the two subsequent days.

What Lawsuits Mean for Facebook Stock Price

Shares of Facebook Wednesday were up about 3% midday-- surprising with the Dow Jones down more than 170 points.

But the lawsuits will no doubt weigh on the stock.

On Tuesday, an investor filed suit against Nasdaq OMX Group in the same court stating the exchange "badly mishandled" trades in Facebook stock.

A Nasdaq senior executive told The Wall Street Journal the exchange wouldn't have gone forward with the IPO if it was aware of the potential computer glitches.

"We'll never know how the stock would have traded if it had opened on time and without problems. I don't fault the IPO price," tech fund manager Kevin Landis of Firsthand Fund told CNN Money.

Also facing suits are units of Bank of America (NYSE: BAC), Barclays PLC (NYSE ADR: BCS), and members of Facebook's board. Investors believe Facebook's realistic revenue growth was misrepresented.

"The true facts at the time of the IPO were that Facebook was then experiencing a severe pronounced reduction in revenue growth," Bloomberg News reported the plaintiff included in the complaint.

FINRA announced Tuesday that it is looking into whether Morgan Stanley and other bankers broke rules when the firm's analysts slashed Facebook's earnings forecasts just days before the IPO. The State of Massachusetts Security Division has broadcast it will subpoena MS on the matter.

With plenty of blame to go around regarding the Facebook IPO fiasco, it appears the flood gates have just opened regarding who will be the prime "fall guy."

No word yet from Facebook CEO and founder Mark Zuckerberg, who got married Saturday. Certainly this is not the wedding gift he had hoped for - looks like the honeymoon is over already.

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