Search results matching tag 'Dow'

Dow/S&P Collide and Gold at the Top?

AdamHewison — Fri, 13 Nov 2009 15:44:00 GMT

On Wednesday, 11/11/09, the Dow Jones Industrial Index rallied to a 50% retracement level based on MarketClub’s Fibonacci measuring tool. The action today indicates that this level is very important and that it could be an important top for this market.

In my latest video I cover both the Dow and the S&P 500 and tell you what I think is going to happen to both of these markets in the near and intermediate term.

As always our videos are free to watch and there’s no need to register.

http://www.ino.com/info/479/CD3678/&dp=0&l=0&campaignid=3

Adam Hewison
President, INO.com
Co-creator, MarketClub

The Grind to Dow 10,500

IanWyatt — 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

IanWyatt — 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

IanWyatt — Fri, 24 Jul 2009 20:16:00 GMT

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Your Daily Profit

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.

Home sales improve...

ChuckButler — Fri, 24 Jul 2009 14:29:00 GMT

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In This Issue..

* Home sales improve...
* Are we there yet...
* Intervention talks...
* Buying on dips...

And Now... Today's Pfennig!

Good day...and a Fabulous Friday to you. As I was sitting here this morning collecting my thoughts, it just hit me like a ton of bricks that we're already towards the end of July and next weekend brings us into August...where's the pause button when you need it. Anyway, yesterday started out like any other quiet morning so far this week but we did see a nice little run in the currencies only to see profit taking as we moved into the late afternoon. As I turned the computer screens on this morning, I see where the overnight markets brought us right back up to the levels we began with this time yesterday. The big story that moved the markets was the better than expected housing numbers that, again, gave investors that warm and fuzzy feeling that I touched on yesterday. Since I already let the cat out of the bag, I'll jump right in...

Sales of existing homes rose for a third consecutive month in June to an annual rate of 4.89 million, which was better than the forecast of 4.84 million that most economists were expecting. May's figure was actually revised down to 4.72 million from the original posting of 4.77, so the month on month rise came in much higher at 3.6% than the expected 1.5% increase. June is traditionally seen as one of the busiest months in the real estate market as families try to make the adjustment in between school years so it wasn't exactly a surprise to see better than expected numbers.

Lower borrowing costs, foreclosure driven price declines, and tax incentives also contributed to these higher numbers. This is certainly good news to hear and I hope the bottom has already passed us by or is near, but as I mentioned yesterday, I won't get too excited until unemployment gets back to a supportive level and the full backing of the consumer underpins this move. If anything, this may end up being a protracted bottom and a slow road to normalized levels.

We also had the weekly initial jobless and continuing claims released yesterday but was overshadowed by the positive housing numbers that came out. The initial jobless figure came in 30,000 higher than last week to 554k but continuing claims backed off a bit to 6.23 million from last week's revision up to 6.31 million. Bernanke said earlier this week that job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending. With that being said, it still looks like we have plenty of breakers to get through before we reach the safety of calmer waters.

Today doesn't bring us much in the way of reporting as the only data due out is the final printing of the U. of Michigan consumer confidence number for July. The preliminary figure was released a couple of weeks ago and fell more than forecast to 64.6 from June's 70.8 reading. This generally isn't a big market mover but its expected to settle in a tad higher at 65. This one is a tough call as the stock market has risen quite a bit in that time period but we'll see if job and income concerns keep this month's number grounded. Since this is all we get today, it will be interesting to see how much attention the markets give this report.

Just as we saw the Dow hit the 9000 mark for the first time since January and the euphoria of the housing market has gained momentum, well respected economist Nouriel Roubini, had a different take on things. In a report released today, concern was expressed that a perfect storm of fiscal deficits, rising bond yields, soaring oil prices, weak profits, and a stagnant labor market could blow the recovering world economy back into a double dip recession. He went on the to say that its getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented. I guess the moral of the story here is to proceed with caution and buckle your seat belt because the ride could get bumpy.

Moving on to currencies, the Swedish krona and the Canadian dollar both posted 1% gains yesterday while the Japanese yen, New Zealand dollar, and Swiss franc rounded out the bottom. The two currencies at the top of the list had much different reasons for ending the day where they did as the krona traded higher primarily on the back of risk appetite. As investors feel more comfortable with buying riskier assets, the thinner traded currencies like the krona, benefit even though Sweden's unemployment rate rose for a second month in June to 9.8%.

The Canadian dollar, on the other hand, rose to a 7 week high as the central bank said the recession is nearing an end brought on by higher commodity prices and consumer confidence. The central bank kept rates at the record low of .25% a couple of days ago and reiterated they will stay there for a while unless inflation becomes a problem. Since Chuck is across the border in Canada right now, it's a perfect time to get our daily dose:

"I was reading the local paper the other day, and the business section had a big story on the Bank of Canada's (BOC) Gov. Carney and how he vows he will intervene to keep the loonie from going higher... In the last two days since that story appeared, the loonie has done nothing but gain vs. the green/peachback... 91-cents it traded through yesterday! I can't help but think that traders are beginning to believe that Central Bankers are imitating the boy who cried wolf... We had the Brazilian Central Bank, the Swiss National Bank, and now the BOC... They all are giving verbal warnings about traders taking their currencies higher...

The Central Bankers do this under the disguise of "we don't want deflation in our economy" opting for the weaker currency to introduce inflation... I think this is all a smokescreen! I think this is a coordinated effort to keep their currencies from going hog-wild VS the dollar... The Central Bankers all know that the dollar is teetering, and without speed bumps we could see a mad exit for the door for dollar holders... Just what I think... Nothing more, nothing less... Just my thoughts... "

Thanks again Chuck, its always great to get your insight. Since we're already talking about central bank intervention, I saw a report today that has some looking for the Swiss National Bank getting back into the game. According to the Big Mac index, which is a purchasing power parity figure using the cost of a Big Mac as the measure, the Swiss franc is the second most expensive in Europe. Its just a fun little tid bit I thought would be good to break the monotony. Anyway, the Swiss franc is largely influenced by the euro and risk appetite so while the SNB may step in, there's really no way to stop the moving train. As Chuck has said many times before, the markets have much deeper pockets than a central bank.

As I got to the office yesterday, the euro was hovering around 1.42 and climbed just shy of 1.43 to 1.4291 before we saw the profit taking drag it down to 1.4150 on my out the door. I saw a report where the euro had established a base at 1.4050 and calls to buy on dips, which is certainly a strategy that would be consistent with our views. As I touched on above, the Asian and overnight markets have run things right back to the levels from yesterday but as the European traders hand the books to those in New York before heading out for the weekend, the dollar is still getting sold. Don't look now, but I see the euro at 1.4250...hopefully we can hold on to this and finish the week on a positive note. It looks like the euro is also getting some help from within as reports showed the contraction in European manufacturing and services slowed more than expected and German business confidence improved.

While I'm talking about Europe, we had some positive new come out of the UK as retail sales quadrupled the estimate and surprised the markets with a June gain of 1.2%. Year over year sales are actually up 2.9% and has economists looking for a near zero GDP figure in the second quarter. HSBC actually raised their forecast for the pound from 1.60 to 1.75 by year end 2010 and justified the call by saying the likelihood of an interruption in the asset buying program from the BOE could be as soon as next month. They also feel rates will rise before the Fed but this is a long way off and a lot can happen. Just like the US, I don't see enough at this point to be comfortable buying this currency, but hey, we've been early on some calls too.

One of our newest multi-currency CDs, the Global Power Shift CD, has also been keeping the phones busy lately. With commodities and commodity based currencies leading the charge, it seems like we talk about at least one of them everyday, so I thought I would give it a mention. This CD combines the Australian dollar, the Brazilian real, the Canadian dollar, and the Norwegian krone into one instrument and just provides you with a little bit of everything...not a bad way to provide that hedge against a weakening dollar and gain exposure to commodities at the same time. Well, its about that time and I need to wrap it up so on to the big finish...

Currencies today 7/24/2009: A$ .8170, kiwi .6573, C$ .9214, euro 1.4230, sterling 1.6462, Swiss .9353, rand 7.7236, krone 6.2308, SEK 7.4710, forint 188.04, zloty 2.9538, koruna 17.9280, yen 94.86, sing 1.4407, HKD 7.7500, INR 48.2750, China 6.8316, pesos 13.1903, BRL 1.8991, dollar index 78.686, Oil $67.25, Silver $13.7850, and Gold... 952.86

That's it for today...its your Friday!! I just wanted to send congrats toward St. Louis native Mark Buehrle, pitcher for the Chicago White Sox, as he became the 18th player to throw a perfect game...truly a remarkable feat. Our office has a team in a local kickball league so I wonder if our pitcher, Tim Smith, was able to match that performance...lol. It was a rough go this morning as the words just didn't come all that easy for me but hopefully I was able to make some sense of it all. Alright, its really getting late so I need to get going here. Have a great Friday and a wonderful weekend...Until next time
Mike Meyer
Assistant Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Stocks Up on CIT Avoiding Bankruptcy

IanWyatt — Mon, 20 Jul 2009 21:16:00 GMT

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Your Daily Profit

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

IanWyatt — 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

IanWyatt — Wed, 01 Jul 2009 20:51:00 GMT

Normal 0 MicrosoftInternetExplorer4

Your Daily Profit

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

IanWyatt — 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.

Beware: Bear Market Brings Out Tall Tales!

GaryHalbert — Tue, 03 Mar 2009 22:39:52 GMT

IN THIS ISSUE:

Two Valuable Investment Articles To Share
Stocks Hit 50% Drawdown In February
Investors Naturally Seeking Guidance
Some Buy-And-Hold Advice Is Misleading
Another Active Money Manager Doing It Right
Conclusions – Don't Be Misled

Introduction

As I have noted many times in past E-Letters, my staff and I read a ton of material every week. This week, I want to bring two recent articles to your attention. Each of these articles is on the subject of investing, with one from the Wall Street Journal and the other from Investor's Business Daily. While they have very different subject matters, they are related in a way that I'll make clearer as we progress through the E-Letter.

The first article from the Journal provides a snapshot of just how badly the stock markets have performed in 2009. While many believed that stocks would stage a rally in early 2009 based on a variety of factors, the equity markets have plunged instead. With that being the case, investors are asking what they should do in light of the market's drop.

That's where the second article comes in. It's an article from Investor's Business Daily that is little more than a shill on behalf of large mutual fund firms. It purports to illustrate why timing the market is a bad thing, but it is so skewed in its analysis that one of our fellow Investment Advisors called it “…so bad it's funny.”

Unfortunately, it's not funny for those who are locked into investments that have continued to plummet in value, yet the only advice they get is to “stay the course.” That's why I'll end up this week's E-Letter with an analysis of one of the actively managed investment programs that I have written about in the past.

Stocks Dropping Like A Rock

The first article I'd like to bring to your attention is from the February 24 edition of the Wall Street Journal. The headline says it all: “Stocks Drop to 50% of Peak.” The day before the article was featured, the Dow closed at 7114.78, down by about half from the October 7, 2007 high close of 14,164.53.

Clearly, the stock market has not been impressed with the efforts so far to address the credit crunch and reverse the economic recession in which we now find ourselves. Since the article was written, the Dow rallied a bit, but then continued its downward slide, closing out the month of February even lower at 7062.93. As of the end of February, the Dow was down over 19% year-to-date in 2009 and stood at a loss of just over 50% from its October 2007 peak, and things have gotten worse since then.

The S&P 500 Index, one of the most widely followed of all stock market benchmarks, is actually worse off than the Dow. From its peak value of 1565.15 on October 9, 2007, the S&P 500 hit a 50% drawdown in November of 2008, and then hit another new low for this bear market of 743.33 on February 23, a drop of over 52%. As of the end of February, the S&P 500 Index stood at 735.09, down over 18% for 2009 and down over 53% from its peak in late 2007.

I have provided a link to the full WSJ article under the Special Articles heading below my signature. I encourage you to read it over to glean additional details about how various sectors of the market have performed. Obviously, it remains to be seen when the markets will hit bottom and begin to recover.

Looking back, much has been said of a “lost decade” in the stock market. Unfortunately, we're now pushing even further back to find comparable values for the major market indexes. The Journal article notes that the major market indexes are revisiting values not seen in more than 11 years. That's a zero net gain for a period of over a decade, which is not what they tell you to expect in the buy-and-hold propaganda.

More recent market action has now taken the S&P 500 Index down to October 1996 levels, dropping the Index value to just over the 700 mark. The S&P 500 Index now stands at 55% below its October 2007 peak, which means that index investors will have to make returns of over 122% just to get back to break-even. The Dow is in similar shape, needing returns of apprx. 110% to get back to where it was in October of 2007.

Investors Are Seeking Guidance

Needless to say, investors who still have money in the markets have continued to see their account balances fall in 2009. With all the talk of a rally in early 2009, there is widespread concern and disappointment. Now that the major market averages have fallen to new lows, many investors are wondering if they should bail out now or hang on and hope the market finds its footing soon.

At the same time, investors who have already moved to cash are asking if now might be the time to get back in. As noted above, as of the end of February the S&P 500 Index is down over 18% year to date, and the Dow is in even worse shape with a year-to-date loss of over 19%. Thus, investors who are on the sidelines are wondering if we're now at a point where they should jump back into the market. I suspect a large percentage of them are paralyzed with fear, not knowing how much further the market may have to fall.

Fortunately, the message I have been giving ever since I started writing this E-Letter has hit home with many of my readers. I have always suggested using active money managers who have the ability to move to cash or hedge long positions as opposed to buy-and-hold strategies that just tell you to take losses in stride. We are as busy as we have ever been – handling phone calls, e-mails and website contacts from investors who are now anxious to learn more about our active management strategies.

You see, with active management strategies you don't have to worry about when to get in or out of the market. Our professional active money managers handle those details for you. Thus, no matter whether the market starts back up or continues its decline, you know that you have an experienced professional on your side. In addition, you also know that you have my firm monitoring the managers on your behalf.

Bad Advice From A Good Source

Unfortunately, however, not everyone has jumped on the actively managed bandwagon. As I noted in my January 27 E-Letter, buy-and-hold is not going down without a fight. Many investors are getting poor advice, sometimes based on misleading “studies” that are little more than blatant attempts to keep investors in the market as long as possible, despite the negative consequences. And sometimes this ill-fated advice comes from well-respected sources.

A case in point is the Investor's Business Daily article that I mentioned above. On February 18, the IBD ran an article in their Investment Trends section that provided a very one-sided view of buy-and-hold versus market timing. The article summarized a study done by a large mutual fund company that showed the superiority of “dollar-cost-averaging,” which is a buy-and-hold strategy, to their interpretation of market timing. It was entitled “When Buy-And-Hold Beats Bad Timing,” and it was little more than a hit piece on active management from the beginning.

The study is fatally flawed, in my opinion, as I will discuss in more detail below. Such flawed studies are nothing new for the mutual fund industry, since after all, it's in their best interests for clients to stay invested (even though it may or may not be in the clients' best interests).

What bothers me the most, however, is that a well-respected publication like Investor's Business Daily chose to serve as the marketing arm of a giant mutual fund family by publishing a study that they had to know included dubious assumptions. Whatever happened to objective financial journalism where assumptions were analyzed rather than just accepted at face value? I will dissect the study and show you why it is faulty below.

Here's the scenario depicted in the fund company study. An investor has $10,000 of accumulated value in the stock market on January 1, 2000 and then decides to make $500 monthly contributions under a dollar-cost-averaging plan going forward. The study assumes that all investments will be made into the S&P 500 Index (which is not possible in reality, but is OK for the purposes of an illustration). The study tracked the ongoing performance from January 1, 2000 through the end of January 2004.

Using various assumptions that I will critique in more detail below, the study concluded that investors would have been better off had they stayed invested in the market during the entire 2000 – 2002 bear market than if they had followed any of three different market timing strategies. Keep in mind that these are not real market timing strategies, but rather just completely hypothetical scenarios dreamed up by the mutual fund company.

Anyway, according to the article, by the end of January 2004, the buy-and-hold investor would have had $33,502 of value as opposed to $33,357 for what the study called the “Bear Market Dodger,” $31,799 for the “Bear Market Refugee” and only $31,616 for the “Doomsday Capitulator.” Cute names, don't you think?

In my analysis, I concentrated on just the first market timer category, the “Bear Market Dodger,” since doing so will allow me to simplify the calculations and stay within the space I have to discuss this issue. Under this scenario, the investor becomes nervous about the market in early 2000 and elects to make all ongoing monthly contributions of $500 to cash instead of into the market. Then, in January of 2004, the Dodger jumps back into the market with both ongoing contributions and accumulated cash.

I had my staff run the numbers again from scratch using the study's basic assumptions. Unfortunately, we were unable to duplicate the exact numbers published in the study, but we got close. We were using month-end S&P 500 Index total return numbers while the study's authors may have used daily returns, so this could account for the slight difference. We then ran scenarios that corrected the flaws we identified in the assumptions. I will discuss the results of our alternative calculations in more detail below.

Many investors and even financial professionals would just take the study's numbers at face value without further critical thought. However, I believe the mutual fund study has a number of flaws that make its conclusions of little value (read: misleading!). They are as follows:

The study assumed the market timing investor would be sophisticated enough to initially invest in mutual funds, but at the same time be so unsophisticated that he or she would not put cash contributions into an interest-bearing money market account. Frankly, anyone who is that unsophisticated is probably hiding money in their mattress or burying it in jars in their back yard, not investing in buy-and-hold mutual fund programs.

So, what would adding interest do to the market timing total? To find out, I consulted the Morningstar mutual fund database and obtained the average returns for the taxable money market category for the time period in question. If we assume that only the ongoing contributions were diverted to cash and the accumulated balance stayed in the stock market, the interest on the $500 monthly contributions would increase the total value to $34,074, beating the buy-and-hold ending value of $33,502 by $572.
The next flawed assumption is even more important. The fund company study assumed that only the ongoing $500 per month contributions would be “timed,” or put in a cash account, while the entire accumulated balance would continue to be subject to the whims of the market. In all my years of advising clients and evaluating active money managers, I have never seen anyone time the market like that.

The reality of the situation is someone nervous about investment losses would most likely move their largest balance to the safety of cash, and not just the ongoing monthly contributions. Thus, it is ridiculous to assume that only the ongoing contributions would be made to cash.

If we adjust the calculations to assume both the ongoing contributions and the accumulated balance are taken to cash in April of 2000, we get a much different picture. Assuming the Bear Market Dodger moved the entire account out of the market in April of 2000 and then back in again in January of 2004, he ended up with a value of $37,373 at the end of January 2004, as opposed to the study's buy-and-hold calculation of $33,502. That's a difference of over $3,800 in favor of the market timer.
The original study also assumed that a market timer would have missed out on all of the market gains in 2003. That assumption is questionable, at best. However, I'm not going to try to illustrate moving back into the market earlier than assumed in the study, since doing so would simply be a guess based on 20/20 hindsight. However, I can say that our experience with the professional active managers we recommend is that most participated in at least part of the market rally in 2003.

For example, the Potomac Guardian program that I will highlight below was fully invested in the market as early as November of 2002, just as the market was showing renewed signs of life. As a result, Potomac participated in the entire 2003 market rally and gained over 21% that year, net of all fees and expenses. While there's no guarantee that Potomac can always make such timely calls, this underscores what I always say about knowing when to get back in the market is more important than knowing when to get out. Plus, it blows another hole in the buy-and-hold study.
Another problem is that the study projected values 30 years into the future, starting in 2004, to show the long-term effect of “bad timing.” While I'm tempted to run our revised Bear Market Dodger numbers out that far using their assumptions, doing so would be irresponsible, especially using the 10.2% long-term average total return of the S&P 500 from 1927 to August of 2008 quoted in the study.

I hate to tell the folks who produced this study, but they are already way behind. The annualized return of the S&P 500 Index for the five years from 2004 through 2008 is a negative 2.19%. That means the market will have to do substantially better than 10.2% over the remaining 25 years of their projection period to keep up with their study's conclusions. It's possible, but it's not probable.
And speaking of being behind, the study was published in September of 2008, well after the official declaration of a new bear market in stocks that began in October of 2007. Even worse, the IBD article came out in February of 2009, long after the bear market accelerated its losses in the fourth quarter of 2008. Why was performance after January of 2004 disregarded in the study? I think we all know the answer to that question.

Unfortunately, I'm sure that many investors who read the IBD article or reviewed the fund study didn't pick up on the flawed assumptions designed to favor buy-and-hold, especially when it was published by a trusted name in the financial media. The moral to this story is that you should read any comparison of investment strategies with great care, even if they come from what most consider to be reliable sources.

And one final point on the study. As noted above, the market timing strategies in the study were not real market timing strategies, but rather just completely hypothetical scenarios dreamed up by the mutual fund company. In each strategy, the decision to get out of the market was based on fear and emotion. The successful market timers I recommend do not operate out of fear; instead, they have very sophisticated systems that generate trading signals.

Another Active Manager Doing It Right

In light of the blatantly skewed materials being produced by huge mutual fund firms and lovingly embraced by the financial media, I want to provide some straight talk about a money manager I have mentioned many times over the years in these pages, and have been recommending for over a decade. Specifically, I'm going to bring you up to date on the Potomac Fund Management Guardian Program.

We got a lot of good feedback from readers in regard to my January 27 E-Letter in which I highlighted Niemann Capital Management and Scotia Partners, so I'm going to follow the same format in the discussion below. As I did with Niemann, the Potomac Guardian Program will be evaluated over a 10-year period ending as of 12/31/2008. As always, I'll also provide a link to the complete strategy description and detailed track record of this program.

Also note that the Potomac Guardian managed account makes up just a part of the professionally managed investments we recommend as part of our AdvisorLink® Program. More information about these strategies and their performance can be found on our website, along with detailed descriptions of each strategy. Just click on the following link to see performance information on all of the various actively managed investments we recommend within our AdvisorLink® Program.

Potomac Guardian – Slow And Steady

The objective of the Potomac Guardian program is to participate in stock market growth while also limiting portfolio volatility and risk of extensive loss. Note that Guardian is a long or neutral (cash or hedged) only program, and does not seek to take net short positions in order to gain during down markets.

Guardian seeks to achieve this objective by allocating portfolios across many sectors and/or asset classes, over-weighting those identified by its model as having the best risk-to-reward ratio. Investments are primarily limited to low-volatility mutual funds in an overall effort to reduce downside exposure. In down markets, Guardian will shift to cash or hedged positions to gain a neutral exposure to the markets.

Looking at the turbulent markets in 2008, it appears that Potomac met its objective of limiting losses in down markets. In a year when the S&P 500 Index and Dow Jones Industrial Average both lost over 30% of their value, the Potomac Guardian program limited portfolio losses to only 11.68% in 2008, net of all fees and expenses. Of course, past performance is not necessarily indicative of future results.

However, the real value of the Potomac Guardian program becomes more apparent when you compare its performance to that of the alternatives in the marketplace over a 10-year period. Therefore, as I did with the Niemann Equity Plus program in my January 27 E-Letter, this week we'll see how the Potomac Guardian program did when compared to the entire universe of stock and bond mutual funds.

The Analysis

I had my staff run some mutual fund searches on our Morningstar Principia software using performance data as of the end of December of 2008 with the Potomac Guardian program as a baseline. I eliminated mutual funds with super-high minimum investments available only to institutional investors. I also restricted the search to Morningstar's “Distinct Portfolios,” which eliminates multiple share classes for the same fund.

We then searched for mutual funds with 10-year average annualized returns greater than Guardian's 6.00%, net of all fees and expenses. According to Morningstar, there were over 300 such funds in existence out of a total universe of more than 7,700 mutual fund “Distinct Portfolios.” Already, Guardian is better than 95% of mutual fund alternatives.

However, return alone is not all we're looking for. Risk management is a big part of what Potomac offers, since it will move to cash or hedged positions during down markets. As you know, we use “peak-to-valley drawdown” as one way to determine an investment's overall risk. However, Morningstar does not provide drawdown information on mutual funds. Therefore, I used Guardian's 2008 performance of -11.68% as a proxy for drawdown in our Principia search.

Using the additional 2008 performance criterion, we found that there were a total of 27 mutual funds that could boast a 10-year annualized return greater than Guardian's 6.00%, while also keeping losses to less than -11.68% in 2008. Past results do not guarantee future performance.

However, we weren't done yet. Recall that we use drawdown as a risk-analysis measure in all of our programs. Now that we had narrowed down the universe of mutual funds to a just a few candidates, we used another of our mutual fund analysis tools to obtain the maximum drawdown of the 27 mutual funds with a higher 10-year annualized return than Guardian. We found that only 12 funds beat Potomac Guardian's 10-year performance AND limited their drawdowns to under Potomac's -15.79% worst peak-to-valley performance.

However, none of the funds that beat Potomac's 10-year returns were equity mutual funds. In other words, Potomac's 6.00% annualized return beat every equity “distinct portfolio” in the Morningstar database. Of the mutual funds that did perform better than the Guardian program over the last decade, most were government bond funds.

With the current credit crunch and uncertain bond markets, many analysts are doubting whether even government bonds can repeat this type of performance, especially in light of the Treasury's having to print money to cover trillion-dollar bailouts. Thus, when considering 10-year annualized returns, 2008 calendar-year performance and maximum drawdowns, the Potomac Guardian Program beat all equity mutual funds in the Morningstar database. Now that's impressive long-term performance. Past performance, however, is not a guarantee of future results.

While other time periods will likely render different results, I believe the 10-year time window is important, especially for actively managed investment programs, because it encompasses two different cyclical bear markets. While no one knows what the future holds, the ability to deliver a consistent gain over 10 years, coupled with holding drawdowns to -15.79% or less is just the kind of performance we have come to expect from Potomac Fund Management.

Potomac has the distinction of having the longest tenure on our list of recommended professional money managers. The Potomac Guardian Program has been a mainstay of our AdvisorLink® Program since its inception in June of 1996. Over that time, it has produced an annualized return of 8.96% as of the end of January, 2009. As always, there are no guarantees for the future.

As noted above, Potomac has been able to produce these returns by utilizing its ability to move to cash or hedge long positions in downward markets. Yet the critics, armed with flawed studies like the one recently highlighted by IBD, still say that “market timing” doesn't work. Well, yes it does if you can find a successful manager like Potomac, Niemann or our other AdvisorLink® money managers.

For more information on the Potomac Guardian Program and performance, please click on the following link to access our Potomac Guardian Advisor Profile. If you would like for us to send you an Investor Kit on this program that contains the Advisor Profile plus documents necessary to establish an account, just click on the link for our Potomac online request form, or give one of our Investment Consultants a call at 800-348-3601.

Be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter in regard to the above performance statistics. Also, keep in mind that the universe of mutual funds on the Morningstar database consists of a wide variety of different types of funds and strategies, many of which are different from those utilized by Potomac.

Conclusions

I know that this week's E-Letter covers a lot of ground. To summarize, I'd like you to take a few key points away with you now that you've read it. First, the markets are in bad shape and have resisted every attempt to prop them up. While many analysts have indicated that we have hit “the bottom” since the end of 2008, the market continues to perform as if it had a mind of its own, indifferent to the experts' opinions. As this is being written, the Dow has dipped below 6800 for the first time since April of 1997. Will this be the bottom? It might, but it also might not.

Next, no matter how poorly the market performs, those with vested interests in you keeping your money in the market will produce “studies” and other authoritative sounding materials to keep you invested in their products. Some, as the one discussed above, will be based on flawed assumptions, and worst of all, they will sometimes be embraced by trusted members of the financial media. If you learn nothing else from this article, please take away with you that you should always approach any such financial industry study with a critical eye, asking yourself whether the assumptions used make sense in today's world.

Last but not least, no matter how many studies try to disprove the benefit of active management, there are professional money managers who have successfully employed these strategies for well over a decade. To ignore the actual historical track records of these managers is to rob your portfolio of an additional source of diversification.

In closing, one of my staff members recently gave me an article authored by Steve H. Hanke, a professor of applied economics at the Johns Hopkins University and a senior fellow at the Cato Institute. He notes that “Following conventional wisdom has led an entire generation of investors down the road to ruin.” I agree, yet we still see official-looking studies like the one discussed above that continue to spout conventional wisdom as the way out of the abyss.

Truth be known, it might be that had many investors not followed conventional wisdom, they wouldn't be in the abyss in the first place. I think it's time that you consider being a little unconventional in your approach to investing. I and my staff stand ready to help you shed the confines of conventional wisdom and experience active management for yourself. Just give us a call at 800-348-3601 or send us an e-mail at info@halbertwealth.com.

Wishing you profits,

Gary D. Halbert

SPECIAL ARTICLES:

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IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM) and Potomac Fund management (PFM) are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. HWM receives compensation from PFM in exchange for introducing client accounts. For more information on HWM or PFM, please consult the appropriate Form ADV Part II, or the PFM Annual GIPS Disclosure Presentation 2007, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor's 500 Stock Index (which includes dividends) and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of the S&P 500 or the NASDAQ Composite may differ materially (more or less) from that of the Advisor, and these Indexes cannot be invested in directly. The performance of the S & P 500 Stock Index and the NASDAQ Composite is not meant to imply that investors should consider an investment in the Potomac Guardian trading program as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index or the stocks listed on The NASDAQ Stock Market that comprise the NASDAQ Composite.

Potomac's performance results are based on the Model Portfolio. The Model Portfolio is an actual account that is considered representative of the majority of client accounts with similar investment objectives. Returns for the Model Portfolio are time-weighted, total returns that reflect the reinvestment of dividends and capital gain distributions. The Guardian strategy is actively allocated across many sectors and/or asset classes, overweighting those exhibiting the best risk-to-reward ratio. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment in a mutual fund carries the risk of loss. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

When reviewing past performance records, it is important to note that different accounts, even though they are traded pursuant to the same strategy, can have varying results. The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged to an account. There can be no assurance that an account opened by any person will achieve performance returns similar to those provided herein for accounts traded pursuant to the Potomac Guardian trading program. Comparisons to the universe of mutual funds in Morningstar is not meant to imply that an investment in Potomac Guardian is comparable to each or any of these different mutual funds, most of which have different strategies and investments than those used by Potomac's Guardian program. The comparison is made for informational purposes only.

In addition, you should be aware that (i) the Potomac Guardian trading program is speculative and involves a moderate degree of risk; (ii) the Potomac Guardian trading program's performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the program; (iv) PFM will have trading authority over an investor's account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Potomac Guardian trading program's fees and expenses (if any) will reduce an investor's trading profits, or increase any trading losses. Returns illustrated are net of the maximum management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. No adjustment has been made for income tax liability. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.