Daily Profit : Dow

What QE2 Means for Stocks

Ian Wyatt — Thu, 04 Nov 2010 19:50:00 GMT

Well, you got to give Ben Bernanke credit. He delivered exactly what the market expected. And stocks neither ramped nor sold off.

Interestingly, no other country responded with any stimulus/currency debasing of its own. Instead, England kept its policy the same as inflation there continues to run around 3%.

The U.S. doesn’t have that problem. Yet...

But what will happen when the U.S. economy finally turns and starts showing some real growth and inflation? Will the Fed be able to hit the brakes when the time comes?

History would suggest that no, the Fed will not be able to move when the time is right. Former Fed Chief Alan Greenspan certainly left rates too low for too long. There's no reason to think Bernanke won't do the same thing...

And this is exactly why, a couple months ago, when economic growth took a nosedive in July and August, I was advocating bullish talk on the economy from the Fed instead of more quantitative easing.

But Mr. Bernanke still won't take my calls...

I received this letter form George A:

I disagree with your desire for weakened dollar in order to increase stock prices. While increasing stock prices may make you look like a hero to your subscribers, the reality is that lots of money printing that reduces the value of every dollar in your pocket does not make you richer, it makes you poorer (look at the value of each dollar you own over the last 2 months for proof of that). As for inflation, it is real and it is happening now – fedex and ups just announced 5% increases in rates starting in january, if you have bought a box of cereal in the last 6 months you will notice 1) it is more expensive by 10-25 cents and the boxes are thinner (they think they are tricking us by not making the box shorter, but a thinner box really does hold less cereal than a thicker one).

Bernanke’s tactics will only make us poorer in the end, regardless of what spin he, Washington, and the media want to put on it.

I have never once advocated dollar debasement as a way to improve the U.S. economy. I am a realist, not a hero. It's my job, as I see it, to advise individual investors on how they can make money in the stock market.

When I see stocks that I like, such as Brigham Exploration (Nasdaq:BEXP) or Citigroup (NYSE:C), I tell you.

When I see market conditions that can help investors make money, like I have been seeing since August 31, I tell you.

Again, I may not agree with Fed policy, but I'm damned sure not going to sit around and cry in my beer about it. Instead, I'm going to make money off it. It is our responsibility to have our profits outpace inflation.

As for the thinner cereal box, yeah, they sure don't make like they used to. But seriously, that seems like good business to me. Less packaging material means decrease costs.

And I think I noted yesterday that we are seeing price inflation for goods (like food) that must be shipped as companies pass on higher oil costs to consumers. That goes for UPS and FedEx as well.

My man Jason Cimpl provided his TradeMaster Daily Stock Alerts subscribers with a great explanation of the Fed's actions and intentions in his pre-market piece today titled It's a Bird, It's a Plane, No It's Helicopter Ben...

"Curiously, the bond purchases are mostly weighted to the front and middle of the yield curve. With 3-6 years being the "gravy" rate range. Quantitative easing is a way for the central bank to boost the economy by driving down long-term interest rates when short-term rates are already at zero. The Fed showed no interest in supporting long term rates in its second round of quantitative easing.

The steep yield curve created by this methodology may not help its intended target, which are those looking to acquire or adjust a mortgage. Instead, the approach supports risk taking behavior and encourages funds to be plowed into other assets besides bonds. Doing so pumps up asset prices and builds a wealth effect for the public in order to increase employment and consumer spending.

Far be it for me to "play" the economist, but this program could be more meaningful if combined with another stimulus strategy created to boost capital demand."

Pay particular attention to Jason's observation that the Fed is not targeting mortgage rates, but rather, asset and equity prices.

Also notice that the long-bond, as measured by the iShares Barclays 20+ Year Treasury Bond ETF (TLT) was absolutely hammered yesterday after the Fed's announcement.

Finally, gold is roaring higher this morning, up around 3% or $40 an ounce.

I also mentioned bank stocks as my "canaries in the coalmine." By attacking short term interest rates, the Fed is clearly helping the banks. They should rally nicely.

It is appropriate to start asking "where do we go from here." Clearly the Fed is trying to make the investment pool as inviting as possible. And that should lead to more gains in the medium-term.

But we also need to be aware that the stakes are higher now. The potential for inflation, policy failure or some other shock to the financial system is now magnified.

It's tempting to throw some price targets for the indices out there. And it would be prudent to keep an eye on 1,220 on the S&P 500. But the Nasdaq is already at a post-recession high and the Dow Industrials is within 100 points of one.

So instead of targeting a specific index level as a turning point, let's be aware of the potential threats. A surprise jump in inflation would be a big one. I'll start digging into others for tomorrow...

As always, I want to hear your thoughts. I'll even print them. Write me here: ianwyatt@wyattresearch.com

The Grind to Dow 10,500

Ian Wyatt — Tue, 29 Sep 2009 17:07:00 GMT

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Your Daily Profit

September 29, 2009

*****The Dow 10,500 Grind

*****Poor Getting Poorer

*****Oil and the U.S. Dollar

Fellow Investor,

Yesterday’s nice rally is backing off a bit today. That shouldn’t be much of a surprise. Traders will take profits, and I expect the move to Dow 10,500 will be much more of a grind than what we’ve seen lately.

Third Quarter earnings is right around the corner. Even though many commentators are nervous about 3Q earnings, I think there’s an upside surprise in store for investors.

*****The rich are getting richer, and the poor are getting poorer at least that’s how the say goes. Truth is, the rich are not getting richer, but the ranks of the poor are climbing. Median income in the U.S. fell from $52,163 to $50,303, the lowest since 1997. Not only did we lose a decade worth of stock market gains in the financial crisis, we also lost a decade worth of wage gains.

Income fell across all demographics, but the poor were hit hardest. The poverty rate has jumped to 13.2%. In Flint Michigan, 35% of the population uses food stamps. In Pharr, Texas, it’s 38%. Across the nation, 9.8 million households used food stamps. And the rise was concentrated in households with 2 or more workers.

This is serious. The data suggests that the financial crisis has hit the working class harder than any other income group. And with economic growth expected to be weak for a couple years while we work off the imbalances like housing inventory and manufacturing capacity, it’s hard to imagine what will help the working class get back on their feet.

*****But one has to wonder just how much the working class and two-worker households contribute to GDP. We might assume that this segment of the population that can slip so easily into the poverty range didn’t have much disposable income to begin with, and so wasn’t a significant driver of GDP growth.

Anecdotal evidence suggests that Americans are getting more comfortable with the apparent stability of the economy. And we know that once we feel good, we’ll start spending again.

*****Oil prices have been dropping. There is much debate as to whether oil prices respond more to the U.S. dollar or supply and demand issues. The U.S. Dollar Index has found support at 76, as you can see on the chart below…

You can also clearly see that the 76 level is not the ultimate support level for the dollar. Ultimate support may well be the 72 area on this chart. If so, we will see the dollar fall and another move higher for oil, gold and other commodities.

In fact, I’m getting ready to recommend a gold stock that operates in Brazil to my Top Stock Insights readers. I’ve been waiting for a bounce in the U.S. dollar to take gold prices down for $1,000 an ounce to recommend a gold stock. And now that move is happening; keep your eyes open for the imminent release of my new report.

***** My book The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks is still holding strong in the Top 10 in the “Stocks” category with Amazon.com. Daily Profit readers have been a big part of that success, thank you very much.

Don’t forget – when you get your copy, you’ll also get a coupon good for $50 off an annual subscription to SmallCapInvestor PRO or any of my other advisory services.

With this $50 coupon, it’s like getting 3 months of the top-performing SmallCapInvestor PRO for free. Helping you make money is the best “thank you” I can think of.

You can get your copy of my book at Amazon.com by clicking here now . And you can get your $50 coupon HERE.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

Maguire Properties (MPG): the Perfect Cash for Clunker Stock

Ian Wyatt — Thu, 24 Sep 2009 16:23:00 GMT

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September 24, 2009

*****Maguire Keeps on Going: Thanks to Ben and Tim

*****When will Interest Rates Rise?

*****$50 Coupon

Fellow Investor,

The stock I introduced you to last Wednesday, the beaten down REIT Maguire Properties (NYSE:MPG), has been going great guns. It closed at $1.33 that day. Today, it’s trading around $2.30 after touching a high over $3 yesterday.

I brought Maguire into our conversation because it is a great example of how the Cash for Clunker Stock Rally is working. The government is underwriting risk in the stock market. And we know, as do institutional investors, that the Fed and Treasury are working to prevent systemic failures. They are currently targeting commercial real estate as a potential problem sector. And if they succeed in supporting this sector, companies like Maguire will move higher in valuation.

*****If you bought any Maguire Properties stock on my recommendation, I’d love to hear about it. Drop me a line at editorial@247investor.com.

*****Stocks reversed and closed in the red yesterday after the FOMC’s interest rate decision. No surprise that interest rates will remain low. But for how long?

The Fed is trying to reassure investors that rates will stay low for a long time, and that risk in the markets will be underwritten by stimulus spending and guarantees. But, at the same time, as the economy improves, investors know that interest rates must rise and stimulus spending must end.

That, to me, is the biggest threat to the Cash for Clunker Stock Rally. So when we see economic data like this morning’s surprise drop in new unemployment claims, it’s a stark reminder that interest rates (and the U.S. dollar) will rise at some point in the future.

*****I’m not surprised that we’re seeing a little red for stocks. Prices shouldn’t go straight up. In fact, I’d be more concerned if we saw nothing but green. I still believe we see Dow 10,500 this year, so the current weakness will present a buying opportunity sometime soon.

Third quarter earnings season is right around the corner. Alcoa (NYSE:AA) kicks things off on October 7. I suspect investors are adjusting prices for earnings now, which will set the stage for something of a relief rally when earnings begin. We’ll see…

*****I’d like to thank Daily Profit readers again for your support for my book The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks. It’s doing great so far, and you’ve been a big part of that success.

Don’t forget – when you purchase your copy, you’ll also get a coupon good for $50 off an annual subscription to SmallCapInvestor PRO or any of my other advisory services.

With this $50 coupon, it’s like getting 3 months of the top-performing SmallCapInvestor PRO for free. Helping you make money is the best “thank you” I can think of.

You can get your copy of my book at Amazon.com by clicking here now . And you can get your $50 coupon HERE.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

P.S. Natural gas prices look to have bottomed early last week and are headed higher as we go into the cold season for North America. TradeMaster’s Jason Cimpl released his four top natural gas place to subscribers last week and the gains are already coming in. If you’re interested in getting detailed research on our four natural gas plays and testing out TradeMaster CLICK HERE.

Dow and S&P Finish Up With Nasdaq Down

Ian Wyatt — Fri, 24 Jul 2009 20:16:00 GMT

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July 24, 2009

*****Small-cap Update

*****Is This Rally Sustainable?

*****Taking Profits Everywhere

*****TradeMaster’s Jason Cimpl

Fellow Investor,

Stocks generally closed up higher today with the Dow and the S&P 500 continuing their upward momentum, but the Nasdaq closing down from yesterday’s close.

The Dow closed up 23.95 points to 9,093.24; the S&P was up 2.97 points to 979.26; while the Nasdaq closed down 7.64 points to 1,965.96 after at one point during the day trading down as far as 1,937.64.

The Russell 2000, the leading indicator for small-cap stocks, was up 1.99 points to close at 547.84.

Small-cap leadership was shown by Horizon Lines Inc. (NYSE:HRZ) up 35%. The Charlotte, North Carolina firm provides container shipping and logistics services focused primarily on foodstuffs, household goods, building materials, and auto parts. Horizon Lines handily beat street estimates: analysts had projected a Q2 EPS of $0.03 while the company actually reported $0.13. The company further reported that much of the difference was from workforce reductions and lower fuel costs.

Other small-cap gainers include Align Technology (Nasdaq:ALGN) up 21%; KKR Financial Holdings (NYSE:KFN) up 21%; and ArvinMeritor (NYSE:ARM) up 19%.

*****Wow. Huge rally for stocks yesterday and it just keeps chugging along. With the exception of the Nasdaq, all the major indices have now broken above critical resistance levels. For the S&P 500, that level was 956.

The question for investors now: Is this a sustainable move, or are we experiencing some kind of a blow-off top?

The reason I ask should be obvious. Corporate earnings have come in better-than-expected virtually across the board so far. Only 16% of the S&P 500 that’s reported so far has missed expectations.

But we know that expectations were extremely low. And we also know that the rise in earnings we’ve seen is the result of cost-cutting. Only a handful of companies have indicated that revenues are rising. Cost-cuts are essentially a one-time thing. They don’t support improving earnings over the medium- or long-term.

Now, the recent rally certainly seems to be fueled by the expectation that companies have turned the corner to improved profitability. And while it’s possible that demand is returning, there’s virtually no evidence to support that.

*****Improved home sales numbers are the result of foreclosure pricing and improved bank profits are the result of accounting changes – these are short-term benefits. Auto sales aren’t improving, retail sales are mixed at best and, most importantly, unemployment is still on the rise.

So exactly why are stocks rallying?

It’s true that confidence in the economy and financial markets has improved. And the fact that companies are able to scratch some profit out of this hard-pan economy is good.

But let’s not ignore the bears. There can be no doubt that many short positions were initiated coming into earnings season. The indices were rolling over and oil prices, the key leading indicator for economic growth, were falling. When shorts are forced to cover, it provides fuel for higher prices. I have no doubt that shorts have been buying to cover their positions.

But that can only be part of the story…

*****Unfortunately, the rest of the story is yet to be written. The S&P 500 just closed above support at 956 for the first time yesterday. It’s going to need to prove it can stay above that level before this rally can be considered the “real deal.”

In the meantime, I’ve been using this strength to take some gains off the table. I took 65% and 20% on two stocks at SmallCapInvestor PRO. I took 17% gains on Activision (Nasdaq:ATVI) at Top Stock Insights And TradeMaster Daily Stock Alerts’ Jason Cimpl took 11% on a quick trade in that service.

(Note: to find out more about the profits that Top Stock Insights readers are seeing, like ATVI, click here for information on our updated Predictions Issue. Readers are 11 for 14 for the year, or in baseball terms, batting .785. Not bad. Click here for more.)

In my view, taking profits is always good. But it is especially important when you’re uncertain about what’s going on in the stock market. Why continue to risk money when you’ve already got profits locked and the outcome is questionable?

*****The current bullishness seems to be based on the expectation/hope that the U.S. economy is bottoming right now. And that means growth may be ahead. Of course, that would be growth after a ridiculously deep contraction, but that’s not really the point, not when that contraction has been pretty well priced in.

To illustrate the potential for the bulls, here’s an easy to understand analysis by the Wall Street Journal. They’re suggesting that we may be hitting bottom.

*****Finally, here’s TradeMaster Daily Stock Alerts’ Jason Cimpl and his weekly market forecast video. Click here to watch the video and find out why the market did what it did this week and more importantly, Jason’s expectations for next week. Click this link to watch the video now or go to trademasterstocks.com/videoreport.

*****Please send you question, comments, suggestions or jokes to editorial@247investor.com.

Ian Wyatt

Editor

Daily Profit

P.S. I’ve had a few emails from readers asking about financial advisors, and particularly how to check if they’re giving good recommendations. I’m no auditor of advisors, but I can tell there are five funds they’re probably not telling you about, and they should. Click here to find out more about these funds.

Stocks Up on CIT Avoiding Bankruptcy

Ian Wyatt — Mon, 20 Jul 2009 21:16:00 GMT

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July 20, 2009

*****Small-cap Update

*****Bravo, Mr. Watson

*****Failures and a Rescue

*****The Week Ahead

Fellow investor,

Stocks extended last week’s rally on news the troubled lender CIT Group (NYSE:CIT) should be able to avoid bankruptcy. (More about CIT below.)

The Dow closed up 104 points to end the day at 8,848; the Nasdaq was up 23 points to finish at 1,909; and the S&P 500 topped 950 to close at 951, up nearly 11 points.

The Russell 2000 closed at 527, up nearly 8 points.

Leading small-cap gainers include ValueVision Media (Nasdaq:VVTV) up 30%; Orexigen Therapeutics (Nasdaq:OREX) up 27% on news that its experimental weight-loss drug, Contrave, had exceeded FDA benchmarks for demonstrating clinically significant weight loss among its test subjects; and Dana Holding Corporation (NYSE:DAN) up 22%.

Small-cap decliners were lead by Infinera Corporation (Nasdaq:INFN) down 19% after being downgraded to Underperform from Hold by Jefferies & Co. Other small-cap decliners include Harman International Industries (NYSE:HAR) down 17% on a company denial that it had received a bid to be purchased by a middle eastern investment fund; and Mesabi Trust (NYSE:MSB) down 15%.

*****It was a busy weekend. First and foremost on my mind is the "almost was" story of Tom Watson at the British Open. I can honestly say I was crushed when it wasn't the 59-year old Watson holding up the Claret Jug when the tournament was done.

Watson fought so hard, and played so well. To not win seemed unfair. But that's golf. Still, it was a great story while it lasted. Bravo, Mr. Watson.

*****The government was busy too. Five more banks failed over the weekend -mostly small regional banks that aren't making many headlines.

*****CIT Group (NYSE:CIT) was saved by a $3 billion lifeline from its bondholders. This is big news for the nation's retailers as CIT is one of the biggest lenders to small retailers in the U.S.

Even though CIT was denied more bailout money, it's significant that investors were willing to support the troubled company. At some point, the government has to back off with the bailouts if it really believes the economy is improving. And if the economy is improving, private investors should be willing and able to move on troubled companies.

Both of these things happened with CIT. And that's helped the stock, and the stock market, post gains in the early going Monday.

*****Goldman Sachs (NYSE:GS) is upping its year-end target for the S&P 500 to 1,060. That's about 120 points higher than current levels. Goldman believes that rising corporate earnings will support higher stock prices.

We've seen earnings beat analyst expectations so far this earnings season. And there have been a few companies offering higher forecasts. But most companies have achieved better earnings through cost-cutting, not growing revenues. Cost-cutting cannot give permanent increases to earnings. At some point, revenues must rise.

The markets are rallying on earnings. But it will take evidence of rising revenues to sustain the rally.

*****Now, let's have a look at the week ahead. Of course, earnings will dominate the news once again with reports from Legg Mason (NYSE:LM) and Texas Instruments (NYSE:TXN) this afternoon. Tomorrow, we get Apple (Nasdaq:AAPL), Caterpillar (NYSE:CAT), and Coca-Cola (NYSE:KO). Wednesday, it's Morgan Stanley (NYSE:MS), US Bancorp (NYSE:USB) and Wells-Fargo (NYSE:WFC) plus a host of regional banks.

Thursday is a huge day. We'll hear from 3M (NYSE:MMM), AT&T (NYSE:T), Microsoft (NYSE:MSFT), American Express (NYSE:AXP), UPS (NYSE:UPS), McDonald's (NYSE:MCD) and Amazon.com (Nasdaq:AMZN), just to name a few. Then Friday, things lighten up with Black & Decker (NYSE:BDK) and Ingersoll-Rand (NYSE:IR) reporting.

On the economic front, we get crude inventories on Wednesday, July 22. Then Thursday, July 23, it's initial jobless claims and existing home sales. And finally on Friday, July 24, we get the Michigan Consumer Sentiment Review.

*****Please send you question, comments, suggestions or jokes to editorial@247investor.com,

Ian Wyatt

Editor

Daily Profit

P.S. Earnings will play a big part in determining whether the market continues the rally or whether it peters out. But there’s one class of stocks that can make you money right now. Click here for more…

Small Caps Outpace Broader Market in Mixed Trading

Ian Wyatt — Fri, 10 Jul 2009 20:52:00 GMT

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Your Daily Profit

July 10, 2009

*****Small-Cap Update

*****Oil Under $60

*****The Cusp Of Stabilization

*****Cold War Poltics

Fellow Investor,

Stocks were mixed today as the both the Dow and S&P 500 closed down while the Nasdaq was up. Falling oil prices and continued investor unease over earnings sent stocks mostly lower for the day.

The Dow closed down 36 points to 8,146, the Nasdaq closed up 3 points to 1,756, and the S&P 500 closed down 4 points to end the week at 879.

The Russell 2000, a widely-followed bellwether index for small-cap stocks, closed up almost 2 points to end the week at 481.

Advancers in the small-cap space were lead today by MTR Gaming (Nasdaq:MNTG) up 51% on heavier than average volume. Through its subsidiary organizations, MTR Gaming engages in the racing, gaming, and entertainment businesses. With nearly 3,000 employees, MTR Gaming’s properties include Presque Isle Downs & Casino and Mountaineer Casino in West Virginia.

Other small-cap winners include yesterday’s leading decliner, American International Group (NYSE:AIG) up 24%; Dana Holding Corp. (NYSE:DAN) up 38% on news of an analyst upgrade based on the firm’s improved liquidity situation; and ca up 17% on announcing a signed agreement to build an offshore liquefied natural gas facility near Macau, China.

Decliners include Community West Bancshares (Nasdaq:CWBC) down 21%; Cordus Valley Bancorp (Nasdaq:CVLY) down 13%; and Tower Financial Corporation (Nasdaq:TOFC) down 12%.

*****Oil dropped below $60 a barrel as consumer confidence came in below expectations. The belief is that when the American consumer is not confident, he or she does not spend money.

That’s true to an extent. A brief look at airfare and hotel deals will tell you that Americans are not traveling as much as we have in the past. Indeed, just visit Yahoo! News and put in the term “hotel bankruptcy” and you get over 1,100 results with articles highlighting the latest hotel bankruptcies: tough time to be in the hospitality business.

And retail sales showed clearly that we aren’t headed to the mall as much, either. But iPhones seem to be selling pretty well. And foreclosure sales have been going pretty well, too.

As for oil, the schizophrenic International Energy Agency (IEA) just raised its demand forecast for 2010 by 1.4 million barrels a day. Seems like the IEA was just lowering estimates a couple weeks ago.

In any event, after taking profits on oil positions in my Top Stock Insights and SmallCapInvestor PRO advisory services, I’ll be looking to buy oil stocks again sometime in the next couple of months. That’s because demand is only half the story on oil. (Click here to find out more about Top Stock Insights and click here for SmallCapInvestor PRO.)

Oil companies are not investing as much to bring new supply on line. So when demand does return, companies won’t be able to ramp supply quickly enough. This will lead to demand outstripping supply. And prices will rise. In fact, some believe supply and demand will reach parity in 5 years or less. That’s a dangerous situation. And as an investor, you are almost obligated to own oil stocks.

*****“We are at the cusp of stabilization…” So says Stephen Stanley, chief economist at RBS Securities. Economists are raising their growth forecasts for the second half of 2009 from 1.2% to 1.5%.

Granted, that’s not a big move, but we’ll take what we can get. And maybe a little bullish talk will help consumer confidence.

Of course, consumers will probably notice when unemployment averages 9.8% in 2010. The U.S. economy has changed in some fundamental ways. The auto and finance industry job cuts may well be permanent. And it could take a few years for new jobs to be created.

*****[LC1] Cold War politics are alive and well. At the G-8 meeting in Italy, Russian president Medvedev pulled a coin from his pocket that he said represents the new world currency. Medvedev even has the motto for this global currency worked out – “unity in diversity” is printed on the coin that was minted in Belgium. Quaint, isn’t it?

What does Russia hope to gain with this tactic? Nobody wants to buy their bonds. And a global currency won’t give Russia any new influence. Oil is priced in dollars, but even then, a new currency won’t affect oil’s value, only its relative price.

So it would seem that Russia is simply messing with the U.S. And that’s a strategy that could backfire, mainly because Russia has no leverage. I’d expect to see other countries come out in support of the U.S. dollar just because Russia doesn’t like it.

*****Now, here’s TradeMaster Daily Stock Alerts’ Jason Cimpl with his weekly video chart analysis. Enjoy! Click here to view the video.

*****As always, send me your comments, your questions and your jokes to editorial@247investor.com.

Ian Wyatt

Editor

Daily Profit

P.S. Next Wednesday I’m releasing an update to my Predictions issue for Top Stock Insights. We did the first issue of it back in January to lay out how investors should invest in 2009. We were spot on and make huge profits for subscribers. This new update comes at a time when the market rally appears to be petering out and investors really need solid data and investment ideas. Click here to sign up for your copy and a 30-day trial to the service.

Markets Reverse Tuesday Losses: LOGM IPO Refreshing

Ian Wyatt — Wed, 01 Jul 2009 20:51:00 GMT

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July 1, 2009

*****Small-cap Update

*****Third Quarter Kicks Off

*****Foreclosures and Bank Profits

*****Prime Mortgages Next?

Fellow Investor,

The markets were up today sloughing off yesterday’s losses. The down closed up 57 points to 8,504. The Nasdaq gained 11 points to close at 1,845 and the S&P 500 gained 4 points to close at 923 after hitting resistance at 932 in morning trading and slowly sliding back down.

The Russell 2000, moved up just under 2% for the day to close at 517. The Russell 2000 represents the 2,027 small cap companies and contains well known companies like 1-800 Flowers.com (Nasdaq:FLWS), BankRate.com (Nasdaq:RATE), and Dominos Pizza (NYSE:DPZ). The Russell 2000 Index is up 50.7% since the market’s nadir on March 9, 2009.

Small-cap gainers were lead by Oshkosh Corporation (NYSE:OSK), up 27% after the Pentagon announced that the firm’s new blast resistant, off-road ground force vehicles were the “clear winners” in a multi-billion dollar competition. Oshkosh won the bid to build 2,244 vehicles for a deal worth $1.06 billion. The company beat out defense industry heavyweights including BAE Systems (LSE:BA.L) and General Dynamics (NYSE:GD).

A very exciting small-cap gainer today was LogMeIn (Nasdaq:LOGM), up 25% on it’s IPO. LogMeIn is an on-demand connectivity specialty service firm whose product allows computer users to access files and services on one of their computers from another computer across the Internet. For example, workers can access files resident on their office computers from home without having to attach to a corporate network or have their files stored on network servers. LogMeIn’s services are primarily directed to small and medium-sized businesses.

Other gainers included Ivanhoe Mines (NYSE:IVN), up 23%; Northeast Bancorp (Nasdaq:NBN), up 23%; and ShengdaTech (Nasdaq:SDTH), up 19% after being upgraded by Roth Capital to a Buy rating from a Hold.

Small-cap decliners were lead by CardioNet (Nasdaq:BEAT), down 41% on news that the company slashed its profit and revenue outlook for 2009. The Pennsylvania-based maker of wireless heart-monitoring devices revised its profits to a range of 30 cents to 35 cents from earlier forecasts of 69 cents to 73 cents. Investors punished the company by unloading shares started right the open and continuing through the day. Shares tumbled to $9.57 from Tuesday’s close of $16.32.

Rounding out the small-cap decliners were Repros Therapeutics (Nasdaq:RPRX), down 31% after being downgraded by Wedbush Morgan and Ladenburg Thalmann; Spartan Motors (Nasdaq:SPAR), down 27%, and Immersion Corporation (Nasdaq:IMMR), down 23%.

*****The Third Quarter is getting off to a rousing start. Economic data for the day is generally good – manufacturing shrunk less than expected and pending home sales rose more than expected. As of this writing (12:40 P.M. Eastern) the Dow is up 1.25%. Traders seem willing to forgive the larger than expected drop in private sector payrolls.

We’ll see how long that forgiving attitude lasts...

Earnings season is right around the corner. It seems that expectations are pretty low. I’ve read a few commentaries that suggest that estimates are low enough that companies should be able to meet them. Of course, what corporate America has to say about the future will be important.

Of course, I’ll be watching the banks closely.

*****A lot has gone right for the banks lately. Changes to accounting rules have allowed them enough breathing room to operate. Mortgage loan modifications have brought in fees. And trading activities have even helped some banks to boost profits.

Still, I believe there’s another banking shoe to drop.

As I reported yesterday, foreclosure sales are the majority of home sales these days. And when a bank sells a foreclosed home, it is a realized loss. That’s as opposed to a non-performing loan or a foreclosed home that has yet to be sold, which can be counted as an asset.

Further exacerbating this is that banks are not realizing as much profit on those sales of foreclosed homes as they’re all flooding the market with them and thus driving down prices.

So I expect to see higher losses affecting banks’ earnings in the future. These losses may not show up in the earnings season that’s about to begin, but they are looming.

*****It was reported today that mortgage applications fell 19% last week, another sign that foreclosures are driving the market. It also reinforces the point that once foreclosure sales slow, there may well be little demand for traditional home sales to pick up the slack.

Rising interest rates and still-falling home values are also impacting new mortgage applications. It’s a buyers market, and there’s no reason to rush in when prices are falling and loan costs are rising.

*****Bloomberg is reporting that 20 million of the 93 million homes, condos and co-ops in the U.S. are underwater as of March 31, 2009. Somebody will take these losses at some point, whether it’s the homeowner, the bank or the government/taxpayer or a combination of any or all of the three.

******We know that sub-prime mortgages were a major source of non-performing loans and foreclosures. Now, prime mortgages are in trouble. In his morning missive to his traders, TradeMaster Daily Stock Alerts’ Jason Cimpl had this to say:

Delinquencies on prime mortgages soared in the first quarter of this year. Delinquency rates on prime mortgages, the least risky category, were 661,914, a jump from 250,986 a year earlier. Two thirds of all mortgages in the U.S. are prime mortgages, so any percentage increase in delinquencies represents a huge absolute number of delinquent mortgages. Here is more proof that banks are in for a tough few years as they must monitor their loan portfolios even closer and suffer write-offs. If prime mortgages start going south in a big way, look for banks to stiffen lending standards even more. Either way, this will have a negative impact on their bottom line numbers

The evidence is building that the economy is nowhere near out of the woods. And we can also see that banks will be facing serious problems ahead. As I said yesterday, investors should be on their toes.

Also, we’re not recommending downside positions on banks – yet. But that time will come, and there will be a lot of money to be made.

*****I’m giving my staff the day off on Friday. There will be no Daily Profit that day. And I’ve cajoled Jason into giving us his video chart analysis tomorrow, so we have that to look forward to tomorrow…

If you can’t wait, check out Jason’s video from last week and get a special opportunity to try his TradeMaster service. Click here.

*****As always, please write and share your thoughts and comments: editorial@247investor.com. I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

P.S. Earlier I mentioned I’m not recommending shorting any U.S. banks yet, but there is one bank you should have in your portfolio as a long position. It’s an Indian bank that is immune to U.S. mortgage exposure and has seen exponential growth—economic turndown or not. Find out more about this bank in my new India stocks report. Click this link to get a copy.

The Stock Market Rally and Re-valuing Banks

Ian Wyatt — Fri, 13 Mar 2009 18:18:00 GMT

***The Rally
***Re-valuing Banks
***TradeMaster Conference

The Rally

Stocks made another impressive move higher on Thursday. I think we're all enjoying seeing a little upside for stock prices. There is a light at the end of the tunnel. But I don't want us to lose sight of the near certainty that at least one of the lights we'll see in the darkness will be the proverbial oncoming train.

Market bottoms can be difficult events to get a handle on. Bullish and bearish sentiment is in equilibrium. As individual investors, we might feel that things aren't getting any worse, but they aren't getting better, either. Sell-offs appear to clearly be buying opportunities (like when the Dow dropped to 6,440), but any upside is immediately suspect because there's no real improvement to the fundamental picture.

It's important to remember that the markets are constantly in flux. Even when things look calm, tension is building below the surface that will propel stocks in one direction or another. Consider the underlying events during this week's rally …

Re-valuing Banks

We know the bearish story for stocks pretty well by now. But when Citigroup (NYSE:C) came out and said things were going well for it, a number of assumptions changed. The most basic: Citigroup may not be headed for bankruptcy.

Honestly, I thought Citigroup was going to declare bankruptcy. Or at the very least, have a fire sale of any assets that could fetch a bid. So Citigroup forced investors to re-value the bank. And if Citigroup is worth more, then others, such as Bank of America (NYSE:BAC), must be worth more, too.

Don't think for a minute that bank CEOs aren't aware of how the news cycle affects their stock price. If rumors can start a bank run, they can certainly inflate a stock price.

BAC's Ken Lewis has been praising the TARP program over the last few days. Banking is saved and he's eager to give all the money back ASAP. Many other banks are falling in line, saying they don't need more money and will give back what they have. Even GM (NYSE:GM) came out and said they don't think they need more money.

*****Of course, as I expressed in Wednesday's Daily Profit, I am skeptical that we are getting the whole story from the banks. But even so, I can accept that the lending environment has improved and that banks now have adequate capitalization to take on a bit more lending risk.

But will an incremental improvement in lending have a positive effect on the 8.1% unemployment rate? Will it impact the foreclosure rate? Will it help clear housing inventory? Will it help retail sales? I think the answer is not really, at least not in the immediate future.

TradeMaster Conference

It's nice to know that stocks can move higher. And higher stock prices can help improve consumer sentiment, which can lead to increased spending.

But a rally that doesn't include assets fundamental to real economic growth, like oil and steel, isn't a recovery rally. It's a relief rally. And that is destined to be temporary.

We'll be discussing these issues in more detail, with charts and specific investment opportunities in an upcoming TradeMaster video conference that will air on March 25. Here's a registration LINK if you'd like to sit in.

In the meantime, I will continue to do my best to keep us on top of what's driving the stock market day to day here in Daily Profit.

Best regards,

Ian Wyatt
Editor
Daily Profit

P.S. Even with the recent bear market rally, many U.S. stocks are priced at levels a value investor could love all day. But knowing which ones deserve to remain in the basement and which are "babies thrown out with the bathwater", presenting a tremendous buying opportunity, is a daunting task, even for the most seasoned investor. I've put together a stock analysis report on 5 U.S. blue chips that are a value investor's dream: they're high quality companies trading at bargain prices. But these bargain prices won't last forever. Click here to find out more about these companies and to order your copy of the report.

Nationalization = Communism?

Ian Wyatt — Tue, 03 Mar 2009 18:51:00 GMT

*****Lending Profits

*****Nationalization = Communism?

*****Recovery Portfolio

Fellow Investor,

It is a strange sight to see the Dow Industrials trading at 6,700. That's still a level from 1997. And it still indicates that people don't want to own stocks. At this point, it seems to be as much about available capital for investment as a willingness to invest.

Valuations are low, the Dow is trading with a p/e of around 20. But that's still not as low as it's been during past recessions.

Still, it might be helpful to add some flavor to the current p/e ratio of the Dow. Consider that Citigroup and Bank of America don't have earnings. Neither do Ford, GM, Alcoa. It's safe to say that earnings at JP Morgan, American Express, Goldman Sachs and GE are hanging by a thread.

Obviously, any earnings associated with lending are seriously impaired, at best. But it's also obvious that at some point, earnings from lending will return. And the p/e for the Dow and other indices will drop substantially.

It's how long it will take to see a resurgence of lending earnings that's the question.

*****We've got a showdown of economic heavyweights brewing between PIMCO's Bill Gross and NYU economics professor Nouriel Roubini. Roubini is the champion of nationalization of zombie banks. Gross is in favor if continued bailouts from the government.

The difference in opinion is fundamental. Gross is an investor. He prefers to see any solutions maintain current equity structures. It's also no coincidence that Gross and Co. are advising the government on its handling of Bank of America.

Roubini is an economist. His perspective is not driven by any sympathy to current shareholders. He wants to see the economy moving again. And in his opinion, nationalization of zombie banks is the quickest means to that end.

To the "let 'em fail" crowd, nationalization should be your preferred solution. Nationalization removes current management, wipes out shareholders and puts the banks back in the hands of stronger private ownership. Zombie banks would likely be in government hands for a matter of a few days - just long enough to strip out the impaired assets. I guarantee there's no shortage of private equity groups eager to buy a healthy bank with a strong brand name.

*****I'm starting to suspect that CEOs like Bank of America's Ken Lewis would make pretty savvy politicians. It seems to me some of these execs have done a terrific job of inflaming the populist association of nationalization with communism.

By invoking the evils of nationalization, we now feel that sinking another $30 billion into AIG and $25 billion into Citigroup is a better alternative. And maybe it is.

I also got to thinking that maybe it was all Paulson's fault. That it was a mistake to bring the Wall Street perspective on deal-making into the government's financial dealings with failing companies. Taking preferred stock and warrants in exchange for loans isn't exactly laissez-faire capitalism.

Unless it's acceptable for the government to think of itself as a capitalist entity, with taxpayers for shareholders.

As the lender of last resort in broken capital market, maybe Americans would feel better if the government had kept its nose out of business and simply handed over the cash. Somehow, I doubt it.

I think, as taxpayers, we want to be compensated for the risk we believe we are assuming in bailing out AIG and Citigroup.

***** When the government lent Chrysler $1.3 billion in 1979, it received 14.4 million warrants for Chrysler stock in exchange. So Paulson had precedent on his side.

And it's reported that Chrysler asked for the warrants back in 1983, but the adverse reaction from American taxpayers caused Chrysler to withdraw its request.

But through his calculated use of the "n" word - nationalization - Lewis has made sure that he won't be taking any Iacocca-like $1 dollar a year salary. Lewis destroyed billions in shareholder value, but he's still getting his.

I should probably apologize for continuing to bring up the nationalization thing. I don't advocate it is the only way out of this financial mess, even though I do think banks are holding onto impaired assets and delaying the recovery process because they think prices will eventually recover.

Besides, Obama and Geithner have made it pretty clear that they want the banks in private hands. Of course, that's what Bush and Paulson said about Fannie Mae and Freddie Mac, too.

*****Finally, with the recent sell off, I simply have to think it's a good idea to dip a toe in the stock market pool. Yesterday I mentioned a few stocks that we like at Daily Profit: Graham Cop (AMEX:GHM), CardioNet (Nasdaq:BEAT), SXC Health Solutions (Nasdaq:SXCI) and Emergent BioSolutions (NYSE:EBS).

*****The next Recovery Portfolio video conference is coming up on March 10, 2009 at 6 pm Eastern time (with on-demand viewing for investors in central, mountain, and pacific time zones). Given the recent stock market declines, we thought it would be timely to update out outlook for 2009 and give you the latest on where we see opportunity. You can register at the following link:

http://www.recoveryportfolio.tv

Best Regards,

Ian Wyatt
Editor
Daily Profit

Just a note about my upcoming Investor Forum

Ian Wyatt — Mon, 02 Feb 2009 20:26:00 GMT

I've had a few readers ask about the TradeMaster web video conference we ran back in December, particularly whether we were doing another one. Well, short answer, yes we are. The December one was wildly successful in terms of investor questions and feedback and we even had more than a few join us for the service.

The next one is more investor question focused so we're calling it the Investor Forum. It will be on Monday, February 9, 2009. You see, when you sign up to participate in the web video conference you can send in your own question as well ahead of time. We're going to answer as many questions as we can in the time allotted.

We're also going to be talking about profitable strategies for trading in a range bound market. I probably don't have to tell you, but we've been kind of stuck between 8,000 and 9,000, as measured by the DJIA, for the past few months after the horrible "corrections" in October and November. In talking with my investment analysts, Benson George and Jason Cimpl, we feel that the market is going to be like this for at least this year.

This chart from the last quarter of 2008 pretty much tells it all...

Investors looking for profits from long-term buy and hold are going to waiting a long, long time and will likely be disappointed throughout 2009 and probably into 2010.

That's okay however, we're finding profits in the short term. I would think you're probably doing the same thing: looking for best in class stocks in rising sectors, taking positions, then exiting when quick profits roll in. This is what we're doing with my TradeMaster Daily Stock Alerts service.

Anyway...we're doing the Investor Forum on Monday, February 9 at 6:00 P.M. Eastern, with on-demand service for viewers in other time zones. It's completely free, but if you want the 2 bonus reports (did I mention those) and the opportunity to submit your question, you'll want to sign up early.

If you're interested, here's the link to get you started: www.TradeMaster.tv.

We had thousands of investors participate last time and gave out some great investing tips and a few stock picks (4 out of 5 winners in 2 weeks!). So why not join us?

Here's that link again: www.TradeMaster.tv

My inbox is always open to you at editorial@247investor.com