With options running out over the weekend, CIT advisors began preparations for a bankruptcy filing. As of Sunday, JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (MS) were talking with other banks about a debtor-in-possession loan, used to fund a company’s operations after it seeks court protection from creditors, Bloomberg News reported.

Bondholders held calls last week to discuss whether to swap some claims for equity to reduce indebtedness. Thomas Lauria, a lawyer at White & Case LLP, told Bloomberg that a group of CIT creditors he represents offered to provide $3 billion in new loans to bridge CIT to an out-of-court restructuring or an orderly bankruptcy, but had yet to hear back from CIT management.

“It seems CIT was ill-prepared for this moment, so they’re scrambling,” Scott Peltz, a managing director at consulting firm RSM McGladrey Inc. told Bloomberg. “Unless you have all these bondholders holding hands and singing Kumbaya, I think they’re too far behind the eight ball to avoid filing.”

While CIT is not nearly the household name of Citigroup Inc. (NYSE: C)or Bank of America Corp. (NYSE: BAC), the lender finances over 1 million businesses – including Dunkin Donuts and Eddie Bauer.

Three prominent retail trade groups sent letters to financial regulators this week warning that the failure of CIT would undermine the industry supply chain.
“[Retailers] are unbelievably concerned right now,” New York bankruptcy lawyer Jerry Reisman told the Buffalo News. “What we may have here is a total disruption in small business.”

Reisman said he received more than two dozen calls from panicked stores and apparel manufacturers, some of which said they may not have the money to pay their employees.

An otherwise light week on the economic calendar gives way to the next round of earnings as Apple Inc (Nasdaq: AAPL) and Texas Instruments Inc. (NYSE: TXN) highlight the corporate releases this week, while consumer companies The Coca Cola Co. (NYSE: KO),McDonalds Corp. (NYSE: MCD), and Amazon.com Inc. (Nasdaq:AMZN) join the mix.

U.S. Federal Reserve Chairman Ben S. Bernanke will head to Congress where several critics await.  As for the healthcare debate, the August deadline seems less likely, though the Senate has its two cents to add in the coming days.  Expect plenty of politicized talk about the ballooning deficit and the impact on small businesses.

Market Matters

The financial sector appears to be on the mend as earnings season brought several positive signs that the worst is over and soon “business as usual” will return to Wall Street.  Goldman Sachs Group Inc. (NYSE: GS) easily surpassed analysts’ earnings estimates on solid trading revenues, while JP Morgan got a boost from its investment banking division to shatter the forecasts.

Even Citigroup and Bank of America posted solid results (thanks to one-time gains), though both entities have many ongoing challenges to overcome before the Feds let them fend for themselves.

Of course, the possibility that CIT will file for bankruptcy protection has left panicked customers without a significant source of funding for their daily operations.  After late hour negotiations failed, the government chose to pass on another sizable bailout and allow true capitalism to play itself out.  CIT turned to private firm and bondholders to help devise a financing plan and avoid the fate of Lehman Bros. and others.  But now, nervous retailers and manufacturers are lining up alternative funding sources with the hope of dodging significant business interruptions.

Bed Bath & Beyond (Nasdaq: BBBY) and Wal-Mart Stores Inc. (NYSE: WMT) are among CIT’s largest customers, though many are small independent operations.  A CIT failure could prove devastating for those firms considered the lifeblood of American business.

In other earnings news, techs enjoyed another decent quarter as Intel Corp. (INTC) easily bested expectations (that is, before that $1.45 billion antitrust fine) and International Business Machines Corp. (NYSE: IBM) earnings grew by double-digits, while management raised its outlook for the next few quarters.  Though both offered encouraging signs for the sector (and economy as a whole), Dell Inc. (Nasdaq:DELL) warned that lower margins are impacting its operations andGoogle Inc. (Nasdaq: GOOG) experienced its lowest rate of revenue growth since going public five years ago.

The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott International Inc. (NYSE:MAR) and American Airlines parent AMR (NYSE: AMR) posted disappointing results.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (07/10/09)	Current Week (07/17/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	8,146.52	8,743.94	-0.37%
NASDAQ	1,577.03	1,835.04	1,756.03	1,886.61	+19.63%
S&P 500	903.25	919.32	879.13	940.38	+4.11%
Russell 2000	499.45	508.28	480.98	519.22	+3.96%
Global Dow	1526.21	1,629.31	1,561.11	1,664.23	+9.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.30%	3.65%	+141 bps

Economically Speaking

The White House also experienced a “good news/bad news” week as House Democrats began to push forward a major healthcare overhaul.  Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending.

Investors shrugged off the CIT developments and focused on positive earnings and economic data.  Stocks surged early on the Goldman news and soared right through the technology reports.  Technicians joined the fun as the Standard & Poor’s 500 Index broke beyond resistance at 930, a strong sign for traders who monitor charts.  Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq Composite climbed to levels not seen since last October, while fixed income suffered reverse “flight-to-quality” trades.  Oil rebounded on the favorable market and economic signs.

While the debate over a healthcare overhaul rages on, the Treasury Department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending.   Analysts fear that interest rates ultimately will move higher should the alarming trend continue and foreign investors shy away from U.S. securities.

But for now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges.  Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.

Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture.

On a positive note, weekly jobless claims fell to its lowest level since January. However, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoffs are still very much on the rise.

Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength.  Even Dr. Doom himself, NYU professor Nouriel Roubini, the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.

The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year.  Most Fed watchers do not see any change in the funds rate for the foreseeable future.

On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to cease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal).  The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.

Weekly Economic Calendar

Source: Market Recoils as CIT Edges Toward Bankruptcy

The problem I have with this dogmatic definition of a bear market rally is the following: Assuming (and this isn’t a forecast, since I really haven’t the foggiest idea where stock markets will be in six or 12 months’ time) the S&P 500 moved up to 1350 and then declined to 500, as an investor should you care if the move to 1350 — a 100% gain! — was a bear market rally?

My impression is that investors’ fixation on the recent rally being a bear market rally has actually kept most investors on the sidelines and hoarding cash. Now, put yourself in the shoes of a fund manager who, in the last 18 months, has lost 50% of his clients’ money and missed the recent rally (34% for the S&P 500). What is he likely to do? I would think that he would be inclined to purchase equities as they correct the sharp advance since early March, especially as the economic news in the near term becomes less negative.

Based on our conversations with numerous managers in recent weeks, we believe that most quantitative managers’ portfolios were not positioned in expectation of a rally. Of the nearly 80 managers we have talked to, only one manager said they were up since March 9th and the clear majority admitted to being notably down or stopped out on their positions. These managers were both long-only and long-short quant managers using market neutral and non-market neutral strategies, sector neutral and non-sector neutral strategies, longer term and intermediate-term holding periods. It is fair to say that just about everyone is bewildered and trying to understand when this rally will end.

Another factor to consider is that there has been a significant improvement in the technical position of world stock markets. In the US the largest number of new 12-month lows was reached in October. At the November 21 low at 741 for the S&P 500, the number of new lows had already contracted, and even more so at the index’s March 6 low at 666. Also, market breadth and the number of stocks moving above their 200-day moving averages have taken a decisive turn for the better, indicating that the stock market advance is broadening and that the number of stocks that have bottomed out (at least in the intermediate turn) is expanding.

I have explained repeatedly in the past that if a government is really determined to try and postpone an inevitable collapse by “printing money” in order to lift or support asset prices, it can be done. However, the result of such a monetary policy is to lower the purchasing power of its paper currency, with catastrophic long-term consequences for its economic and financial volatility.

It forces individuals and institutions with cash to buy something…anything. So, this cash is channeled into gold and/or different paper currencies, commodities, equities, bonds, real estate, and consumer goods and services, but obviously with different intensities and at different times. For instance, at some times, such as in 2008, more money will be allocated to gold; while at other times, such as since early March, more money will flow into equities and industrial commodities. It is well understood that these money flows are driven largely by speculative activity (and more than a little dose of manipulation). The result in all asset markets is very high volatility and price fluctuations that don’t appear to make any sense to most market participants and observers who don’t understand the new rules of the investment game that were brought about by “money printing”.

This is where we are today, irrespective of whether or not you and I like policies of “quantitative easing, massive bailouts, and frightening fiscal deficits” and their long-term consequences! Another positive factor for stock markets is that a large number of Asian stock markets and individual stocks in the region had already bottomed out in October and November of 2008 and didn’t confirm the new low in the S&P in early March.

In Asia, the Taiwan and Shanghai indexes, and Korea’s Kospi Index, are all up by more than 50% from their late October 2008 lows. (The Shenzhen Index is up 90%.) But it is not only the Asian equity markets that have outperformed the US and Western European markets over the last few months; since late January 2009, the RTS Russian Index is up 66% and the MSCI Emerging Market ETF is up by 55% from its early November 2008 low.

This is not to say that the global economy is about to embark on a strong and sustainable growth phase. It also doesn’t mean that a new bull market in global equities à la 1982– 2000 has begun. But I think that, at least in nominal terms (inflation-adjusted), the global printing presses being run by the world’s central banks and fiscal deficits have begun to impact asset prices positively. Therefore, in the case of resource and mining stocks, as well as Asian equities (and, for that matter, most emerging and other stock markets around the globe), the lows thatwere reached between October and March of this year are likely to hold — that is, for now.

The markets that have the highest probability of having made major longer-term lows are resource-related equities, emerging markets, and Japan. Conversely, the asset market that has the highest probability of having made a secular high (such as Japan in 1989, or the Nasdaq in March 2000) is the US long-term government bond market.

Despite a still-weakening economy and massive quantitative easing, long-term bond yields appear to be on the verge of breaking out on the upside. I have listed again below all the equity recommendations I have made since December 2008. Some of these equities have already moved up substantially (resource and mining companies, in particular) and, therefore, I would only buy most of these recommendations on a correction.

In addition, a number of BRIC and other (mostly emerging market) closed-end country funds and ETS were recommended, such as Brazil ETF (EWZ), the Templeton Russia Fund (TRF), the Greater China Fund (GCH), the Asia Pacific Fund (APB), Taiwan iShares (EWT), the Japanese ETF (EWJ), the Japan Smaller Capitalization Fund (JOF), the Morgan Stanley India Fund (IIF), the Turkish Fund (TKF), and the MSCI Emerging Market ETF (EEM).

In the US, late last year we recommended buying the iShares iBox Investment Grade Corporate Bond (LQD) and Nicholas Applegate Convertible & Income Fund (NCV), while earlier this year we recommended the accumulation of stocks of high-tech companies such as Cisco (CSCO), Intel (INTL), Oracle (ORCL), and Yahoo (YHOO). More recently, we recommended beaten-down insurance companies and financials as rebound candidates, including Leucadia National (LUK) and CNA Financial (CNA), Citigroup (C), the BKX, the Financial Bull 3x Shares (FAS), and the Financials Select Sector SPDR.

The market’s advance had been broadening and that more and more groups such as airlines (AMR), homebuilders (TOL, CTX, HOV), and cyclicals such as Dow Chemical (DOW), International Paper (IP), and Alcoa (AA) are showing signs of having bottomed out. Among commodities, I am particularly intrigued by natural gas. There are natural gas ETFs (UNG, GAZ), but costs are high. A better way is probably just to buy future contracts, or Pioneer Natural Resources (PXD) or the First Trust ISE Revere Natural Gas Index Fund (FCG).

Source: What to Buy…or Not Buy

Bank of America Corp. (BAC), which reports today (Monday), remains among the last financials of note that has yet to announce its first-quarter performance, and the big bank figures to get a lot of attention as investors look to see how well Merrill Lynch & Co. Inc. (formerly known as “The Bull”) and Countrywide Financial Corp. have fit into the BofA family fold.

International Business Machines Corp. (IBM) (today) and Apple Inc. (AAPL) (Wednesday) will give investors a better idea of just how well the tech sector – which up to now has been quite hot – is really doing. Amazon.com Inc. (AMZN) (Thursday) will give investors an inside look at the health of the retail sector – especially the online variety.

Coca-Cola Inc. (KO), which reports tomorrow (Tuesday) and McDonalds Corp. (MCD) (Wednesday) should help us see whether consumers are so gassed that they can  even afford dollar sodas and burgers (or are buying more in lieu of dining at more-expensive restaurants).

Several economic reports will be worth a look, too. Home sales data for March highlight the economic calendar and analysts are eager to see whether February’s enhanced activity was the start of a trend or just an anomaly.  Interest rates are down; home prices are low, first-time buyers have tax incentives to buy.  Could the February and March numbers represent the start (continuation) of a housing rebound?  It’s going to happen at some point, and don’t forget that housing expert Andrew Waite, the publisher of the Personal Real Estate Investor magazine, recently told Money Morning that the recovery is already under way.

Market Matters

Strike up the band; let the good times roll; banks are making money again (or not losing quite as much). Earnings season moved along and financials led the charge with (somewhat) favorable reports.  Both Goldman Sachs Group Inc. (GS) and JP Morgan-Chase & Co. Inc. (JPM) announced better-than-expected quarters and key execs insisted they will pay back those TARP (Troubled Asset Relief Plan) dollars sooner than later.  While Goldman appears set to raise funds through a new stock offering (which will dilute current shareholders), JP Morgan insisted no similar issuance will be necessary.  With its $1.5 billion profit, Citigroup Inc. (C) looked quite promising relative to its $5 billion shortfall a year ago.  Still, some analysts claim the recent results reek of income-statement “shINTCenanigans” (and unsustainable bond trading gains), which is why they say that they will await the results of the independent stress tests in a few weeks, figuring that these  results will paint a more accurate picture of these banks’ operations.

Turning to techs, Intel Corp. (INTC) and Google Inc. (GOOG) reported stronger-than-anticipated quarters, but with caveats.  Despite claiming that the ailing computer industry may be “bottoming,” Intel refused to offer an outlook for the current quarter.  Google, on the other hand, enjoyed net-income growth, although the company experienced a decline in revenue (from the fourth-quarter 2008) for the first time in it five-year history as a public company.  While cell phone giant Nokia Inc. (ADR: NOK) suffered a drop in earnings, management reported optimistic signs of greater stability in the industry.  Conglomerate General Electric Co. (GE) posted a 35% decline in earnings, but still beat the Street outlook.  Airlines did not fare quite as well as both American Airlines parent AMR Corp. (AMR) and Southwest Airlines Co. (LUV) posted troubling losses, and warned of more turbulence to come.

In non-earnings news, The Procter & Gamble Co. (PG) bucked the recent cost-cutting trend and announced a dividend increase.  Mall owner General Growth Properties Inc. (GGP) filed for the biggest bankruptcy-protection case in the history of the real estate industry as the Chicago-based company attempts to restructure its debt positions, a move that underscores the concerns Money Morning recently raised as part of an investigation into the looming problems in the commercial real estate sector.

International Business Machines Corp. (IBM) moved beyond new Sun Microsystems Inc. (JAVA) overtures, claiming a reluctance to be drawn into a long antitrust battle.  Despite that failed deal, the boardrooms appear a bit more active these days as transactions highlighted the business news of the week.

American International Group Inc. (AIG) is selling its personal auto insurance line to Zurich Financial Services (OTC ADR: ZFSVY) for slightly less than $2 billion, the first of many such moves for the bailed-out insurer.

Express-Scripts Inc. (ESRX) will acquire WellPoint Inc. (WLP) for $4.68 billion to better compete with industry leader Medco Health Solutions Inc. (MHS) in the pharmaceutical-benefits-management space.

Rosetta Stone Inc., a language-education specialist, underwent an initial public stock offering (IPO) that reminded some of the “Go-Go” dot-com days as its stock soared about 40% on the first day of trading, the most successful offering in a year.

After five straight weeks of positive stock returns, U.S. stock experienced an early-week pullback, before charging ahead on the financials’ earnings reports.  “Six weeks and counting” have investors surmising that the rise may actually be more than a short-lived bear market rally (though the Nasdaq Composite Index remains the only key index in positive territory for the year).

Economically Speaking

Perhaps taking advice from spin-doctors, both U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke last week put a more optimistic (though realistic) face on the current state of the economy.

Said Bernanke: “Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence.”

Said President Obama: “By no means are we out of the woods just yet, but from where we stand, for the very first time, we are beginning to see glimmers of hope.”

Additionally, the Fed Beige Book reported an ongoing contraction throughout the country, but implied that certain regions “saw signs that activity in some sectors was stabilizing at a low level”

President Obama also welcomed Cuba back into the global economy (to a limited degree) by lifting trade restrictions (telecommunications-related) and allowing increased travel and additional financial payments from Cuban-Americans to family members.

A hectic week on the economic calendar brought some mixed – and confusing – results, as usual. After a few stronger months of consumer activity, retailers struggled again in March as sales took a surprising tumble across most categories. Industrial production fell for the fifth straight month, revealing that manufacturers have a long way to go before declaring recovery.

On the other hand, while housing starts declined in March, the losses were attributed to apartment construction, and single-family residential activity was reported flat (similar to February); some optimistic analysts – like magazine publisher Waite – predicted the worst had ended for the housing sector.

Both the retail and wholesale inflation gauges dropped in March with the consumer price index (CPI) experiencing its first consecutive 12-month decline in prices since mid-1955.  While some pessimists in the bunch were quick to play the deflation card again, most seemed content to proclaim that price pressures are simply one aspect of the economy that warrants little to no worry in the present environment.

Weekly Economic Calendar

Source: Earnings Reports Will Play a Key Role This Week

More from Today’s Financial News:

After nearly a decade of getting kicked around by the nation’s investors, airlines are finally starting to get some positive attention. More importantly, the barrens of the friendly skies are finally starting to look like profitable ventures.

Notice, however, that I “starting” to “look” like profitable ventures. As of last quarter, the only major airline to post a profit was AMR Corp. (NYSE:AMR), the owner of American Airlines. And its earnings were a mere pittance of total revenues.

All the rest, companies like Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), and United Airlines (NYSE:UAUA), all lost significant sums of money.

But the airline environment is drastically different than it was just a few months ago. For one thing, oil prices are significantly lower. Even better, it looks like folks are still willing to take to the sky even as the economy slows. Airline bookings have exceeded industry estimates.

Just as I said in an earlier article, the outlook may not be that bad for the nation’s economy.

Blazing the trail

While industry sentiment is on the rise, investors are looking at other airline industry news today.

I am sure you have already heard Northwest and Delta have finalized their merger deal. In a $2.6 billion all-stock acquisition, all of Northwest’s operations will be under the Delta umbrella by next spring.

The deal created the world’s largest airline, a veritable flying behemoth. With over 75,5000 employees, routes to 375 cities and 66 countries, Delta will be the industries dominant player.

That is, unless another super-airline emerges.

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You see, the real news from the Delta/Northwest merger is not that the combined company will create $2 billion in revenues and cost savings for Delta, with over $500 million in savings next year.

What investors are truly celebrating is the fact that such deals are possible. When federal regulators gave their nod, it proved to investors that mergers would be allowed and showed the synergistic qualities such moves could make.

Now investors in airlines like United, American, and Southwest are wondering what lies in store for them.

Everybody wants in

Across the Atlantic, Sir Richard Branson, the owner of Virgin Atlantic is digging through his contact list looking for an opportunity to strengthen his airline’s core business. Rumor has it, he may be close to a deal with a long-time rival, British Midland Airways.

All across the airline industry, share prices are soaring today. Investors are looking into the future and liking what they see.

That is good news for investors that bought shares last week. What about folks looking to invest today?

I say, do not fall into the airline trap. The gains will not continue.

The nation’s airline industry has been in trouble for nearly a decade. A slowing economy, fuel prices that remain historically high, and a customer base that absolutely hates the service they are receiving is far from good news.

Instead of investing in a risky, cyclical business like an airline, search out companies with strong histories of success that are selling at decade-low prices. For a list of four of my favorites, click here.

Source: Airline industry finds some wings

• British Airways PLC (OTC ADR: BAIRY), AMR Corp.’s (AMR) American Airlines Inc. and Iberia SA (PINK: IBRLF) announced yesterday (Thursday) that they were applying for European and U.S. antitrust immunity. If the three airlines receive the requested exemption, the three carriers will cooperatively set fares and share seats on transatlantic flights, BusinessWeek reported.

• Despite oil’s recent pullback, icon investor T. Boone Pickens feels crude will not drop below $100 due to the United States’ heavy dependence on foreign oil. “I don’t think it’ll drop below $100,” Pickens told Reuters yesterday (Thursday) in a telephone interview. “I would say $110 is where it might go, something like that.”

• Wal-Mart Stores Inc. (WMT) announced yesterday (Thursday) that net income increased 17% in its fiscal second quarter driven by bargain hungry shoppers hurting from high food and fuel prices. For the quarter ended July 31, Wal-Mart reported net income of $3.45 billion, or 87 cents per share, an increase from $2.95 billion, or 72 cents per share, for the same period in the prior year,
  The Wall Street Journal reported.

• Amusement park operator Six Flags Inc. (SIX) said yesterday (Thursday) that revenue in the third quarter through Aug. 12 was up 7.6%, or $23.5 million, from the same period last year, and included fewer operating days. Attendance grew 5.1%, or 407,000 people, to 8.4 million, the company said. Year-to-date, Six Flags said its revenue was up 6.1% from last year, representing an increase of $43.1 million.

• Gannett Co. Inc. (GCI) Inc will eliminate 1,000 positions from its local newspapers around the U.S. because of declining advertising and circulation revenue, Reuters reported. The company said the cuts equal about 3% of the positions in its Community Publishing unit.

• General Motors Corp. (GM) said yesterday (Thursday) that it would finalize the design of the all-electric Chevy Volt by mid-September and hopes to have 50 prototypes with production-ready parts by the end of 2008. GM plans to launch the car in 2010, Reuters reported.

• Estee Lauder Cos. Inc. (EL) said yesterday (Thursday) that net income hit $120.2 million, or 61 cents a share, in the quarter ended June 30, from $88.6 million, or 45 cents a share, a year earlier. Quarterly sales rose 14% to $2.01 billion. For fiscal 2009, the company said it expected earnings per share of $2.57 to $2.72 and net sales growth of 6% to 8%.

• Netflix Inc. (NFLX) has suffered a major disruption in its mail-service DVD rental business, The Wall Street Journal reported, that has prevented the majority of customers from receiving movies since Tuesday. Steve Swasey, a spokesman for California-based Netflix, described the cause of the disruption as a “pretty severe technical” problem with the company’s shipping system and could not speculate as to when the problem might be resolved.

Source: Global Investing Roundups Friday, August 15th, 2008

Among the earnings season headlines: Bank of America Corp. (BAC) will be issuing its final earnings report of the pre-Countrywide Financial Corp. (CFC) merger era and investors hope that Wachovia Corp. (WB) follows in the recent footsteps of Citigroup Inc. (C) and JP Morgan’s Chase & Co. (JPM), the latter two of which both provided better-than-expected (though certainly negative) results.

Yahoo! Inc. (YHOO) gives its shareholder a bit more ammunition for the never-ending Microsoft Corp. (MSFT) buyout controversy, as Yahoo execs are clearly hoping against hope some decent numbers can save their skin (musings known by the acronym “WWID” – for “What Would Icahn Do?).

Amazon.com Inc. (AMZN) will shed some light onto the U.S. consumer spending/retail sector pictures; however, investors should remember that those Internal Revenue Service rebate checks have likely all been spent by now. The U.S. Federal Reserve stays in the limelight as the Beige Book provides the country one more look at the mindset of U.S. policymakers.

The energy-supply data will be analyzed more closely as investors hope that prices are headed down to more manageable levels. And, of course, the Freddie Mac (FRE)/Fannie Mae (FNM) saga merits continued close scrutiny. Anyone interested in some newly issued stock of these financially strapped companies? [For a related Money Morning story containing the latest developments in the Fannie/Freddie saga, please click here.]

Last week provided investors with a nice reprieve from the daily surge in oil prices, as well as an apparent rebound in the Dow Jones Industrial Average Index – out of bear-market territory. But at least with the stock-price rebound, there’s a real question about whether this represents the first leg of a new bull-market uptrend, or is just a bear-market “head fake” that will separate many investors from their money. [For a special weekend market bulletin, in which Money Morning Investment Director Keith Fitz-Gerald argues that last week’s reversal in trading trends was such a "head fake," please click here. The report is free of charge.]

The backdrop for such a “bear trap” was just about perfect as the week ended, for the overall investor-market mindset had shed the dire outlook of recent weeks and months. Bad earnings somehow didn’t seem so bad. Negative forecasts somehow didn’t seem so negative. Cautionary comments by the central bank didn’t translate automatically and immediately into marketplace fears. Weak economic releases somehow didn’t seem so weak. Investors departed for the weekend with a newfound confidence (or, as we fear, overconfidence). Again, this begs the question: Is this the start of a new, bullish trend, or is it just an aberration that will soon yield to a resumption of downward stock prices and rising food-and-energy costs?

Stay tuned…

Coming up in the week ahead: Leading Economic Indicators (Today/Monday), Fed Beige Book (Wednesday), Existing Home Sales (Thursday), Durable Goods Orders (Friday), New Home Sales (Friday).

Market Matters

Freddie Mac and Fannie Mae stayed in the headlines last week as U.S. Treasury Secretary Henry Paulson announced plans for a “non-bailout” government bailout, complete with improved borrowing terms and an expanded line of credit (and which required congressional approval, easier said than done). By week’s end, Freddie toyed with the idea of “going at it alone” (like any good private enterprise should) and opened discussions about raising capital by offering up to $10 billion in new stock. Given the company’s current “dire” financial position, any new shares must offer great incentives to potential investors. Currently, Freddie’s outstanding preferred stock yields in the neighborhood of 14%.

Meanwhile, the U.S. Securities and Exchange Commission (SEC) emerged from hibernation and offered a few regulatory ideas of its own. With “short interest” at all-time record levels, the SEC initiated actions aimed at limiting investors’ abilities to engage in short-selling strategies (which many observers have labeled as the “speculative excesses” that are responsible for everything from soaring energy prices to plummeting stock prices). Not be upstaged, the Federal Deposit Insurance Corp. (FDIC) took possession of IndyMac Bancorp Inc. (OTC: IDMC), another troubled institution engaged in “risky” mortgage lending, which opened again as a federally-owned institution. (So who’s next and just what will that cost the taxpayers?)

Bailouts and new regulations aside, the financial crisis still has a way to go – and possibly a very long way [To read my two-part report from last week about a Japan-style "Lost Decade" for the U.S. economy, including the investments you can make to sidestep this long malaise, please click here. Both reports are free of charge.]

In terms of earnings season, while Wells Fargo & Co. (WFC), JP Morgan Chase, and Citigroup announced weaker earnings (or losses) for the last quarter, their results actually beat Wall Street’s expectations. Merrill Lynch & Co. Inc. (MER) helped shore up its capital position by selling its 20% interest in Bloomberg LP for roughly $5 billion. The world’s largest brokerage firm also reported its fourth-straight quarterly loss and was downgraded by Moody’s Corp. (MCO) immediately after the release. Outside of financial-services companies, airlines – Continental Airlines Inc. (CAL), Delta Air Lines Inc. (DAL) and American Airlines Inc. parent AMR Corp. (AMR) – did as expected in this earnings season, and reported massive losses.

Google Inc. (GOOG) and Microsoft were among the earnings-season headlines, issuing disappointing forecasts, despite reporting quarters that saw earnings jump by more than 35%. Oil-services giant Schlumberger Ltd. (SLB) reaped the benefits of higher energy prices and manufacturer Honeywell International Inc. (HON) raised its forecast for the rest of the year.

Investors enthusiastically received the positive (yet negative) earnings news from the (depressed) financials and also reacted to a pullback in oil prices. Early in the week, the dollar dropped to a record low against the euro and oil continued its endless climb. After that, however, in four consecutive trading sessions, crude plunged by more than $15 a barrel to a market price of less than $130 – its lowest-such close in more than a month.

Excellent supply reports showed that oil-and-gas inventories actually rose last week as demand slowed, given the higher prices. Mid-week, investors took the opportunity to seek out some bargains as the Dow soared close to 500 points and experienced its best two-day percentage gain since October 2002. The other indexes lagged (thanks Google), though still ended the week in positive territory. Bonds tumbled as investors unwound previous flight-to-quality trades. The week came to a close with plenty of uncertainty, but also with the slightest glimmer of hope out in the market that the financial (and oil) madness may one day come to an end (although we here at Money Morning still believe that “end” is well down the road).

Economically Speaking

News from the economic front was not quite so positive last week as those inflationary fears we’ve been warning about for more than a year appear to finally be coming to fruition.

The June Producer Price Index (PPI) rose at its fastest pace in 27 years and wholesale prices now stand more than 9% higher than they were at this time last year. Likewise, the Consumer Price Index (CPI) jumped by 1.1% in June as energy prices skyrocketed by more than 6.5% during the month.

For those economists who choose to discount the energy statistics, core CPI experienced its worst showing since January and reflected escalating prices in airline tickets, among other areas. (Since ticket prices are directly tied to the price of jet fuel – a form of “energy price” – shouldn’t those optimistic economists factor travel out of the “core” equation as well?)

Retail sales rose by a slower-than-expected 0.1% in June, as weakness in auto sales overshadowed the consumers’ desires to spend those government rebate checks. In fact, many naysayers previously warned not to put too much stock in recent retail statistics as they are more reflective of that (temporary) economic stimulus than they are of any real motivation for consumers to shop.

U.S. Federal Reserve Chief Ben S. Bernanke was in the spotlight again last week (as he seems to be every week, these days), as he delivered his mid-year testimony to Congress and discussed the Fed’s ongoing challenges of stimulating a weak economy without prompting additional inflationary pressures. The central bank chair continued to walk a fine line between these two crises and the minutes from last month’s policymaking Federal Open Market Committee (FOMC) meeting revealed the difficult balance.

While many Fed-watchers expected the next move in rates to be higher, the continued economic weakness makes a rate escalation potentially deadly to the weak economy. For now, the central bank pretty clearly believes that the best move may just be no move at all. The Fed also announced some new rules aimed at protecting residential homebuyers against the “predatory” practices of those (now defunct) mortgage originators.

These days, lenders actually may be required to verify a potential borrower’s income to determine if he or she qualifies for a loan. (What a shame IndyMac never thought of that before.)

Weekly Economic Calendar

Source: New Bull Market or Bear-Market Trap? Investors Look to Earnings Season for Clues

• Crude futures closed yesterday (Wednesday) at a record $143.57 a barrel in New York after the U.S. Department of Energy announced a 2 million barrel decline in supply last week. Earlier, crude had traded for as high as $143.91 on Globex, MarketWatch reported.

• Shares of General Motors Corp. (GM) plunged Wednesday to their lowest level in 54 years yesterday (Wednesday), as investors shrugged off better-than-expected June sales and analysts raised concerns about the company’s cash needs, The Associated Press reported. In afternoon trading, GM shares fell as low as $9.98, their lowest level since hitting $10.36 a share on Sept. 21, 1954.

• Starbucks Corp. (SBUX) has announced plans to close 600 underperforming U.S. stores and cut up to 12,000 full- and part-time positions, Reuters reported. The company is bracing for its first full-year profit decline since 2000, as it struggles with a deterioration in consumer spending and increased competition.

• The Nikkei 225 average fell 1.3% yesterday (Wednesday) to hit its longest losing streak in more than 40 years, Reuters reported. The benchmark Nikkei logged its 10th straight negative day, a period in which it has slid about 8%, its longest losing streak since February-March 1965.

• UnitedHealth Group Inc. (UNH) will cut at least 4,000 jobs, or 5% of its workforce, in a restructuring effort and has warned that higher costs will cut into profits this year, The Associated Press reported. Chief Executive Stephen J. Hemsley said the company is shifting management positions to better focus on regional coverage.

• American Airlines Inc., the air carrier subsidiary of AMR Corp. (AMR), yesterday (Wednesday) warned 900 flight attendants with the least seniority that they are subject to furlough Aug. 31. The airline said the notice was not a layoff notice, but that the written warning was a required step in the initial layoff process, DowJones reported.

• Circuit City Stores Inc. (CC) shares plunged 9% yesterday (Wednesday) after Blockbuster Inc. (BBI) announced it would no longer be pursuing its takeover offer after a round of due diligence with Circuit City’s books, MarketWatch reported. Shares closed at $2.32 a share yesterday; well under Blockbuster’s initial $6 – $8 per share bid.

• The Wall Street Journal yesterday (Wednesday) reported that Microsoft Corp. (MSFT) was seeking additional media partners for a bid for Yahoo! Inc.’s (YHOO) search engine business. Citing sources close to the talks, the Journal said discussions with Time Warner Inc. (TWX) and News Corp. (NWS), among others, were in early stages and unlikely to result in a deal with Yahoo, Reuters reported.

Source: Global Investing Roundups Thursday, July 3rd, 2008

I managed to pack in four barbecues (or “cookouts” to put it in American lingo) over the weekend – all pretty close to home – so not too much damage done. And with soaring gasoline and food prices contributing to a projected 3.6% rise in consumer prices this year, it might be the best way to go.

Gas prices obviously remain front-and-center of the news, so let’s check in and see how it’s affecting consumers on both sides of the Atlantic, plus an industry that is arguably getting hammered even harder.

National Average Gas Price

Following a daily march higher over the past three weeks, the current national average gas price per gallon sits at an ugly $3.93. But with gas in 11 US states already over $4 a gallon, this number is now more for headlines than anything else. Bottom line: It’s expensive!

Little wonder that AAA projected a drop in Memorial Day travelers this year – the first decline since 2002. Many have also scaled back their plans, due to rising gas prices. And MasterCard reported a 7% drop in gas sales in the week leading up to the holiday.

But it wasn’t just Americans feeling the pressure at the pump this weekend…

Truck JamLike in the US, Monday was also a holiday in Britain, with the long weekend giving Brits a similar chance to hit the road for a short break.

Trouble is, UK gas prices are 17% higher than this time last year, with diesel prices almost 30% higher. The national average is currently $1.14 a liter and $1.26 a liter respectively. In US terms, that’s about $10.16 and $11.23 per gallon.

You can see why 16% of respondents to an Automobile Association survey said they plan to use their cars less.

What bothers many Brits, though, is that about 60% of fuel costs go into the government’s coffers in taxes. And today, the nation’s truckers took their protest to the streets.

In a mass demonstration against high prices and the government’s planned 2 pence per liter fuel tax rise (set to come into effect in October, having been postponed from April), hundreds of truckers set off from various parts around the UK and conducted a “go-slow” along the motorways.

One convoy ended at London, where the truckers handed a petition to the government at Downing Street. The other convoy, starting from further afield, handed its petition to the Welsh Assembly in Cardiff because (ironically), the trip to London would have cost too much.

The underlying problem that the trucking industry faces today is certainly not exclusive to Britain, though. High fuel prices are hammering both British and American truckers. So could America see a similar backlash?

America’s Big Rigs Have Big ProblemsActually, it already has. You may remember some truckers driving their rigs to the Capitol in Washington, D.C. in early April to protest against high fuel prices and imploring Congress to provide some relief measures.

You can see why. While diesel prices are up 30% in Britain over the past year, the price has blasted 80% higher in the US – from $2.50 a gallon this time last year to $4.50 today, according to the New York Times.

When it costs $1,125 to fill up a 250-gallon fuel tank, that clearly crushes any kind of profit margin that trucking companies hope to generate.

In fact, the American Trucking Association says times are so tough today that during the first quarter, 935 companies with fleets of five trucks or more went out of business. That’s up an astonishing 143% from the 385 in Q1 2007 – and is the worst quarterly “bust rate” since 2001.

In total, 45,000 trucking vehicles have permanently pulled off America’s highways since early 2007, according to America’s Commercial Transportation Research.

The domino effect of this is far-reaching. Reduced profits can erode employee wages, decrease supplies of goods, and create more potential for failing companies. In turn, that can cause bankruptcy and dents GDP growth.

So is there a way to play these developments?

Hit The Road (The Railroad, That Is)In a desperate attempt to offset some of the costs, some trucking firms are turning to rail companies.

While trucks can only haul so much and are directly impacted by rising gasoline costs, rail companies can absorb soaring oil prices more easily, as they can haul more goods. A few of the biggest names in this area include:

Burlington Northern Sante Fe (NYSE: BNI) – a firm that Warren Buffett has invested heavily in… Union Pacific Corp (NYSE: UNP)… and CSX Corp (NYSE: CSX).

All three are also members of the Dow Jones Transportation Average (^DJT), which is a remarkable story itself…

Transports Bust The TrendRemarkably, despite the march in oil prices to over $130 a barrel, that hasn’t stopped the Dow Transports from surging, too.

This is a major reversal in the historical trend. Oil prices and the Dow Transports usually move in opposite directions – and you’d think that with fuel being the biggest expense for Transportation Index companies and high oil prices pressuring so many areas of the transportation sector, the index that represents these firms would also be under severe pressure.

Not so. The DJT is actually up 15% in 2008, and as my colleague Jim Stanton reported in his bi-weekly “Sector Watch” column last Monday (May 19), the index raced to an all-time high of 5,550.17 on the same day. Jim applied some technical analysis to the index – and how to play the next move profitably through the index’s ETF – so take a look.

With the index made up of airlines like American (NYSE: AMR), Continental (NYSE: CAL), JetBlue (Nasdaq: JBLU) and Southwest (NYSE: LUV), plus shipping companies FedEx (NYSE: FDX) and UPS (NYSE: UPS) – all of which are buckling under the weight of high oil and gas prices – economists are now hotly debating whether it’s throwing the market a curveball.

Traditionally seen as a sign of US economic strength and turnarounds, the fact that the index is soaring while consumers and the economy are struggling is a source of confusion.

• Crude oil for July delivery rose $4.33 to $133.38 a barrel yesterday (Wednesday) after U.S. stockpiles showed an unexpected decline. Supplies fell 5.32 million barrels to 320.4 million last week, the biggest drop in four months, according to the Energy Department.

• Time Warner Inc. (TWC) announced yesterday (Wednesday) that it plans to spin off its cable-television unit and receive a $9.25 billion windfall in the transaction, Bloomberg reported. The move will let the company focus on its cable network, entertainment, and publishing operations rather than distribution – something investors have been clamoring for.

• The Boeing Co. (BA) said yesterday (Wednesday) that it would lay off 750 Southern California employees after losing a lucrative military satellite contract and seeing a dip in demand for the technology, the Associated Press reported. The cuts involve engineering staff at plants in El Segundo and Seal Beach.

• Swiss bank UBS AG (UBS) yesterday (Wednesday) sold subprime and other mortgage-based securities to a newly created investment fund run by U.S. asset manager BlackRock Inc. (BLK) for $15 billion, the Associated Press reported. The securities had a nominal value of $22 billion but have been listed with a book value of $15 billion as of March, according to UBS.

• American Airlines, a subsidiary of AMR Corp. (AMR), announced yesterday (Wednesday) that it was taking drastic measures in the face of escalating oil and fuel prices, Reuters reported. The world’s largest airline will cut thousands of jobs, reducing capacity by 12%. American will also charge $15 for passengers’ first checked bag. AMR stock dropped 25% with a $1.98 decline to close at $6.22.

• Shares of corporate debt rating agency Moody’s Corp. (MCO) dropped over 15% yesterday (Wednesday) after a computer glitch mistakenly issued “Aaa” ratings for Constant Proportion Debt Obligations, commonly referred to as CPDOs, Reuters reported. Moody’s stock lost $6.99 to close at $36.91 yesterday (Wednesday).

• The U.S. House of Representatives passed legislation yesterday (Wednesday) that would allow the Department of Justice to sue the Organization of Petroleum Exporting Countries (OPEC) for limiting oil supply and price-fixing, Reuters reported. The measure still needs to be approved by the Senate, but President Bush has already threatened to veto the bill.

• Inflation fears were blamed for the Bank of England’s 8-to-1 decision to hold interest rates steady yesterday (Wednesday), MarketWatch reported. “For most members, a reduction in Bank Rate this month would make it more difficult to keep inflation expectations in line with the target,” the minutes said. For April, consumer inflation clocked in at 3%, above the BOE’s preferred 2% target.

Source: Global Investing Roundups:Thursday, May 22nd, 2008

Accompanied by that reassuring bit of alleged “certainty,” gasoline at $4 a gallon doesn’t sound quite so scary. In other words, we know that gas prices are headed higher, but we also know that there’s a limit, and we know exactly what that limit is.

Early last week, the U.S. Department of Energy said that it expects average monthly gasoline prices to peak at $3.60 a gallon this spring, since that high price will serve to curb demand and keep prices in check.[although even the Energy Department report said that before prices level off there could be interim price spikes that will take pump prices up over the $4 a gallon level].
With crude oil having spiked above the $112 a barrel level last week on reports of declining oil supplies, grandstanding politicos on both sides of the aisle took the opportunity to bash each other’s energy policies [Don’t tell me … it must be an election year]. Seeming to add credibility to the Energy Department’s prognostication was last week’s weekly inventory report that showed that demand is waning – ostensibly because record gas prices now stand more than 55 cents a gallon higher than they were at this time last year.

But here’s the problem.

The Energy Department is wrong.

Indeed, the federal agency is just the latest “expert” to make erroneous forecasts for energy prices. Thankfully, that’s not true of Money Morning.

Since its inception last year, Money Morning has repeatedly predicted incrementally higher prices for crude oil and gasoline. Invariably, these predictions have proved themselves correct. And we’ve done more than just make predictions: We’ve also outlined investment opportunities that would allow investors to capitalize on this advance in energy prices.

In December, for the first time ever, Money Morning Investment Director Keith Fitz-Gerald publicly predicted that oil prices would reach $187 a barrel within three years. In mid-March, he reiterated this projection [accompanied by several suggested ways for investors to profit from this powerful trend]. Not only has this forecast continued to receive widespread play on energy- and investment-related Web sites, we’re starting to see similar “me too” predictions being made by some the energy sector’s heavyweight experts: Literally only days after Money Morning reiterated its forecast, Wall Street giant Goldman Sachs Group Inc. (GS) said that crude oil prices would reach $175 a barrel in the next two years.

This underscores one of the key mandates for Money Morning. While it’s true that we’re the hottest global-investing news service in the market today, this case study demonstrates that we’re more than just a purveyor of news. Our role is to provide our regular readers and subscribers with the news, of course, but it’s more important for us to explain just what the news actually means. To that end, look for us to:

• Put the news in context.
• To describe how the issue at hand fits in with the handful of powerful global trends that we’ve ferreted out and identified as the top ones that you need to follow if you’re to succeed and profit.
• To stay ahead of the crowd by projecting the “end game” – the outcome – for these top trends.
• And, finally, to research and highlight investment opportunities that are the best-positioned to benefit from these trends, meaning these represent some of the best profit opportunities in the market today [Editor’s Note: If this investing strategy appeals to you, it’s well-worth checking out our affiliated monthly newsletter that maintains several portfolios of stocks and funds chosen using these guidelines. New subscribers get a free copy of investment guru Jim Rogers’ new best-seller, "A Bull in China."]

Stay tuned: We’ll continue to follow the oil-and-gasoline saga as it unfolds, and we’ll continue to find ways for investors to profit from this and other top global trends.

Last Week’s Market Action

If you’re of a certain age, surely you remember some of the marketing “slogans” airlines used to burnish their brand names and, hopefully, to attract passengers. attract passengers.

After all, whatever happened to: “We Earn our Wings Everyday,” or “Fly the Friendly Skies,” or even “Something Special in the Air?”

Last week, however, the more appropriate taglines may have well have been: “We No Longer Overlook Safety,” or “Enjoy Your Stay in the Updated Airport Concourse,” or even better “When the FAA Talks, We Now Listen.”

As if the escalating gasoline prices have not caused enough hardships for the airlines, in recent weeks, they seemed to realize that they actually are required to abide by government safety regulations. Just last week, American Airlines Inc. (AMR) canceled more than 3,000 flights, thus, inconveniencing an estimated 250,000 travelers because a little faulty wiring “may” cause fires in certain aircraft. While some analysts were astonished at the lapse in judgment exercised by AMR’s airline management, others believed this to be classic bureaucratic overreaction due to previous lax oversight. In any case, the airlines undoubtedly will see their future earnings suffer and ticketed customers will experience extended delays [forcing them to seek out the closest Chili’s Bar & Grill inside the airline terminal - at least perhaps representing a boon for the earnings for that company].