Build Your Stock List Easily

A Lower Euro ...

The damage to the U.S. consumer is the biggest factor that's going to spread economic pain across the globe. Export-centric markets, and large trade surplus nations, will undergo sharp growth adjustments over the coming quarters

As a result, here's what we can expect for the majority of 2009:

Stocks will hit lower lows ...
Emerging nations will weaken dramatically, and ...
Risk-aversion will win the battle over risk-taking.

Mortgage Forgiveness Debt Relief Act of 2007

There’s been a lot of confusion about what this whole debt relief act means for homeowners facing foreclosure. Below is a link to a great article that provides clarification on how may homeowners may be able to claim special tax relief by filling out newly-revised IRS Forms.

Those who may qualify for this relief includes debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure. Take a look at the article to read how the IRS Department of the Treasury explains the mortgage workouts.

Mortgage Forgiveness Debt Relief Act of 2007

http://www.irs.gov/irs/article/0,,id=179073,00.html

What Is an Eeyore Stock? (and How Can You Make Money on One?)

By Rick Pendergraft

Believe it or not, stocks have personalities.

They can be happy, sad/depressed, manic, or plodding. Happy stocks go up almost every day, regardless of market conditions. Sad or depressed stocks go down almost every day, regardless of market conditions. Manic stocks? We could call these "Jim Cramer" stocks, because they are as volatile as the CNBC commentator. They bounce wildly from day to day. And we could call plodding stocks "Eeyore" stocks. They slog along without drawing any attention, just hoping someone will notice them. For the most part, these stocks grind sideways.

Knowing the personality of a stock will determine how you want to trade it. You want to own happy stocks... short depressed stocks... buy options on the manic stocks... and sell options against the plodding ones.

Measure of a Company's Worth

By Andrew Gordon

Price-to-earnings ratio (P/E) is a popular measurement of a company's true worth. I've always liked companies with a P/E below 10. But nowadays, I pay little attention to this number - for two reasons, and both involve the earnings part of the ratio...

1. The economy is slipping so fast, past-performance P/Es shed little light on what is in store for the company right now. Many companies that did well 1-3 quarters ago are now finding it hard to grow earnings.

2. Forward P/Es are just as bad. They've always been based on analysts' guesses of how much they think a company will earn the following year. But now those guesses - never reliable in the first place - are lagging badly behind what is happening in the real economy. For example, analysts still expect earnings in the tech sector to rise 21 percent next year. That simply won't happen.

As an alternative, look at the price-to-book ratio (P/B). It measures a company's share price relative to its net asset value (NAV). If that number is below 1, it means you're paying less for the company than its assets are worth. And it means you're getting the business of the company (not included in the NAV) for free. A P/B of less than 1 also helps put a floor under share prices, especially for companies that are still making a profit but are getting punished by a falling market.

Buying good value is not only a good way to pick companies in a falling economy, it's the only way. And with earnings so unpredictable, P/B is a good alternative to P/E as a measure of value.

An Oldie but Goodie for This Market

By Rick Pendergraft

When the market is behaving badly and all the Johnny-Come-Lately stocks are getting beaten down, the best thing you can do is go with a tried-and-true company. And there aren't many companies that are more tried-and-true than AT&T.

The biggest domestic telecom is an attractive play right now. The company may not be super-exciting, but with a long-term growth rate of 6.74 percent and return on equity of 12.16 percent, slow and steady will win the race.

AT&T has pulled back with the rest of the market, but the stock found support near 22, just as it did in '05. The best part about this pullback is that the stock is now yielding 5.6 percent and the dividend looks safe. Though many companies are cutting their dividends, it looks like T will hold steady.

With safety being a major concern right now, AT&T is as safe as they come. Sometimes it is better to bet on the tortoise than it is to bet on the hare.

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A Little Speculative Play Could Pay Off Big

By Christian Hill

The market has been getting absolutely clobbered for the last year or so. Some very big names are trading at extremely low prices. Will some of them end up going out of business? Perhaps.

But that shouldn't deter you. Taking a few chances with some of your speculative portfolio money could lead you to windfall profits.

I'm not talking about buying penny stocks that rarely return anything more than a headache. I'm talking about household names that have just been beaten down for a multitude of reasons. The list I ran through a stock screener of companies with a market capitalization of over $1 billion and share prices less than $10/share returned 221 results.

I don't want you to go crazy and buy up thousands of shares of companies like these. You should still be prudent and diversify. As an example, you could invest $100 in 10 of the following 16 companies. You would have $1,000 invested, and would need only a few to pay off to get a great return.

Under $10/share (as of 11/21/08):

Time-Warner (TWX)
UBS
Dell Computers (DELL)
Yahoo (YHOO)
Alcoa (AA)
Starbucks (SBUX)
Macy's (M)
Applied Materials (AMAT)

Under $5/share (as of 11/21/08):

Citigroup (C)
Motorola (MOT)
Sprint (S)
AIG
Ford (F)
Sun MicroSystems (JAVA)
General Motors (GM)

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Before Investing in a Company

When markets go down, not all companies go down equally. Some go down more than others. And some actually go up.

Picking companies that go against the market is hard. As a rule of thumb, only about 20 percent of them are able to swim against the tide. But when the market is falling (as it is right now), it makes more sense to invest in individual stocks than in indexes that go down with the market. At least with individual stocks, you have a chance of picking strong companies that can survive and even prosper in a bear market.

If you're going to invest in individual stocks, here is what you should look for...

1. Companies with plenty of cash to spend on what they need in order to grow
2. Companies with low debt
3. Companies with products that sell - or can be tweaked to sell - in tough economic times
4. Companies in recession-resistant sectors (like healthcare and staples)

Wal-Mart qualifies on all four counts. And, not surprisingly, its stock has been doing much better than most. That's the kind of company you should be focusing on in these difficult times.




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The dream is now drowning in debt.

Spending beyond your means isn't some freakish trait of the American middle class. It scares the hell out of the Europeans or Chinese. The notion that American households don't mind debt is preposterous.

Have you ever had a conversation with somebody who said, “Sure, I'm buried in credit card debt and under water with my mortgage but I don't mind. I'm going to continue to spend to my heart's content.”

It's precisely because the middle class is deeply worried about its debt (and the economy) that they have substantially reduced spending. And it's going to stay that way until the value of the houses they live in and the incomes they make start to go up again.

Politicians of both political parties have turned a blind eye to the fate of the American middle class for too long. It's time the government steps up to the plate.

They should do so because the fate of American retailers relies on reviving the middle class. Except for low-end retailers like Mickie D's, Wal-Mart and the super stores, the entire sector is suffering mightily from the wanton disabling of the American Middle Class.

Then there's this: the American Dream will die if they don't do something and do it sooner rather than later.

Harvard political scientist Samuel Huntingdon wrote: "Critics say that America is a lie because its reality falls so far short of its ideals. America is not a lie, it is a disappointment. And it can be a disappointment only because it is also a hope."

There's still hope for the American Dream. But it's getting late.

Big Choke

Banks are getting bailouts in order lend more. But it's not happening.

The mortgage market is contracting. Auto sales are falling so rapidly because only buyers with the best credit can get loans.

Next in line is the $2 trillion credit card industry. Look for a sharp drop there as banks are forced to deal with increasing delinquencies.

Of course, consumer spending will take another big hit, and another other round of stimulus checks will do little to lessen the blow.

As long as the banks continue to deleverage and cut off credit, the economy is in trouble.

Fed fires a blank while rescues go WILD!

While all eyes were focused today on the Fed's rate cut, the big news was the Fed's latest cockamamie effort to save world.

Just when you thought the insanity couldn't get crazier, the Fed announced it's now going to funnel a massive $120 billion of U.S. funds into Brazil, South Korea, Singapore, and Mexico! We're circlingthe toliet bowl and we're sending money to other countries!

And that's on top of the IMF bailouts already committed to the Ukraine ($16.5 billion), Iceland ($2.1 billion), and Hungary ($25.5 billion)!

In response, some folks are cheering with glee, blindly believing that Mr. Bernanke can play Santa Claus, the Pied Piper and the Fairy Godmother all in one act. What idiots!!!

Anyone with any experience with the real world is quickly coming to the realization that Mr. Bernanke is Desperate — resorting to the radical measures of all time.

Playing his last cards — realizing that if these last-ditch rescues don't work, it's game over.

Taking huge risks — that his rescue-the-whole-world schemes will in the form of falling confidence in the U.S. government as a whole! Meanwhile, the much ballyhooed Fed rate cut was a dud!

After all the hope and prayer implied in yesterday's stock-market surge, today, the market literally saw a ghost: Just in the final 12 minutes of trading — from today's post-rate-cut high to the closing bell — the Dow nosedived by an alarming 372 points! And the fools on TV were tellingyou we had hit the bottom! What morons!!!

Not exactly a polite "thank you" note to Mr. Bernanke for his half-point rate cut! He sure does not get my "thank you"!

Bottom line: Some investors can be fooled some of the time. But the investors that move the market are painfully aware of one simple fact:

Mr. Bernanke cannot drop interest rates below zero!
He cannot force banks to lend money!
He can't compel consumers to borrow, or make people spend. Of course, ourso called "wise" leaders are doing plenty of it for us!
Nor can he turn back the clock to undo decades of financial sins ... or repeal the law of gravity and stop investors from selling.

Indeed, all of this week's wild events merely underscore that we are indeep, deep trouble and the Fed and that group of bandits and the politiciansare selling us out. I'm ashamed of my country, I really am!

Won't This All Be Inflationary?

It's a popular notion when the financial winds are blowing unfavorably:

Money is being printed uncontrollably ... inflation is the only option ... fiat currencies are doomed.

The thing is, if you're buying into this idea, you're mostly perpetuating a misconception. Actually, inflation isn't as simple and certain as it's cracked up to be.

Until the global economy recently got tossed on its rear end, prices were rising in most every part of the world. The focus, of course, was on the cost of energy, food and various other raw materials. Central banks in a position to stand firm on monetary policy did so at all costs. Inflation was the real threat.

But did that idea get turned around in the blink of an eye or what?

Prices for natural resources have collapsed and continue lower still. Economies, developed and emerging, are feeling the pain of a U.S.-led slowdown. Global capital flow is shifting direction and composition. In other words, money is escaping risky assets and making a beeline to safer U.S.-dollar based assets and cash.

The majority is starting to agree that deflationary forces are becoming strong. And at times when recession spans much of the globe, any upward pressure on prices nearly vanishes.

But even those joining the deflation camp now have no idea what to expect in the future. They see all the money being pumped into the system and feel as though that seals the deal on a nasty wave of inflation not far down the road.

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Dow Chemcial Co. (DOW).

DOW - The Dow Chemical Co.

This major manufacturer of chemicals, plastic materials, and agricultural chemicals is at its lowest price since early 1995 and has fallen more than 60% from its high of $56 in March 2005.

This is a fine example of a blue-chip stock that has fallen on hard times, but it is a diamond worth owning at a fraction of its worth and the cornerstone of many quality portfolios.

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"I can accept FAILURE, but I can't accept NOT TRYING."

FOLLOW THE MARKET'S FOOTSTEPS

After last Monday’s sharp rally, many technicians jumped to the conclusion that the bear was dead -- expunged in a wave of selling in a classic capitulation with high volume and enormous negative breadth.

Classic selling climaxes are known for all of that but also much more. What should have followed was a wave of high-volume buying, as big investors rushed after bargains. Instead, the major market indices bounced around with little conviction on either side and offered even more volatility until the close on Friday.

On Friday, options expiration provided for some action but, in the end, turned into a flattening-out process. After holding a gain for hours, the market finally sold off leaving us with a perfect little symmetrical triangle. And volume on Friday was not inspiring, either, with just 1.7 billion shares trading and a stand-off of advancers versus decliners.

The CBOE Volatility Index (VIX) made record highs, but this was not confirmed by one of my favorite indicators, the American Association of Individual Investors index, which suddenly switched to bullish from record bearish just the week before -- a very bad sign.

For now, we should keep our powder dry. Before we get knee deep in muck, let’s wait for much more direction from the sentiment and internal indicators and a sense of conviction on the part of the major market players. In such a volatile environment, it is much more prudent to be a follower than a buyer.

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Another Reason to Like Gold

The credit collapse is not entirely over. Nor is its impact on Main Street.

And as we saw yesterday, there will be more sell-offs, sharp ones that scare the dickens out of nearly everyone.

That's why I suggest sticking mainly with natural resource-based companies that operate businesses which deal in assets that have intrinsic value — and that will be the main recipients of the next wave of what I call the "Great Re-inflation."

At the top of that list is my all-time favorite: Gold.

And for not using any money, we like real estate.

This market is insane... let's see...

... the market dropped last Monday when the bailout bill failed.

On Friday, the bailout bill passed, but the Dow dropped after the bill passed.

Going into the vote, the Dow was up almost 300 points, but within an hour of passing, all of those gains were wiped out.

It is a fragile, fragile market right now. Handle with care.


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Some Stocks

If you insist on investing in stocks at this time, discount retailers like Costco

and Dollar Tree have decent-looking charts. Two others that jump out are consumer

staples Pepsi and McDonald's.

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White Flag To Early

As details of the government's belated "Federal Toxic Landfill Act" emerge -- that is, the rescue plan put forth by Treasury Secretary Hank Paulson -- many thoughts come to mind but none more often than how ticked-off the troops at the Thundering Herd must be that their chief raised the white flag 3 1/2 days too early.

Had John Thain and the board of Merrill Lynch just hunkered down for a few more days, then their famous white-shirted army of advisors would not be POWs under a new general in Charlotte.

What also strikes me is that the Merrill management ignored the very advice that their brokers were espousing these past few days -- be calm, stay the course, don't panic, don't do anything rash, this too shall pass, etc., etc.

The Markets' Wild Ride

If you didn't have a chance to keep up with how things played out from day to day, let me do a quick and dirty recap:

Sunday: The Federal Reserve pumped a bunch of money into the system, increased the amount it will provide in its lending facilities and further liberalized the collateral it will except in exchange for loans.

Monday: Lehman Brothers declared bankruptcy. Bank of America took control of Merrill Lynch. And AIG's fate hung in the balance.

Tuesday: The Federal Reserve denied the markets a much anticipated interest rate cut. Instead, it followed with a two-year, $85 billion loan to bail out AIG.

Wednesday: The Treasury announced a finance program where it would auction off Treasuries, separate from what it already offers. The proceeds will go to the Federal Reserve to use for "initiatives."

Thursday: Central banks around the globe decided to join the party. They declared efforts to pump nearly $250 billion into the global system to avert a financial train wreck.

Friday: We learned of a new initiative, spearheaded by Treasury Secretary Henry Paulson, to put together $800 billion in a new-fangled institution and $400 billion more at the FDIC. The money will be used to take crappy assets off troubled balance sheets and grease up money markets.

Prior to this week, steps taken to stabilize the market were considered ineffective. By the looks of it, though, this week's actions tell me these guys don't want to fail in their efforts to restore order ... again. But the condition of credit markets is far from cured.

THE BEGINNING OF THE END

Financial juggernaut Lehman Bros. (LEH), the oldest U.S. investment bank, belly-flopped.

This is significant for a lot of reasons, not the least of which that Lehman's failure reduced the number of major U.S. investment banks from five at the beginning of the year, to just three.

Then, Merrill Lynch (MER), the largest retail broker and investment bank, agreed to Bank of America's (BAC) takeover offer for $29 a share, which equates to about $44 billion. MER closed today just above $17 a share today, a 77% drop from the stock's value this time last year.

Looming in the future -- rather, darkening the horizon -- is that financial behemoth American Insurance Group (AIG) was informed that its credit quality will get downgraded. Investors now see that the ailing firm will have to sell many, if not most, of its assets . or be bought or go bankrupt.

I think an offer could even come overnight, but in the meantime, the Fed threw AIG a $40 billion line of credit, as private equity firms are hemming and hawing about what, if any, parts of AIG they might want.

The Treasury and Federal Reserve are showing some tough love, though, and said they won't bail anyone else out. They did, however, jawbone all weekend and added liquidity by expanding the loan availability through traditional mechanisms.

Will it be enough?

"Obvious" Rule of Investing

"Obvious" Rule of Investing

By Andrew M. Gordon

Invest in strong sectors. Avoid weak ones.

This seems obvious, yes? But too often, people invest in weak sectors and avoid strong ones. Here are some of the culprits behind this backward thinking:

Bargain hunting. Strong sectors are expensive. Weak sectors are cheap. Unfortunately, when you invest in sectors where demand and other fundamentals are deteriorating, you often get what you pay for.
Bottom fishing. Does it get any uglier than banking? But investors have been recently pouring into banking in the belief that bank stocks have bottomed and are gearing up for a nice climb up the charts. Even if they do start to climb, it will be a sucker's rally. Weak sectors are afraid of heights.
Buying yesterday's news. High prices reflect a strong sector? Yes they do... until, that is, prices overreach and fall back to earth because the fundamentals of the market don't support them. The housing market is a great example. At the top, prices were no longer based on affordability or equivalent rent rates. Look forward, not backward, when you choose a sector to invest in.
There are other reasons, too, why people make the mistake of investing in weak sectors. A sector may be popular, fashionable but not strong - like the dot-com sector. Or investors buy on rumors, not fundamentals. (That's a dangerous game that can turn against you very easily.) And investors just pick up wrong information. (You can't believe everything you hear and read.)

So, what seems like a simple rule isn't so simple to follow, after all. But truly strong sectors can really help your portfolio grow. And truly weak ones can help kill it.

A final word of caution: If you're not quite sure if a sector is strong or weak, let it go. It's not worth the risk.

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Federal Reserve and European Central Bank on an Interest Rate Teeter-Totter

They don't serve ice cubes in their drinks. They drive on the left-hand side of the road. And Inflation is also a little bit different in Europe. Despite this fact, inflation analysis in these respective regions often focuses on generalities and overlooks one particular difference. Let me explain ...

Let's focus only on two countries and two central banks: the U.S. and its Federal Reserve and Europe and its European Central Bank. If you haven't been hiding under a rock for the last year, then you probably have some kind of idea how their respective policies vary.

The Federal Reserve has knocked off more than 3% from its benchmark interest rate in the last year. In that same time, the European Central Bank has mostly stood its ground, mixing in one rate hike of 25 basis points that brought its benchmark up to 4.25%.

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Spreading Economic Weakness Is Dollar Positive

Yesterday, the dollar rallied hard against the euro. And today I want to tell you what I think is happening. Let's start with a question ...

What happened to decoupling, the idea that other economies were immune to weakness in the U.S.?

Well, it seems as though the subprime fiasco has created bigger problems for the U.S. financial system than most people anticipated. And now we're seeing this economic virus spread across other areas of the globe.

If you want some evidence of contagion in other developed economies, look no further than these recent news items ...

German industrial orders dropped sharply - by 2.9% in June. What's most disconcerting is that Germany's economy makes up one-third of total Eurozone output. And speaking of the rest of the Eurozone, many of those economies are bogged down by housing busts.


The International Monetary Fund (IMF) called out the U.K. economy. Predictions for economic growth in the UK for 2008 and 2009 stood at 1.8% and 1.7%, respectively. Kiss those numbers goodbye. The IMF's latest forecast calls for a seriously lower 1.4% in 2008 and 1.1% in 2009.


Australia is battling sluggish household spending and their financial sector is being challenged. The National Bank of Australia recently reported a huge second quarter write down which it attributed to massive holdings of CDOs.


And the New Zealand Treasury anticipates a second consecutive quarter of negative GDP growth. By definition, New Zealand will have entered recession once official numbers are released. They'd be the second OECD-member country since Denmark to sink to official recessionary status.

The reality is that the big three in the developed world - the U.S. the U.K., and the Eurozone - are staring into the face of recession.

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Dow Jones Industrial Average

The Dow formed a small triangle, with declining volume typical of a consolidation.

Recovery above 11600 would signal continuation of the bear market rally,

while reversal below 11250 would warn of continuation of the primary decline.

Don't count all retailers out in this economy...

Amazon.com's net income nearly doubled from a year ago.

Books are good in bad times, but it's the innovation in novel forms of media delivery--deals with TIVO, streaming video, a Kindle reader that downloads books via cell-phone technology--that is driving sales.

Smart innovation is a competitive edge when new sales are tough to capture.

ETF With a Bright Future

By Christian Hill

The world of exchange traded funds (ETFs) is ever-evolving. Nowadays, you can invest in a fund that covers just about any niche market. One that has caught my interest lately is the Claymore/MAC Global Solar Energy Index ETF, with the ticker symbol TAN. (Apparently, even Wall Street has a bit of a sense of humor.)

The fund selects companies based on "the relative importance of solar power within the company's business model." In other words, the fund covers only companies that derive more than one-third of their revenue from solar-related business. This includes companies directly involved in the production of solar power equipment and products for end users, as well as companies that fabricate parts for solar companies, provide services for solar-equipment producers, or supply raw materials, among other criteria.

While many solar companies have been beaten down this year, the industry still shows great promise. Solar currently generates less than 1 percent of America's power needs, which means there is plenty of room for growth.

The solar industry still faces hurdles, such as the current worldwide shortage of polysilicon, a key component of photovoltaic cells. Fortunately for us, one of the companies in TAN is MEMC Electronic Materials (MEMC), a major supplier of silicon wafers. So even if actual production slows, you still own a company that benefits from the shortage of silicon.

The ETF is diversified amongst countries, with Chinese companies making up 30 percent of the index, Germany 29 percent, and the U.S. around 26 percent. Market capitalization is mostly small cap (at just over 42 percent) and mid cap (at 30 percent). This means the fund isn't reliant on one company or country for success, and should be able to weather any growing pains facing the solar industry.

This is a long-term buy and hold position, as it will likely take many years for solar to gain widespread acceptance as the future of energy. When that time comes, TAN will be the ETF you want to own.

Planes

Hundreds of grounded planes. Thousands of lost jobs. Nearly two dozen price hikes. Record oil prices have battered the airline industry, and Wednesday the airlines called on Congress to act.

In an open letter to all airline customers, CEOs from 12 of the nation's airlines said lawmakers must curb excessive speculation to scale back record fuel costs.

"Normal market forces are being dangerously amplified by poorly regulated market speculation," the letter said. "The nation needs to pull together to reform the oil markets and solve this growing problem."

The airline industry said that Congress' previously established regulations to control excessive market speculation have largely been weakened or removed in the past two decades.

"We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight," the letter said. "Together, these reforms will help cool the overheated oil market and permit the economy to prosper."

A dozen or so bills have been introduced in the House and Senate on the subject of oil speculators. Democratic leaders in the House have promised to address the issue by tackling "excessive" speculation, but so far they have little to show for it. Policy analysts believe a bill is coming, but it may be September before a law can get passed through both chambers.

Meanwhile, airlines say record fuel prices are burdening their business and customers alike. Analysts expect the airlines will cut capacity by 9% in 2008 while continuing to hike fees and cut staff.

"For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities," the letter said.

--CNNMoney.com

Dow Jones Industrial Average

The Dow is testing support at 11000.

Light volume indicates that this level is unlikely to hold.



http://www.fastsellerloans.com

The Starbucks plan...

.... means that 600 underperforming stores will be shut down just this year. What a complete 180. From being one of those companies that was spreading like wildfire, now they are closing down stores and taking a $348 million charge.

As soon as they made the announcement on Wednesday, trading was halted.

Yet in after hours, shares were up five percent. If they didn't go down on this news, chances are they'll move even higher over the next few days.

March Lows In Play...

...the onslaught of selling this past week brought the March lows in to play for the major indices.

The Dow dropped below its March low on Thursday after the 358-point drop.

The S&P is still 20 points above its March low and the Nasdaq is still 160 points from its March low.

Energy Panic Trigger#1:

Saudi Arabia is the biggest exporter of oil in the world, and it is the only OPEC producer with any significant spare production capacity. It's also the #2 supplier of U.S. imported oil.

Problem: It supplies mostly the heavy oil that, regardless of any production increases, will have little impact on the market that matters the most for U.S. consumers.

I'm talking about gasoline, which is refined mostly from light crude: And light crude supplies are not only tight; the premiums over heavy crude are soaring to their highest levels of all time.

Most important: The Saudis aren't motivated to pump enough oil to bring down prices even if they could! Why should they? They're making money hand over fist - hauling in huge, historic profits - with each new surge in oil prices!

12,000 held...

...as major support for the Dow yesterday. But will it hold today? With the market as oversold as it is, there could be a bear market rally. But don't get sucked in. The economy is getting weaker all the time. Eventually, the Dow should drop far under 12,000.

CEOs expect to lay off employees

Business Roundtable found that nearly a third of CEOs expect to lay off employees this year because of energy prices and after shocks of the mortgage crisis.

However, they also expect sales to remain good as now or get better.

Moral of this story?

Buy shares in your company; they may pay off when your employer doesn't.

The Inflation Monster

Reared its ugly head again yesterday with the Producer Price Index for May coming in 1.4 percent higher.

Even worse is the 7.2 percent that producer prices went up since May of last year. It's obvious that the Fed needs to fight inflation.

But with growth slowing, the chances of the Fed drastically raising interest rates is virtually nill.

That means precious metals should do very well over the next few months.

Inflation Gone Global

The market went down partly on inflation fears last week before staging a much-needed recovery on Friday.

But inflation is not only an American problem. Europe is also fighting the specter of inflation.

And inflation in China is running at about eight percent. In India, it's feared inflation could go over 10 percent.

Food, energy and commodities are feeding the inflation monster worldwide. Global credit tightening seems inevitable.

And with it, global economic growth will take another serious body blow.

Technology Play

ETF (exchange traded fund) - which is laden with some of the biggest names in technology - is set to offer outstanding returns once the economy recovers. I'm talking about the technology SPDR (XLK), and it allows you to own a "who's who" of the technology industry, including Microsoft, Google, Intel, Hewlett-Packard, and Apple.

The blue-chip companies amongst XLK's holdings are at the forefront of developing new industry-leading technology. And for most of them, it is a matter of when, not if, they will develop the next cutting-edge, "must have" software application or product and see their stock take off and produce huge returns. With XLK, you don't have to guess which one of those companies will be next, because you can own a share of all of them.

XLK's holdings are very well diversified. So if one or two of the companies fall, the overall effect on the ETF is muted.

XLK is currently trading at the $25/share level, and I expect it will climb toward the $30/ share level in the next 12 months. That would be a nice gain of 20 percent. And if things really get going, I don't think $35/ share is out of the question. The support level seems to be around $22/share, so the downside is only around 12 percent.

Adding XLK to your portfolio could provide great returns while giving you diversity in the technology sector.

Volatility Index Behaving Oddly

The CBOE Volatility Index is designed to be a measure of volatility in the overall market. Without getting too technical, it is based on the volatility of S&P 500 options. The options are rotated in and out, as one month's options expire and then a new month is added on.

Under normal circumstances, the VIX goes up when the market declines and goes down when the market rises.

Over the past week though, the VIX has been behaving rather oddly. On Friday June 6, the VIX jumped over 26 percent as the market took its nosedive. Then, this past Wednesday when the Dow dropped another 200 points, the VIX was only up four percent.

On Thursday, the Dow was up 57 points and the VIX was down 3.3 percent.

As you can see this is not a perfect inverse relationship between the VIX and the overall market. I know I am comparing it to the Dow rather than the S&P, but the differences in the percentage movements are not that great.

Personally, I think the problem stems from the options on the VIX. A few years ago, the CBOE started offering options on the VIX. To my knowledge, only the hardcore traders are trading the VIX options.

I can say that since the introduction of VIX options, the VIX itself has become a less reliable indicator for me. I always thought of the VIX as a good gauge of overall fear in the market. When puts were being bid up more than the calls, the fear level was increasing and the VIX was rising.

Why do small-cap companies rebound better than bigger companies?

Small caps do well emerging from a bear market because they get pounded during a bear market.

With less financial and market muscle than bigger companies, they have the reputation of not faring as well when the economy slows.

Investors consequently flee to bigger and supposedly safer companies.

So when the economy and market begin to look up, these maligned small companies need - and get - a bigger bounce just to get back to "normal" valuations.

Unhealthy Sector

As a result of the legal issues big-name companies like Pfizer (PFE) and Merck (MRK) have been dealing with, the pharmaceutical sector is among the worst performing sectors so far in 2008.

Several ETFs provide exposure to this sector, but the two that see most of the trading volume are the Pharmaceutical HOLDRs Trust (PPH) and the Select Healthcare Spyder (XLV). The performance of these two ETFs has been abysmal over the past year, with the PPH down 17.24 percent and the XLV down 11.13 percent. During this same time period, the S&P 500 was down only 6.54 percent. So you can see how the pharmaceutical sector has been lagging behind the rest of the market.

Is it time to start looking at pharma as a value play and buy some shares? I don't think so. The legal issues are still piling up for these companies, and it could be a while before they are in the clear.

Another thing that will have a huge impact on this sector is the November presidential election. If a Democrat is elected, you can look for a healthcare reform push - which will certainly affect the drug companies. They may lose control over what they can charge for their products.

My advice is to steer clear of the pharmaceutical sector for the remainder of the year. Once the election is settled, you can reevaluate to see if pharmaceutical companies are a bargain then.

Stock Pickers Are Failing Their Test

Chances are your actively managed mutual fund is disappointing you. You'd probably get better returns investing in an index fund that charges lower fees.

An index fund goes up and down with the index it follows. If it's a large-cap growth fund, for example, it follows an index made up of large companies in traditionally high-growth sectors like tech and health care. A managed fund picks its own big growth companies. If it picks them well, it does better than an index fund. If it doesn't, it does worse.

For a managed fund to stand out, all it has to do is perform better (or less poorly) than its related index. It doesn't necessarily have to make a profit. For example, if the index falls 10 percent and the managed fund drops "only" 7 percent, that fund is considered to have done well.

It seems that the bar has been set pretty low, doesn't it? Maybe we should set it even lower...

So far this year, in only three of nine categories have the majority of funds managed to beat their index. If you have invested in a large blend fund (blend incorporates both value and growth), a small blend fund, or a small value fund, congratulations. More likely than not, your fund is outperforming its related index. (More than 50 percent of these funds do.)

But if you have invested in a growth fund, your investment could be in trouble. Less than 30 percent of those funds are beating their index.

Does that mean you should switch to a large or small blend fund or a small value fund? No. These three fund categories are beating their indexes by a mere half-percent or less. It's hardly worth the effort.

But when considering funds in the future, remember that the higher fees you pay for actively managed funds don't necessarily get you better results when the market goes down. Index funds do just as well - or just as poorly.

By Andrew M. Gordon

Gas

The national average price of regular gasoline topped $4 a gallon (3.79 liters) for the first time, AAA, the largest U.S. motoring club, reported yesterday.

"At $4 per gallon gas, $125 per barrel oil and $10 per million Btu natural gas, a lot of activity becomes uneconomical," says Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

The lifestyle of the exurban commuter may be one casualty.

Emerging suburbs and exurbs -- commuter towns that lie beyond cities and their traditional suburbs -- grew about 15 percent from 2000 to 2006, nearly three times as fast as the U.S. population, as Americans moved further out in search of more affordable houses or the bigger ones that are sometimes derided as McMansions.

"It was drive until you qualify" for a mortgage, says Robert Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria, Virginia. "You can't do that anymore. Your cost of transportation will spike too much."

The 38-year-old Marino, an archeologist for the U.S. Fish and Wildlife Service, is among those feeling the pinch. "Eating out and discretionary income are a thing of the past for us," he says.

The point of no return.

We're importing inflation by the barrel load from the Middle East (with oil prices surging). But don't forget about China, who just lifted bank reserve requirements in yet another measure to slow down inflation.

But if they are really serious, they'll start strengthening their currency faster than the snail-like pace they have employed.

While that may cut down the overall amount of imports we get from China, these imported items will cost more. And we're already seeing more manufacturers pass price increases on to retailers.

Inflation is seeping into the U.S. economy from seemingly every direction. If the Fed doesn't raise rates soon, it may be too late to put a lid on inflation.

Double Trouble

The market got hit by a double dose of bad news on Friday.

First was the May employment report, which showed the biggest jump in the unemployment rate in 22 years.

The rate jumped from 5.0 percent to 5.5 percent.

The second dose of bad news was a ten-dollar jump in oil prices.

Between these two things, the market didn't stand a chance.

Crude Oil

West Texas Intermediate crude is testing support at $123/$122.

A fall below this level would signal a secondary correction that would test support at $110 (the 50% retracement level) and possibly $100 (70% retracement of the advance from $85 to $135).

Respect of support at $122 remains as likely, however, and reversal above $130 would signal another rally.

The dollar gets much needed love...

...when Fed Chairman Bernanke said that he would "carefully monitor developments in the foreign exchange market". Could it be that Bernanke realizes that a dropping dollar is god awful for inflation?

It seems that Bernanke may put his money where his mouth is, because he signaled that interest rate cuts have come to an end.

In fact, he talked about how rates may need to go up faster than most expect, just to keep inflation at bay.

Expect dollar strength in the months ahead.

"Defensive" Stocks

Integral Systems (ISYS): Forward P/E 17, PEG 0.75, revenue growth last quarter of 55 percent, operating margin of 17 percent.

Curtiss-Wright (CW): Forward P/E 16, PEG 1.2, revenue growth last quarter of 30 percent, operating margin of 11 percent.

Orbital Sciences (ORB): Forward P/E 24, PEG 1.6, revenue growth last quarter of 30 percent, operating margin of 8 percent.

Esterline Technologies (ESL): Forward P/E 15, PEG 0.6, revenue growth last quarter of 45 percent, operating margin of 9 percent.

Doing a little math by dividing their forward P/E by the PEG, you can see that future earnings growth for these companies is projected at annual rates of 13 percent to 25 percent. And a recession isn't going to cut into military spending. That means these companies should continue to fly high.

The supply of dollars is falling as the U.S. current account deficit improves.

Because the major currencies are free-floating, prices are determined in the market based on the global supply and demand for a particular currency against another.

And one of the major sources of supply of U.S. dollars is through the U.S. current account deficit.

Now, the U.S. current account deficit is improving. That means less dollars in global markets, which should help the buck's value.

But here's an interesting side note: The last two times the U.S. current account deficit improved, and dollar liquidity drained from the global economy, there were major stock market crashes and recessions. Will the same thing happen this time around?

Supplies Continue To Dwindle.

With all the money pouring into the commodity markets, you'd think supplies would be ramping up. But nope: Supplies of virtually every natural resource under the sun are dwindling.

Some recent evidence ...

The global platinum market ended 2007 in a deficit of 480,000 ounces, with demand of 7.03 million ounces surpassing supply of 6.55 million ounces.


According to the World Gold Council, in 2007 gold supply decreased 3% to 3,469 metric tonnes. Of that, mine supply decreased 3% to 2,047 metric tonnes.


The International Energy Agency is now (finally) concerned that future crude supplies could be far tighter than previously thought. Previously the agency has predicted that crude supplies will arc to keep pace with rising demand, topping 116 million barrels a day by 2030. But now the group worries that aging oil fields and diminished investment may leave oil companies struggling to produce even 100 million barrels a day for the next two decades.


Copper: New 2008 supply will only feed an additional 2.3% into the market. Furthermore, stockpiles of copper monitored by the LME have dipped by more than a third since the beginning of the year.


Global grain reserves are "precarious" at only 1.7 months of consumption. Wheat inventories, for example, have reached a 30-year low. For rice, global ending stocks finished in December 2007 at 72 million tonnes, an all-time low.

Tip

You see it all the time; a stock jumps 20-30% in just a few days. Suddenly, the average investor sees what is happening and decides to join the bandwagon, hoping to catch some of the move. After jumping in, the stock comes down 15% and the investor is at a loss.

This type of loss is one of the most common mistakes investors make, but is also one of the easiest to avoid. Take a look at the chart below to see what the situation looks like.

Take a chart of Sirius Satellite Radio (SIRI). In 2006, they were on a steady downtrend but rallied to move through their 20 and 50-day moving averages in June. In just 4-5 days, Sirius went up nearly 20%. This was simply too far, too fast and here's why:
The Slow Stochastic and RSI indicators show you how much momentum any given stock has moving up or down. When both of these indicators show extreme conditions (readings above 80 or below 20), they signal a potential reversal of the trend.
In this case, the Slow Stochastic was above 80 and the RSI was near that point as well, meaning the stock was overbought and a reversal should follow. If you followed these indicators, you'd wait to buy stock since you'd know that there was a good chance that the stock would go down in value after you bought.
By using these indicators before you buy a stock, you'll consistently pay less per share and see profits sooner.

Bonds

Consumer prices are climbing at a 4.1 percent clip right now. And investors who believe that number badly underestimates the true rate of inflation (as I do), should be starting to do more selling than buying of bonds. (Don't worry. If you're interested in buying rather than selling, I'll show you how in a moment.)

This is the self-regulating mechanism of the market. As investors sell, the price of bonds goes down - just as selling pressure pushes the price of stocks down.

And as bond prices go down, their yields go up. As yields rise and become more attractive, buyers are once again drawn into the bond market.

Entering the Workforce

An article on CNN.com had these suggestions:

Network with old and new business contacts during your "sabbatical." Then ramp up your efforts when you start job hunting. Set up short meetings with previous employers, customers, co-workers, etc. If you can't get together with them in person, keep in touch by phone and e-mail.

Stay current with new trends and technologies in your industry by attending seminars, reading trade publications, and taking courses.

Work as a volunteer with your favorite organization or intern with a company in your industry. You may not get paid, but this will keep your skills up and give you great networking opportunities. It will also show potential employers you are ready to get back to work.

When you apply for a job, briefly mention in your cover letter why you were out of work for so long. But don't dwell on it. Focus, instead, on your relevant experience and accomplishments.

The Fed is shifting into "neutral."

We've established that long-term rates are not going down due to concerns about inflation. But what about short-term rates, the ones the Fed controls more directly? The news has been better there.

The Fed's cuts in the federal funds rate have helped bring down the London Interbank Offered Rate (LIBOR) and the prime rates quoted by major banks. That has helped lessen the magnitude of rate and payment adjustments for many adjustable rate mortgage holders. It has also lowered the rates on things like home equity lines of credit, which usually track the prime rate.

Expensive Stocks Are Rip-Offs

Many investors swear by the "efficient market theory." All it means is that through the magic of millions of investors buying and selling stock every day, you get what you pay for. If a company is cheap, it's cheap for a reason. If it's expensive, it's expensive for a reason.

I'm a dissenting member of the "efficient market theory" club. First of all, the market runs as much on emotion as it does on logic. And extremes rule. Investors are either too pessimistic or too optimistic.

Instead of the "efficient market theory," I'd call it the "inefficient market theory."

The fact is, you hardly ever get what you pay for when you invest. You usually get too little or too much. These days, when it comes to expensive stocks, you get much too little.

There are 153 companies with a price-to-earnings (P/E) ratio of over 100 (according to a search I did on my Yahoo stock screener). If you're not familiar with P/E ratios, a share price greater than 100 times annual earnings or profits (per share) is very high. To justify such a high price, the company has to grow like the dickens and give every indication of continuing to do so.

I didn't go through all 153 of those companies. But going through about half of them, I found that just a few earned their high P/E ratios because of strong growth. Usually, it was because their earnings fell faster than their price.

A good example: eBay (EBAY). Its earnings dropped 65 percent over the past 12 months. But its price dropped only 8 percent. At a P/E ratio of 98, its price is now much higher compared to its earnings than it was a year ago. The point is, eBay got more expensive by having a bad year, not a good year.

There are rare exceptions to this pattern, and one comes from overseas. Baidu is China's Google. Its P/E ratio is 127. But it also grew its earnings over the past year by 95 percent. Phoenix-based First Solar's (FSLR) P/E ratio is 110. But its earnings grew over 1,000 percent last year.

At one time, you could have argued that Google's ultra-fast growth in revenue and earnings warranted its high P/E ratio. (It was over 100 for a long time but is now at 40.) But very few of the current crop of super-expensive companies can make such a claim. You should avoid them like the plague... unless you know from looking at past earnings that you have a Baidu or a First Solar on your hands.

The Depot Blues...

... struck Wall Street as a disappointing earnings report from Home Depot set a bearish tone for the market.

Certainly not helping matters was the biggest uptick in producer prices since 1991 and oil prices hitting a new all-time high.

All of these things are sure to damper expectations for an upturn in the economy for the second half of the year.

Next ATM Machine

Spend-happy consumers who can no longer use their houses as an ATM machine are simply finding other ATM machines.

From raiding the equity in their houses, they're now raiding their retirement plans. At the end of 2006, only 11 percent of workers had outstanding loans from their retirement plans. At the end of 2007, 18 percent had such loans. As we're approaching Memorial Day weekend, I'm betting it's well over 20 percent.

Why steal from the "future you"?

Banks aren't lending money. So people are forced to go to the only lender who's willing to give them a break - themselves.

The problem with this trend is that the "future you" will probably need the money just as badly as (if not more than) the "present you" - considering the "future you" will be retired and out of a job and trying to live on reduced Social Security benefits.

I beg you to try hard to stay away from your retirement fund. For every $100 you'd be getting from it now, you're taking $150-$200 or more away from yourself 10 years down the road. You need to give your retirement funds as much time as possible to grow.

Confidence

It has been 28 Years since consumer confidence was this low.

The University of Michigan Sentiment survey came in at 59.5, the lowest reading since 1980.

Meanwhile, Treasury Secretary Paulson thinks "the economy will rebound in the second half of the year."

Either consumers are wrong or Mr. Paulson is, we will have to wait to see which it is.

Social Security and the Angry Society

The problem is that just paying higher taxes won't by itself solve the problem because the dirty rotten pols will just steal the increase as they have with what's been done so far.

The SS funds must be separated from the rest of the fed funds and invested somewhat for a higher return, so hopefully it can grow into something real. There is no real trust fund since what's there are just IOUs from one part of the government to another that can only be paid with taxes.

With crimes of this size and importance, someone should go to jail. for a long time. but that's another story. Repairing the faith and security of the system is much more important. But getting the pols to do that will be almost impossible since they all feed off it in the same way.

The American people are being robbed blind and the pols and their finance industry buddies are doing something no outside power could do. destroying the greatest country in the world and all for greed and privilege.

Cola Wars?

Both Pepsi (PEP) and Coca Cola (KO) have been in up trends for the last six years, and have maintained those trends despite the problems with the economy. Even during the bear market of 2000-2002, both outperformed the market.

Another reason to consider these stocks is that both companies have been growing rather than shrinking revenue. In the most recent quarter, PEP and KO reported revenue growth of 13.4 percent and 20.9 percent, respectively. This tells you that Pepsi and Coca Cola are still expanding.

People are creatures of habit. Even when the economy slips a little, there are certain things they will continue to buy - including Coke and Pepsi products.

Strange Recession

Falling confidence, weak dollar, wasting employment, backtracking GDP. many things point to a recession, but it's certainly an odd one.

Productivity is rising, for instance, and is up 3.2% this year. That's not the kind of thing you see in China, but it's a good strong number for the U.S., and in a recession, any gains are unusual.

Even more puzzling, capacity utilization is also high at 80.1%, though that is down a half percent from last month. In short words, factories and businesses are running briskly, using 80% of available space and resources. We never hit 100%. An 85% level would be the equivalent of all hands on deck.

Drill in Alaska Wildlife Preserve

It is true we already do get oil from remote Alaska - Prudhoe Bay accounts for 17% of U.S. domestic production. What's more, since the U.S. produces 5 million barrels of oil a day, if we could pump an additional 1 million barrels from ANWR it would represent a 20% increase in domestic production.

However, even the most hell-bent-for-leather program would require exploration, test wells, building of infrastructure and more. It would probably take about 10 years for oil from ANWR to start reaching consumers. I think we'll either be well on our way to electric cars and trains or a Mad Max-esque dystopia by then. In other words, ANWR isn't a short-term solution to high gasoline prices.

Also, we don't know the size of the recoverable oil reserves in ANWR. Estimates vary, but the mean recoverable estimate is 7.7 billion barrels. That sounds like a lot ... when you're talking about olive oil. The U.S. uses 20.6 million barrels of petroleum per day. So, the recoverable reserves in ANWR would give us 373 days of supply, or slightly over a year.

And it wouldn't be cheap - far from it. ANWR defines "remote," and the winter conditions in ANWR could pretty much be described as "an icy slice of hell."

Finally, there's no guarantee that the oil would go to the U.S. Some Alaskan oil now goes to Japan - oil companies can sell to whoever they want.

Rice

Rice shortages have been plastered all over the news recently and while rice is a crucial staple of the Chinese diet, they also need pork, wheat, soybeans, poultry, edible oils, dairy, and seafood.

A pick for a food takeover is Sadia S.A. (NYSE:SDA), a Brazilian food company that specializes in poultry and pork - two of China's favorite protein sources.

Disconnect

Why the disconnect.Friday was a strange day for the S&P 500 and its derivative products.

The S&P itself was down 0.69 percent while the Spyders were down 0.15 percent and the e-mini futures were down 0.25 percent.

Most times the derivatives will follow the underlying very closely, but because they have separate supply and demand markets, they can have varied performance.

This variance doesn't usually last very long.

The commodity dollars are in turmoil.

The skies above the Canadian dollar are slowly clearing up. Much of the disappointment the U.S. dollar has had to endure has pressured the Canadian dollar too, despite that country's relatively steady economy. But as the buck wiggles free of pressure, so too does the Loonie.

And after shaking loose the Canadian dollar, the Australian and New Zealand dollars have remained attached at the hip for quite some time. Rarely have we seen diverging price action between the two. Earlier in the week, however, was one of those rare examples.

What happened? An Aussie-positive economic report buoyed the Australian dollar. Normally the New Zealand dollar would follow the Aussie. But this time it sunk lower.

What's it mean? Further instances of divergence could indicate traders are growing more selective in their dollar-bashing.

What You Can Learn from All This Action ...

You can no longer just buy any ol' currency and simultaneously sell the dollar. It just isn't working like that anymore. Traders are finally facing up to the currency market imbalances that they previously shied away from.

If you've been jumping in against the dollar with reckless abandon, you may want to think twice about your trading decisions.

If you've slowly and steadily worked yourself away from the perma-bear camp, then I think you're in a good spot. You won't be surprised when this dollar rally lasts.

Fed's Efforts to Save....

...the U.S. Economy and Financial System Succeed ... Credit Crisis Eases.

Under this scenario, the Fed's recent actions of slashing interest rates and pumping money into the economy are successful - the U.S. economy recovers and global growth resumes.

As a result, the credit crunch eases, and money flows through the pipeline. The big commercial and investment banks finally stop taking massive write-downs on bad mortgage securities. Foreclosures shrink, home prices stop hemorrhaging, and home sales pick up. Businesses start hiring and consumers resume spending. Life is good again.

The market decided that no news was good news.

Taking the Dow Jones from 100 points in the red to 50 points in the green.

When you see a big reversal like this, it tends to signal bullish things for the market.

But in the past few weeks, we've seen a few major bullish and bearish reversals. In the end, this market is still trying to find its groove.

But keep your eyes on downside risk since we're still in recession.

Sin May Be a Good Thing

Yes, the economy is in the toilet. Fortunately for you, there are a few easy ways to "recession-proof" your portfolio. For instance, you can invest in so-called "sin" stocks. These include alcohol stocks, tobacco stocks, gambling stocks, etc.

The reason is simple: When times get tough, people still smoke, drink alcohol, and gamble. And some take up smoking, drinking, gambling, etc., as a way to cope. So investing in those stocks can provide stable returns, even under difficult economic conditions.

You still need to be prudent in your investing, and picking industry-leading "sin" companies is a good start. Some investors may exclude these types of investments from a moral standpoint, and that is understandable. But if you're willing to bet on others' bad habits, these stocks can give your portfolio diversity.

Two of my favorites are U.S. Tobacco (UST) and Anheuser Busch (BUD). Both are strong companies with strong brand loyalty that can see them through a bleak economy.

Puts

Just a few days ago, a friend stopped by to say hello and as is often the case when two traders get together, the conversation turned to the market.

It turns out we were both trading the S&P Financial Select SPDR (XLF) put options. (Just a reminder: Puts are instruments that benefit the buyer when the stock, or, in this case, the ETF, drops in value.)

Now the odd thing is that he was selling the XLF puts and I was buying them. He was betting that the XLF would remain above the 20 level. So he was making money by collecting the premiums and letting the puts expire worthless.

I was buying the April 28 puts, which meant that I made money when the XLF fell from $27.50 to $24.50.

Two totally different approaches to trading the XLF puts. But we were both making money.

I prefer buying options to selling options. When you buy an option, the worst that can happen is you'll lose 100 percent of what you paid for it. Meanwhile, your upside is unlimited. When you sell an option, your gain is maximized then and there. But your downside is unlimited. Given the choice, I'd rather maximize the upside and minimize the downside of any trade I make.

That is the name of the game when it comes to trading. There are many ways to trade. There are many ways to make money in the market. The key is to find the type of trading that works best for you.

Overview

The Dow Industrial Average reversal to a primary up-trend has now been confirmed by the S&P 500. Expect a test of the 2007 highs at 14000. While the market is recovering, this is more a function of cheap money than a booming economy - the old maxim still applies: Don't fight the Fed. Milder than expected employment losses may hint at a soft landing, but the housing market collapse and resultant credit squeeze are likely to plague the economy for some time. Banking, housing and other cyclical sectors should be treated with caution.

The FTSE 100 and Nikkei 225 have also confirmed the Dow signal, while Asia-Pacific markets all look promising.

USA

Consumer Spending went up.

At least that's what the market wants us to think. While the headline said consumer spending rose 0.6%, the truth is almost all of that gain was attributed to higher gas and food prices!

In the end, consumer spending only increased 0.1%. Be sure to always dig deep into any government reports to make sure that you fully understand what's happening in the economy.

It's one of the surest ways to make money in the stock market.

Emerging Markets Not Done Yet

This year, the European markets have done just as badly as the U.S. markets. Many have done a lot worse.

Many of these countries have economies that are still expected to grow two or three times faster (or more) than that of the U.S. or Europe. And companies in these countries are also expected to grow earnings much faster than American or European companies. At the same time, their economic and banking systems are becoming more open and transparent and increasingly subject to the rule of law.

Market growth is never smooth. There are bound to be breaks in the climb. We're in one of those breaks now. It shouldn't last. The emerging markets still have a greater upside than those in developed countries. And the iShares MSCI Emerging Markets (EEM) ETF is probably the best way to invest in them.

HOW to add Chinese exposure...

...to your investment portfolio

I've briefly outlined five easy ways to invest in China below. My advice would be to give careful consideration to each strategy as a part of your overall emerging market investment objectives.

#1.) Exchange-traded funds: We've been telling you a lot about exchange-traded funds (ETFs). That's because these investments can give you a diversified stake in a particular sector, index or country in one shot.

There are several ETFs that can give you direct exposure to China and its mega-growth neighbors, but the iShares FTSE/Xinhua China 25 Index (FXI) is the most popular Chinese ETF.

#2.) Mutual Funds: ETFs are great, but don't forget about traditional, actively-managed mutual funds, either. Some of my favorites are U.S. Global's China Region Opportunity (USCOX), Fidelity's China Region (FHKCX), and T. Rowe Price's New Asia (PRASX).

#3.) Chinese companies trading on U.S. exchanges: As I pointed out earlier, more than 100 Chinese companies are listed on U.S. exchanges. What's more, they are some of the largest and most profitable companies in all of China.

#4.) Chinese companies trading on foreign exchanges: A lot of really attractive Chinese companies are listed on the Hong Kong Stock Exchange, and others can be found on the exchanges in Singapore and London.

If you've never bought a stock on a foreign stock exchange, you'll be surprised at how easy it is. All you need is a broker with an international trading desk and the ticker symbol of the stock!

#5.) U.S. companies doing big business in China: U.S. companies have been doing business in overseas markets for a long time. But these days, some American firms are getting the bulk of their revenues from outside the U.S.

For example, both Yum Brands - which runs Pizza Hut, Taco Bell, and KFC - and casino company Las Vegas Sands both garner more than half of their sales from outside the U.S. In other words, even carefully selected U.S. companies can give you a very significant stake in China!

Disconnects

Hundreds of thousands of utility customers are at risk of disconnections as the sagging economy drives up the number of past-due home heating bills and the amounts owed, utility companies in cold-weather states say.

Xcel Energy says 17%-19% of its 1.1 million Minnesota customers and its 280,000 Wisconsin customers are in arrears. That's about the same as a year ago, but balances owed are up 10% in Minnesota and up 20% in Wisconsin, says Pat Boland, Xcel's credit policy manager.

Xcel disconnects 600-650 customers daily, he says. "Obviously the economy is playing a very big role in the disposable income that folks have," Boland says. Another factor: Cold weather added 7%-8% to this year's bills.

The extent of the problem is becoming apparent now because most states in the Midwest and Northeast have moratoriums on disconnecting utilities in winter months. Those restrictions typically end March 31 or April 15. Companies try to work out payment plans before curtailing service, and aid is available for some low-income customers.

A record $40 million was owed by 226,670 delinquent customers of rate-regulated utilities statewide in March, says Jerry McKim of Iowa's Bureau of Energy Assistance. "What we have is a crisis that never goes away," and more federal and state assistance is needed, he says.

In March, 89,002 disconnect notices were issued, up from 86,035 in March 2007, McKim says. Iowa's moratorium applies only to customers who qualify and apply for low-income energy aid.

-USAToday

Another reduction coming????

Markets are assuming that Bernanke will go to 2.0, and that expectation is built into the current price of storable commodities and the dollar. If the Fed instead surprises the market with a little restraint next week, I predict that we'd see immediate adjustments in those prices.

In part those effects would result from changing the fundamentals, surprising speculators with a higher real interest rate and firmer inflation-fighting commitment from the Fed than the market is currently assuming. But it's possible in my mind that there also is a psychological component to the current commodity speculation as well, in which case the Fed has a rare opportunity right now to get some extra benefits on the inflation front by breaking that psychology. However, if the Fed waits and lets the present perceptions become more entrenched, that same psychology could turn out to be a factor that later proves to work against the Fed and make anything it tries to do more difficult.

If you don't want to get stuck with a loser, how do you invest?

It's more important than ever to do your homework. That means going beyond relying on a company's statements. Just a couple of days before Bear Stearns was rescued by JPMorgan, they swore their finances were fine. Meanwhile, plenty of people who follow Bear Stearns thought otherwise... and were making their suspicions known in blogs and the financial press. Not every rumor is true, but neither should you summarily dismiss them. Keep an open mind.

Stick with high-quality investments in sectors you trust. There's too much we still don't know about banks and their exposure to bad debt - so stay away. Big companies with solid track records, substantial overseas business, and low debt may not make you a bundle. But, these days, it pays to play it extra safe.

A good rule

Never risk more than 2% of your account equity on any one investment, trade, or recommendation.

This is for any trading you do on your own. The only exceptions: Long-term core positions where you are not using any kind of leverage or margin.

But for short-term investing - day-trading and position trading - you should never risk more than 2% of your account equity on any one trade.

Why? Let's say you have $100,000 to trade with. If you risk 10% of your equity on every trade and you experience 10 losers in a row, you're wiped out. You are out of capital, and out of the game.

Even if you lose nine in a row, you've lost 90% of your equity ... you then have only one chance left to be right. And just to make back all the losses and breakeven, you have to hit one heck of a windfall profit on that 10th trade.

On the other hand, if you risk only 2% on each trade, you have twice as many opportunities to be right.

You have 20 opportunities instead of 10. And with 20 opportunities, the probability of you being right on any one trade goes up exponentially. And so does the probability of a winner that will run to full profit potential, helping to not only wipe out any losses you incurred, but to also push your account firmly into positive territory.

Invest Like a Dealmaker

When many forces are working in your favor,amplifying and reinforcing each other, you get what is called a 'lollapalooza effect.' It's like critical mass in physics. Create enough concentration of mass and you'll set off a nuclear explosion.

The average investor has the wrong idea about how the stock market works. He thinks about the price of his stock in terms of its quoted stock price. But even then... he often misunderstands what that price represents.

A stock's quoted price represents only part of the stock's underlying value: the company's equity.

You can determine the total equity of a company by taking the quoted stock price and multiplying it by the total number of shares that are trading on the stock exchange (the shares outstanding, to use the trader's term). But then you need to add to that the company's total debt. The combination of debt and equity gives you the total worth of the company - its enterprise value, as stock experts like to call it.

Most investors focus on a company's P/E ratio - the relationship between the stock's market price and its earnings per share. That gives you an idea of how enthusiastic the market is about the company's growth potential. (In general, faster-growing and less-risky companies have higher P/E ratios.)

But a better way to make investment decisions is to invest like a professional trader. You always want to compare earnings to enterprise value, because this gives you the bigger picture - the kind of picture you'd have if you were investing personally in a company.

Invest Alongside Chinese Entrepreneurs

We still like individual stocks better than Exchange Traded Funds (ETFs) or mutual funds. Why? ETFs and mutual funds are typically packed with State Owned Enterprises, companies run by Communist Party members for the benefit of the Communist Party, and not the shareholders like you and me.

Meanwhile, you can invest right alongside the Chinese entrepreneurs that are working their butts off to grow their businesses. They get rich only if you get rich, too. I like that deal!

I'm talking about entrepreneurs like Michael Yu, a former professor at Beijing University whose company has taught English to 4.5 million Chinese students. Or Neil Shen, a Yale-educated former head of Deutsche Bank who co-founded the largest travel company in China.

But remember, no matter what you do, don't let headlines designed to sell newspapers dissuade you from taking advantage of the great investment opportunities in China!

Economic Events Coming Up

Date
Time (ET)
Statistic
For
Market Expects
Prior

23-Apr
10:00 AM
Existing Home Sales
Mar
4.95M
5.03M

24-Apr
8:30 AM
Durable Orders
Mar
0.10%
-1.70%

24-Apr
10:00 AM
New Home Sales
Mar
585K
590K

25-Apr
10:00 AM
Mich Sentiment-Rev.
Apr
64.2
NA

Earnings

First-quarter earnings have so far been mixed, with Standard & Poors estimating reported earnings per share to fall roughly 30 percent compared to the same quarter in 2007.

An equivalent fall would see the S&P 500 index at 1100. Even if the Dow by comparison suffered only a 20 percent fall, that would take it as low as 11000.

Also bear in mind that falling employment is likely to have an increasing impact on consumption and corporate earnings over the next few quarters.

Negative Real Rates

The Fed keeps shoving its head deeper into the sand, hoping this inflation problem will go away. We get a bunch of speeches about how policymakers are "watching inflation closely."

But when it comes down to doing anything about it, the policymakers fold. Actually, they do something worse than that - they keep cutting interest rates even lower, driving real rates more deeply into negative territory.

Is it any wonder, then, that crude oil hit a fresh, all-time high of $115 a barrel this week? Or that the prices of all kinds of commodities have gone through the roof? Or that the dollar has been falling like a rock?

It's not just strong demand. It's not just strong overseas economic growth. It's the fact that nominal rates are much lower here than elsewhere, and that real rates are hugely negative.

Bucking the trend...

...While most banks are doing terribly, some are bucking the trend. Wells Fargo's first quarter profit only fell 11%, which was better than analysts feared.

Chief Executive John Stumpf said the quarter "was one of the best we've ever had for our mortgage business."

Two Wrongs...

...Must Make a Right.

At least that's what the big bosses at Blockbuster must be thinking. Blockbuster is already losing sales and profits thanks to Netflix.

And walking into a Circuit City these days is like walking into an abandoned building. So if Blockbuster isn't doing well and neither is Circuit City, then how the heck do they expect this half-baked plan to work? It probably won't.

And with that said, you can expect shareholders to question the wisdom of this decision.

GE's Earnings Miss Points to Slowing U.S. Economy

GE has rarely missed its profit targets, but it delivered an unexpected 6% drop in first-quarter profits last week, mainly from sub-prime writedowns at its financial services division, but also from an overall economic malaise.


After 112 years, General Electric is the only original company remaining on the Dow.
Profits were seven cents below expectations. Before you write that off as a small number, keep in mind that GE has almost 10 billion outstanding shares!

7 cents X 10 billion = a mountain of money!

More importantly, GE warned Wall Street to tone down expectations for the rest of 2008. The company now expects to make $2.20 to $2.30 a share this year, well below the $2.43 consensus Wall Street forecast.

Those numbers mean that GE's profits will grow a measly 5% at best. And at worst, they won't grow at all. According to the company's CEO, Jeffrey Immelt,

"We are not counting on the business getting any better, vis-à-vis ... the U.S. consumer. We have actually allowed for a worsening of the U.S. consumer in our GE Money business. So I think that is the way to think about the U.S. and the U.S. economy."

Last week's numbers tend to support Immelt's argument. The University of Michigan consumer confidence index dropped to 63.2 in April, the lowest number since 1982.

Facing Resistance

There's a myth that all you need to do is outline your vision and prove it's right - then, quite suddenly, people will line up and support you.

In fact, the opposite is true. Remarkable visions and genuine insight are always met with resistance. And when you start to make progress, your efforts are met with even more resistance. Products, services, career paths ... whatever it is, the forces for mediocrity will align to stop you, forgiving no errors and never backing down until it's over.

If it were any other way, it would be easy. And if it were any other way, everyone would do it and your work would ultimately be devalued. The yin and yang are clear: Without people pushing against your quest to do something worth talking about, it's unlikely it would be worth the journey. Persist.

Prices are Driven by the Ever-Changing...

...Perceptions of Buyers and Sellers

Conflicting ideas between traders exist at all times, everywhere. That's why it is said that markets are grounded in human nature.

And remember, it takes disagreement over value and price in order for a market to exist in the first place

Yahoo

Yahoo Inc. said it plans to carry search advertising from Google Inc. as part of a test that could lead to a broader partnership.

The two-week test, which will be limited to U.S. traffic and no more than 3% of Yahoo's Web search queries, is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement.

They have been discussing such an arrangement as part of Yahoo's pursuit of alternatives to Microsoft Corp.'s unsolicited acquisition offer, according to people familiar with the matter.

The test, given its short time frame and limited scope, shouldn't stand in the way of any eventual sale of Yahoo to Microsoft, says a person familiar with the matter. But it could factor into the dynamics of the ongoing deal standoff, as a way for Yahoo to signal to investors its alternatives to the Microsoft deal and potentially as an irritant for Microsoft, which views Google as a major rival.

In a press release, Yahoo said "the testing does not necessarily mean that Yahoo will join the AdSense for Search program or that any further commercial relationship with Google will result.

Analysts have predicted outsourcing its search ads to Google would boost Yahoo's cash flow, since Google's system generates significantly more revenue for each search query than Yahoo does. Under such an arrangement, Yahoo would likely garner a majority of the revenue and Google keep the rest as a commission.

-WSJ.Com

UPS spells down...

...A warning from UPS led to a down day for Wall Street yesterday.

The shipping company cited lower demand for package shipping along with higher gas prices for the cause of the warning.

If a shipping company is having issues, what does this tell you about the sales of end products?

DVN - Devon Energy

It continues to make new ALL TIME HIGHS on a daily basis.

The recent moves into new all time highs has sparked an interest in the stock.
Keep a close eye on it. $107.50 could be a nice resistance turned support level
in the stock. If DVN pulls back to the 107.50 level, consider taking a position
in the stock.

Vietnam

The market getting the most recent attention is Vietnam, which has experienced 7.5% average annual GDP growth over the past decade and continues to post strong economic growth despite the U.S. slowdown.

All of this is spurring more talk about the feasibility of a Vietnam fund or even an exchange-traded fund down the road. Nguyen Tan Dung, prime minister, said Vietnam's communist government was committed to a target of 8% to 9% annual GDP growth. It also planned to boost the value of exports by 20% this year.

Not everyone is familiar with the term "stagflation."

"Stagflation" was coined ages ago when I was still in college. It describes an economic period of both inflation and flat growth. The best description I've heard was provided by Rich Karlgaard, publisher of Forbes. He said:

"Stagflation is present when gas and grocery prices are rising faster than your paycheck is - and in an economy that is strong enough to employ you but not strong enough that you feel emboldened to ask for a raise."

There are three ways to defeat stagflation: (1) Tighten the money supply. (2) Restrict credit. (3) Lower taxes.

The price of sawdust

Sawdust Prices Soar As Supply Dwindles With Housing Downturn.

“From Maine to Oregon, the price of sawdust, along with other wood byproducts, has soared. When they can find it, sawdust buyers - dairy farmers, particleboard makers and others - are paying up to $50/ton or more, double what they paid a year ago, some say…

In Q1’08, U.S. sawmills have been shipping about 114 million board feet of lumber per day, said Henry Spelter, an economist with the U.S. Forest Service forest products laboratory in Madison, Wisconsin.

That's down from 135 million-bf/day in Q1’07, and 160 million board feet in 2006.” (Canadian Press, Apr. 2nd)

Further lending market reforms

Of all the mortgage reform programs being discussed, one in particular is gathering momentum in Congress. It's a bill that would potentially:

Provide $4 billion in grants that would allow local governments to purchase foreclosed homes.

Help fund $10 billion in tax-exempt bonds that states can sell to fund mortgage refinance programs. They're designed to get people out of bad subprime loans and into more stable financing.

Fund $100 million more in counseling programs designed to help borrowers facing foreclosure.

Give home builders a tax incentive that allows them to offset past profits with current losses in order to bolster their financial state.

Offer buyers of foreclosed or vacant homes a tax credit, possibly as much as $7,000.

The Federal Reserve has unlimited resources.

They can print money anytime they like....don't you wish you could!!!

The Fed's just-announced new regulatory push will help, long-term. But short-term, over the next few years, the Fed will continue to behave exactly as predicted all along for years now - pumping in liquidity and printing money like there's no tomorrow.

If Lehman Brothers, for instance, is looking like it will fail, you will see another bailout like the Bear Stearns deal. If JP Morgan goes down, the Fed will bail it out, too.

The Federal Reserve will stop at nothing to save the U.S. economy, while doing just the opposite!

That will create its own problems down the road - namely a continued long-term plunge in the dollar and much, much more inflation, maybe even hyperinflation.

Indeed, according to John Williams of Shadow Government Statistics, for the two weeks ended March 26, the seasonally-adjusted monetary base rose at an annualized rate of 20.1% from the prior two weeks. And a broader measure of the money supply is increasing at a record annual rate of over 17%!

Newsworthy?

Corporate treasurers are increasing sales of long-term investment-grade bonds for the first time in a decade, a sign they're betting U.S. borrowing costs will rise as the Federal Reserve slows the pace of interest-rate cuts.

At least 57 percent of the U.S. debt sold in the past two quarters matures in 10 years or more, compared with an average of 39 percent since 1999, according to data compiled by Bloomberg. The share at General Electric Co., the biggest U.S. corporate borrower, rose to 39 percent in the first three months of the year from 23 percent in the same period a year earlier. AT&T Corp. has sold $4.75 billion of 30-year debt since August, almost eight times more than in the previous three years combined.

Top-rated issuers are using the bonds to lock in the lowest yields in two years, taking advantage of the Fed's reductions in one of the only corners of the market where investors are still willing to extend credit. Borrowers are moving now because by yearend, they may face some of the highest costs since 2001, said Vincent Murray, a managing director at ABN Amro Inc. in New York.

Bloomberg.com

Transparency

What transparency?.

Goldman Sachs says that leveraged losses have a long way to go. Commercial banks, investment banks, hedge funds and government outfits are less than halfway there.

The unwinding is inevitable. The only question is the speed and transparency by which it takes place.

And it looks like a long and murky road still lies ahead.

The market - as jittery as it is - won't truly rebound until it sees the unwinding in its rear-view mirror.

ime

A few months ago, our world was stable and your retirement was secure. Today, suddenly, all heck is breaking loose and your future seems like a role of the dice.

A few months ago, Wall Street and Main Street were counting on Fed Chairman Ben Bernanke to protect them from disaster. Now, suddenly, they have awoken to the realization that his efforts have done nothing to end the credit crunch or save the economy ... and have done everything to gut the value of the U.S. dollar.

Just a few months ago, most Americans believed they could count on a dollar to buy a dollar's worth of food, energy and other products. Today, inflation is devouring our buying power at the fastest pace in nearly 30 years - and it's accelerating.

In response, Mr. Bernanke is panicking. He's dishing out hundreds of billions in new "monopoly" money even as we speak. He's getting ready to cut interest rates again. He's gutting the dollar, driving inflation higher. And still, credit markets and the economy are swooning.

Millions of Americans are stunned. And for Wall Street, it's judgment day.

Hung Out to Dry

The current tightness in the credit markets is no secret. And no move to alleviate the iced-up market is working.

The Federal Reserve has tried every possible fix:

They've slashed their Fed Funds rate by three percentage points in roughly eight months.


They've implemented money auctions through their lending facilities.


They've opened up their discount window to banks and primary institutions, practically accepting a half-eaten peanut butter and jelly sandwich as collateral for loans.


And they've even stepped in on an individual basis to spot JPMorgan Chase on their bailout of Bear Stearns.
But what have they actually accomplished so far?

Lenders are being given access to affordable money, but they're stopping the flow dead in its tracks. Instead of passing that money along to would-be borrowers, they're using it to seal up the holes left from the losses they suffered when an era of irresponsible lending practices came to a grinding halt.

One of the most noticeable changes: The end of blockbuster mergers, acquisitions, and buyouts.