In This Issue:

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

As the inauguration of the new American president approached, many analysts expected the market would have an "Obama bounce." Alas, that happy event did not occur. On the contrary, as further economic and banking industry worries continued to mount last week, the Dow and the Nasdaq dropped another 3.7% and 2.7% respectively.

The market fell another 332 points on Tuesday, when our new president took office. (Nothing personal, Mr. Obama. As the Godfather used to say, "it's just business.")

On Wednesday, however, the mood brightened and the market rebounded 279 points.

Credit Rebound Coming From Unexpected Sources

It isn't working out the way most economists expected, but the slow credit recovery is not coming from the big banks that have been receiving billions of dollars in bailout money. Those funds are simply replacing money that was lost during the period of fiscal madness.

Instead, smaller banks that didn't play subprime roulette, and don't need taxpayer's money, are starting to write checks to their more credit-worthy customers. Lending standards are stricter than they were during the go-go years that recently ended, but that's as it should be.

Banks are also reviewing business proposals with greater scrutiny. Lenders must be convinced that each idea has a good chance of being successful, which is also a return to sanity.

The bottom line is, if you have been holding fire on a business venture that would seem to fit the new criteria, this should be a good time to start contacting banks again.

Signs Of Life Are Returning To Some Real Estate Markets

Slowly rebounding credit couldn't be coming at a more opportune time. Some real estate markets are slowly starting to turn around. As we have been predicting for months, prices have fallen so far in many areas that many people who need a home are making their moves. Mortgage rates that are well below 5% are also attracting buyers.

Some of the biggest sales increases are occurring in our largest cities. In New York, for example, many condos that cost $1 million or so a year ago are now in the $500k to $600k range. For many people with good jobs, the bargains are proving to be too good to pass up.

Although it will probably be a year or more before the broader real estate market starts to recover, there are new signs of life in many of them as well. In Las Vegas, for example, home prices from last year are down 28%, but home sales are up 15%. In many other parts of the country, bidding wars are starting to take place for foreclosed homes that are being dumped by unhappy banks.

In some markets, real estate prices will probably continue to fall. In others, however, the most likely change will be on the upside. If you have been thinking about making a real estate investment, this might be a good time to start looking. This may be a sweet spot where price, interest rates, credit availability, and market potential all come together.

A Home Town Advantage With Stocks

It isn't only with real estate investments where locals are in a unique position to find top values. The same is also true with stocks. No Wall Street analyst can know as much about how a company is really doing than a local person who keeps his eyes and ears open.

Wal-Mart and Microsoft are two classic cases in point. In 1970 when Wall Street was cool about Wal-Mart's prospects, many people in Bentonville, AR noticed that the company was hiring. Passersby could also see that Wal-Mart's loading docks were bustling with activity. Local investors who trusted what they heard and saw above what the analysts were saying, ended up making a great deal of money.

Similarly in the 1980's, Bellevue, WA restaurants were buzzing with jabber by Microsoft employees who were excited about all the software they were writing and selling. Employees also said that their young boss, Bill Gates, was the smartest man they'd ever met. It would be an understatement to say that Bellevue investors who acted on what they heard are very glad they did.

It can be just as useful to be close by if a local company gets into trouble. A few years ago in Junction City, OR people noticed that employees at Country Coach Motor Homes were becoming worried about their jobs long before anyone on Wall Street knew anything was wrong. Alert investors who bailed out of the parent company, National RV, saved a great deal of money.

Forget The Bottom, Focus On Value

With both stocks and real estate, we urge readers to avoid trying to call the bottom of the markets. Instead, focus on investments that are attractively priced. If it becomes an even better bargain in a few weeks or months, it won't have any effect on your ability to make a profit at the price you paid.

Dan Ferris, editor of Extreme Value said it best: "Value isn't about hoping share prices go up, and it certainly isn't about attempting to predict the lowest share price. It's about knowing what a business is worth and paying a substantially lower amount than that." http://www.stansberryresearch.com/pub/evi/?gclid=CPT45NGVnpgCFQwxawodXxWLlQ

Of the many successful stock and real estate investors we know, only one claims to have gotten into his best performers at the absolute bottom. The other clients made their money by simply making good investments whenever they could be found.

Two Leading Stocks Look Especially Good Right Now

Speaking of Microsoft (MSFT), the economy and stock market turned two of the company's disappointments into an asset last year. http://finance.yahoo.com/q/bc?s=MSFT

As you may recall, in 2008 Microsoft made expensive bids for Yahoo and Facebook, but both deals fell through. Not only did that fortunate "failure" save Microsoft from suffering big losses when the stock market plunged, it also left the company with over $19 billion in cash.

Microsoft, of course, may use the market weakness to make another try for its two targets, which are now priced much lower than before. Alternately, Microsoft might make another one-time dividend boost to its shareholders, just as it did in 2004. If so, the true yield of the stock will be much higher than the 2.6% that it carries today.

Besides the cash hoard, Microsoft's ability to make strategic acquisitions, and its yield potential, the company's price looks very attractive. Microsoft was selling for $35 at this time last year. It is now just $18.50. That looks like a bargain to us.

If reliable dividend growth is one of your goals this year, (and it should be) we recommend an old favorite of ours, Procter & Gamble (PG). http://finance.yahoo.com/q/bc?s=PG The stock "only" yields 2.8% at present, but that's more than many of Uncle Sam's bonds are paying.

However, the real appeal of the company's dividends is that they have been increased for 52 consecutive years. That's a rock solid track record that the company is unlikely to change.

In addition, Procter & Gamble just announced that it is about to begin its most ambitious manufacturing expansion. The company is making the move to further capture business in emerging markets that are already delivering double digit growth. We think the decision will lead to much higher profits within a few years.

If you look at Procter & Gamble's low stock price, its dividend outlook, and the company's new global initiative, we think you get a very strong case for buying the stock.

The Bottom Line This Week

Inch by inch and flicker by flicker, the economic outlook is giving investors reasons to be hopeful. Although we are sticking with our prediction that the recession will continue to rage for several months, we also believe we will begin to see some relief late this year.

That's not to say that Joe and Sally MidAmerica will be out of the woods anytime soon. Life will probably remain tough for quite some time. However, many businesses are continuing to adjust to the new conditions and should start to rebuild their profits by the 4^th quarter.

Meanwhile, many of the most promising stocks –and some real estate deals- look very attractive. Among the former, Microsoft and Procter & Gamble look especially promising. In some real estate markets, homes and apartment buildings are also starting to pencil out.