Granted, it wasn’t by much – a scant 0.7% higher than July. But it’s inevitable that consumers will eventually get back to their spending ways as this recession subsides.

And if you’re looking for a way to play it, consider hhgregg, Inc. (NYSE: HGG). Here’s why…

hhgregg, Inc: This Retailer is Bucking the Industry Trend

Based in Indianapolis, the hhgregg operates 111 retail stores selling consumer electronics and home appliances. Yes, I know that’s the same stuff you can get at your typical Best Buy (NYSE: BBY), Home Depot (NYSE: HD), or Lowe’s (NYSE: LOW).

But this company is hardly typical.

While most retailers are focused on survival, hhgregg’s in full-on attack mode. It’s not pinching pennies to stay afloat. It’s not reducing the workforce. It’s not closing underperforming stores, or mothballing expansion plans.

Instead, it’s actually ratcheting up its expansion plans and hiring by the hundreds. In fact, in the next two years, the company plans to expand its footprint by 60%.

And there’s a good reason for it…

hhgregg’s “Extraordinary Opportunity” for Growth

hhgregg’s still a regional player, with countless metropolitan markets left to enter. Plus, the fundamentals make sense…

• The typical hhgregg store generates positive free cash flow quickly, within three months of opening.
• Not to mention, the company entered the recession in much better shape than most of its competitors.
• Most notably, it wasn’t overloaded with debt. In turn, management is exploiting the drop in commercial rental rates to secure prime locations, within miles of top competitors.

President, Dennis May, says, “We have an extraordinary opportunity to gain market share by taking advantage of the current rental rates and excess availability in the real estate market.”

At the same time, the bankruptcy of a once major retailer cracked open an $11 billion opportunity…

Two Ways That hhgregg Separates Itself From the Crowd

With Circuit City having gone bust, most investors expect Best Buy to scoop up all the business. But I’m convinced hhgregg will earn its fair share too, because it distinguishes itself from big box competitors in two notable ways.

1. All Commission… All Knowing: hhgregg employs an all-commission sales staff. So if they’re content to just show up, they go hungry. They need to make sales. Thus, hhgregg’s staff tends to be older and more informed about products than the hourly, 20-somethings over at Best Buy. And with big-ticket items, consumers put a premium on superior customer service.
2. Same-Day Delivery: hhgregg offers same-day delivery on most products. Instant gratification goes a long way in attracting new customers.

To be clear, however, hhgregg is sharing in the retail pain. Same-store sales dipped 14.7% in the most recent quarter. But analysts expected worse.

The key point to remember, though, is that we never buy a stock based on the current conditions. We buy based on the future. And I’m convinced that hhgregg will be locked-and-loaded for rapid earnings growth as the economy recovers.

And the fact that shares trade at a reasonable valuation of 14 times forward earnings only makes the opportunity more compelling.

Good investing,

Louis Basenese

Source: hhgregg, Inc.: The Only Retail Stock Worth Buying Right Now

But don’t expect that to last. A slump in consumer spending and soaring unemployment could both pose a significant threat to retailers going into the 2009 holiday season.

The U.S. unemployment rate hit 9.5% in June and could eclipse 10% by the end of the year, sending the economy into a “jobless recovery.”

In a speech to Congress on May 9, Federal Reserve Chairman Ben Bernanke cited a lack of consumer spending could serve as a constraint on hiring. This could create a paradoxical effect as employment obviously plays a key role in consumers’ spending habits.

Even for the employed, the lessons learned from the worst economic downturn since the Great Depression will resonate with consumers. That has already been evidenced by the U.S. savings rate, which has climbed above 4% for the first time in more than a decade.

In addition to taking money out of the hands of potential customers, soaring unemployment could lead to higher lending standards. As unemployment rises, so too will credit defaults and the cost of credit will increase accordingly.

In the past, consumers have counted on attractive financing promotions for the purchase of big-ticket items such as high-definition televisions and kitchen appliances. But that won’t be the case with tighter credit

“Consumers were also able to spend more because of the easy availability of credit, most notably through mortgage equity withdrawal and they responded by buying more items,” said Deloitte Strategic Advisor Richard Hyman.  “These conditions underpinned retail growth for the past 10 years but have now disappeared. However, it’s worse than that. They will clearly not return once the recession is over.”

Of course, tighter credit isn’t just a problem for consumers.

A Brick & Mortar Inventory Crunch for the Holidays?

The potential bankruptcy of commercial lender CIT Group Inc. (NYSE:CIT) could be a major tipping point for businesses that rely heavily on credit. Vendors for retail giants such as Wal-Mart Stores Inc. (NYSE:WMT) and Target Corp. (NYSE: TGT) rely on CIT for factoring – an old form of finance in which the lender pays the vendor for its accounts receivable. If the retailer fails to pay for the goods, the lender assumes the responsibility to pay the vendor.

“Right now our industry is preparing for the fall and winter season,” Kevin M. Burke, president and chief executive of the American Apparel and Footwear Association told The New York Times. “A lot of these orders are going to come to a grinding halt if there is no capital.”
A CIT bankruptcy would be a “double whammy” to stores whose suppliers have already cut the amount of merchandise they are making to better align inventory with the drop in consumer spending, said Burke. If those suppliers lose their sole source of capital, what little merchandise retailers originally ordered might never arrive.
The timing of CIT’s woes is “terrible,” Al Ferrara, a partner in retail and consumer products business of consulting firm BDO Seidman LLC said in a Reuters interview. “Retailers now are basically gearing up for the back-to-school and the fall season.”
An inventory crunch at brick & mortar retailers would give a competitive advantage to online retailers, which have more flexibility and already account for about a third of holiday retail sales.

For brick & mortar retail businesses, managing inventories during the holiday season is a delicate balancing act in which managers must walk a fine line between over- and under-ordering stock.

If retailers overstock, they will be forced to offer even steeper post-holiday discounts than they would like in a desperate bid to unload inventory. But if they don’t stock enough merchandise to meet demand they risk not only missing out on sales, but driving potential customers to online retailers, such as Amazon.com Inc. (Nasdaq: AMZN) whose warehouses are not restricted by the display racks and checkout counters found in brick & mortar stores.

This doesn’t mean brick & mortar retailers will sit idly by this holiday season as Amazon siphons off customers via the Internet. All of the nation’s biggest retail players have their own websites too, but the gap between Amazon and the No. 2 online retailer, Staples Inc. (Nasdaq:SPLS) is huge: Amazon generated $19.2 billion in online revenue in 2008, while Staples generated less than half of that in the same year: $7.7 billion.

While half of the top 10 online revenue generators came from traditional stores, notably absent were brick & mortar discount giants Wal-Mart and Target.

And even Best Buy Co. Inc. (NYSE: BBY), which displays in-store signage promoting an “expanded assortment” of products online for consumers who did not find what they were looking for in the store, came in at just No. 10 on the list.

Shopping for a Silver Lining

While a continued slump in consumer spending would benefit no one, certain retailers are better positioned than others, and could ultimately use adverse economic conditions to turn a profit.

For instance, the aforementioned Amazon.com, which is the world’s largest online retailer, could see a sizeable boost in its web traffic as consumers comb the Internet for bargains.

Companies that have a consumer-friendly economical brand, such as Wal-Mart, will also benefit.

Wal-Mart’s “Save Money, Live Better” slogan is already resonating with consumers, and The No. 1 retailer in the world has gone to great lengths to cement its reputation as the affordable choice for shoppers.

The company has set up a “Save Money, Live Better” website (complete with testimonials of what people are doing with the money they save by shopping at Wal-Mart) and a “Live Better Index,” which includes an interactive map of the United States to show how much money people have saved in each state by shopping at Wal-Mart.

The result of Wal-Mart’s efforts? Holiday sales grew 7% last year, according to the Advertising Research Foundation.

Similarly, same-store sales are consistently rising at discount houses such as Family Dollar Stores Inc. (NYSE: FDO), and Ross Stores Inc. (Nasdaq: ROST), the latter of which has the “Dress for Less” sloganright under its name at every store. On the flip side, stores like Macy’s Inc. (NYSE: M) and Saks Inc. (NYSE: SKS) have reported consistent declines in same-store sales over the past few quarters.

“Needs-driven spending will gravitate towards retailers able to tick the most important consumer boxes like price and convenience,” said Deloitte’s Hyman. “Although it will remain the engine of retail growth, wants-driven spending will slow and consumers will be much more choosy.”

Source: Retail Sector Faces Uphill Climb in 2009

Source: Investment News Briefs Wednesday, June 24, 2009

Traders have grown increasingly fearful in recent weeks that the powerful surge in the three major U.S. stock indices – one of the strongest in history – may not have been justified because of an ongoing economic recovery that’s not as strong as originally believed.

“There’s no question in my mind that the economy is improving,” Phil Orlando, chief equity market strategist at Federated Investors, told The Associated Press on Friday. “But investors are betting on some sideways consolidation rather than a continuation of a sharp spike in share prices.”

All the major indexes closed the week down for the first time since the week of May 11. The Dow Jones Industrial Average lost 3%, theStandard & Poor’s 500 Index fell 2.6%, and the Nasdaq Composite Index 1.7%.

Stocks returned to the whipsaw trading pattern investors had grown wearily accustomed to in the months before the rally got under way.

Stocks fell early in the week as a handful of weak economic reports – including news that industrial production had fallen for the seventh straight month – contradicted other reports that seemed to depict a gradual improvement in the American economy.

But some modestly upbeat economic reports sent U.S. share prices up a bit on Thursday; one report demonstrated that the overall number of people drawing unemployment benefits fell last week for the first time since the start of January.

But it wasn’t until stocks finished the day mixed on Friday – with financial, retail and tech shares gaining, while energy and utility shares dropped – that the three major indices finished with their first weekly loss since the start of May.

Last week was a loss. And the week before the three key indices each rose less than 1%.

“It’s not going to be a one-way ride,” Keith Walter, portfolio manager of Artio Global Equity Fund, told reporters.

Since periods of powerful market overperformance are usually followed by a period of sharp underperformance, institutional players have been looking for a down week.  Usually, a 40% surge like the one seen in the S&P 500 index takes years to develop, not months.

But here’s the question: Does last week’s market pullback have more to go, or can it still move higher after two consecutive weeks of sideways trading?
The conventional wisdom is calling for a stretch of choppy trading that will last through the summer, a period during which there’s low volume, until July when Corporate America begins announcing second-quarter earnings.

Market Matters

As the Dow finished the week in the “red,” it also turns out that its push into positive territory for the year was relatively short-lived.  Just one trading session beyond the index’s surge into the “black,” traders surveyed the economic landscape, evaluated the new regulatory environment, reconsidered the ballooning deficit (not even including health care) and chose to book some profits.  While the other major indexes remain profitable year-to-date, many investors believe the markets stand at a crossroad as they attempt to determine whether the recent move has been:

• A mere blip on the radar screen, amid a much-longer bear market.
• A much-too-fast run-up for a rebounding economy that that still faces a plethora of challenges.
• The start of a new bull market that simply is taking a week off to digest all the “euphoric” news.

The analysts, TV pundits, and bloggers maintain no shortages of views about the markets’ future direction.  Only time will tell.

As expected, major financial institutions rushed to pay back $68 billion in Troubled Assets Relief Program (TARP) money and get out from under the strong arm of the government.

JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley(NYSE: MS) highlighted the list, while Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), and Bank of America Corp. (NYSE: BAC)are among those still seeking Uncle Sam’ approval for every action.
Meanwhile, Standard & Poor’s downgraded 18 related institutions, including a few that paid back the bailout money - BB&T Corp. (NYSE:BBT) and U.S. Bancorp (NYSE: USB) – and warned about the industry’s future

The Obama administration revealed plans for the most significant financial regulatory overhaul since the Great Depression.  The proposal expands the oversight role of the U.S. Federal Reserve, and includes higher capital and liquidity requirements, stricter reviews over hedge funds and certain derivative products, and the creation of a new consumer protection agency.  U.S. Treasury Secretary Geithner detailed the plan before the Senate and was met with mixed (but predictable) reactions…Republicans thought it was excessive, while Dems felt it didn’t go far enough.

If both sides dislike it equally, perhaps it’s a good plan?

Volatility returns to the markets as the VIX (Chicago Board Option Exchange Volatility Index) surged past the critical 30 mark early in the week, a sign generally associated with stock-market pessimism.  Bonds continued their ongoing roller-coaster ride as some fixed-income investors remained concerned about the global demand for U.S. debt, while others turned to the asset class as a flight-to-quality from riskier securities.

The worries continued as both China and Japan reportedly cut back their treasury holdings in April, a worrisome development considering the upcoming Treasury auctions will add a record $104 billion of government securities to the Street.

Oil hovered around the $70 a barrel level and gas prices increased for 52 straight days as consumers began to feel the pinch just in time for the summer holiday travel season.  Options expiration from “quadruple-witching Friday” brought additional volatility as each major equity index gave back some ground for the week on less-than-favorable reports from the likes of Best Buy Co. (NYSE: BBY) and FedEx Corp. (NYSE:FDX).

Market/ Index	Year Close (2008)	Qtr Close (03/31/09)	Previous Week (06/12/09)	Current Week (06/19/09)	YTD Change
Dow Jones Industrial	8,776.39	7,608.92	8,799.26	8,539.73	-2.70%
NASDAQ	1,577.03	1,528.59	1,858.80	1,827.47	+15.88%
S&P 500	903.25	797.87	946.21	921.23	+1.99%
Russell 2000	499.45	422.75	526.84	512.72	+2.66%
Global Dow	1526.21	1347.38	1,694.76	1,633.70	+7.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	2.68%	3.79%	3.79%	+155 bps

Economically Speaking

While U.S. Federal Reserve Chairman Ben S. Bernanke will be gaining enhanced powers under the federal financial system makeover, he must be wondering whether he will be around to experience them.  Despite the unprecedented challenges he has faced over the past few years, U.S. President Barack Obama has been tightlipped about whether he will reappoint Bernanke for another term when the central bank chairman’s current stint expires in January.

“Ben Bernanke has handled his position extraordinarily well under extraordinary circumstances…but I’m not going to make news on that right now,” President Obama said.

Some Fed watchers believe that President Obama has Lawrence Summers, the former U.S. Treasury secretary and present National Economic Council chairman, in mind for the position.

On the economic front, inflation data highlighted the week’s releases as both producer price index (PPI) and the consumer price index (CPI) for May were reported as below expectations.  While certain naysayers pressed forward on the scary “deflation” argument, other naysayers point to the rapid rise in energy prices as proof that the dreaded “I” word is merely lurking on the horizon.

For now, however, inflation is not considered “Public Enemy No. 1″ and economists will focus on housing, labor, and manufacturing for more signs of economic stability.

Turning to housing, new construction climbed by its largest amount in three months and even building permits jumped in May as prospects for the future look more promising.  Bear in mind, however, homebuilding activity still remains more than 45% below last year’s levels.

Industrial production fell more than 1% in May as automakers Chrysler Group LLC and General Motors Corp. (OTC: GMGMQ) continued shutting down plants and limiting production as they initiated their restructuring plans.  While initial jobless claims actually increased slightly in its most recent weekly release, total insurance claims actually fell for the first time in five months.  Still, the labor market remains the primary concern as the economy begins to show some signs of improvement.

On that note, the leading economic indicators (LEI), an index thought to forecast economic activity for the next three to six months, experienced its best showing since March 2004.

Weekly Economic Calendar

Source:  Market Stumble Heightens Worries That Economic Rebound May Not Be That Strong

BRIC Building; Bankruptcies Accelerate; Auto Parts Suppliers Denied Additional Government Funds; GM Sells Saab; Best Buy Misses Expectations; MySpace Cuts 1,000 Workers; Banks See Recession Ending in Late Summer

• Members of the so-called “BRIC” nations – Brazil, Russia, India and China – met in Russia yesterday (Tuesday) for their first ever summit. The meeting was followed by the release of a joint communiqué that demanded a larger role for emerging nations. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” the statement said. “We also believe that there is a strong need for a stable, predictable and more diversified international monetary system.” However, the statement did not mention a smaller role for the dollar and a supranational reserve currency, suggestions previously proposed by Russia and China as a result of the financial tidal wave that emanated from the United States.

Source: Investment News Briefs Wednesday, June 17, 2009

For instance, a 5% to 6% contraction in first quarter gross domestic product (GDP) will look decent vs. the wrenching 6.3% decline the U.S. economy experienced in the fourth quarter. Mix in some still weak – but improving – corporate earnings season and there may be reason to hope that U.S. President Barack Obama’s prediction of an economic rebound in 2010 may not be off target after all.

Eddie Cohen, a market historian who is chief investment officer for Stavis & Cohen Financial, a Houston-Texas financial-management firm, points out that the U.S. stock market has endured three protracted bear markets since 1900 (1906-1921, 1929-1942 and 1966-1982) and sees evidence that the United States may be ensconced on one of those periods again.

While Cohen sees some positive indicators, he continues to advise that caution (or even cautious optimism) be the order of the day.

“Plenty of questions still need to be answered before we can proclaim an end to the bearishness and a definitive market recovery,” Cohen said. “At least, we have started to see some rays of sunshine on the horizon, and that is encouraging.  Still, this environment is not the time to be a hero.”

But there are three significant wildcards at play here that could keep the market from sinking into an even deeper malaise – and that could, in fact, be a catalyst for higher stock prices and perhaps even an improved economy in the months to come. Those three wildcards include:

• There’s an estimated $4 trillion in cash in investors’ hands on the sidelines – capital that could be drawn in to further pump up the markets, should the recent rally continue.
• The federal government has already committed to funding $11.6 trillion in stimulus initiatives, and the sheer magnitude of that government intervention could play a substantial role in determining just how long this downturn lasts – or how quickly it ends.
• Stocks are, in many cases, currently trading at levels not seen since the late 1990s, meaning the market is dangling bargains too enticing to ignore.

Cohen believes that investors need to remain cautious and to understand that market sentiment can literally turn on a dime, especially if the volatility levels remain high [there's some evidence that volatility has diminished somewhat in the past week, and is currently below what is usually expected for the start of the corporate earnings cycle]. However, the Texas investment advisor also foresees some potentially positive developments on the horizon and believes that patient long-term investors who are willing to ride out the short-term volatility may want to commit some money to stocks in profit from these low valuations.

Given that there is “an estimated $4 trillion in cash on the sidelines right now … as investors become more confident, some of these funds could potentially find their way into equities and help drive the markets higher,” Cohen said.

The Quarter That Was

When 2008 came to a close, investors hoped the nightmare had ended and some normalcy would return to the economy and the markets. It was not to be. During the first three months of the New Year, a $787 billion stimulus package, multiple blueprints for rescuing the nation’s banking system and a honeymoon period for a new presidential administration that was one of the shortest in U.S. history made it very clear that the nation’s economic nightmare was continuing.

Much of the data portrayed an economy in decline despite the promises by U.S. Federal Reserve Chairman Ben S. Bernanke’s that better times were coming. The U.S. Commerce Department initially reported that fourth-quarter GDP was down 3.8%, its worst showing in 27 years, though not as bad as many economists had projected. A few months later, however, Commerce Department analysts revised that statistic downward to 6.3% and confirmed that the recession had worsened.

Jobless statistics became the barometer for the nation’s declining economic health, as company after company announced major cutbacks. On Jan. 26 – in a single day so bad that it was labeled as “Black Monday” – about 75,000 jobs were eliminated ad the likes of Caterpillar Inc. (CAT), Sprint Nextel Corp. (S), Home Depot Inc. (HD), Texas Instruments Inc. (TXN), General Motors and others announced major job cuts. Even before that dark Monday, there had already been 170,000 job cuts announced that month – and that’s after a 2008 that saw the recession claim 2.6 million jobs.

“Some of the worst job losses are ahead of us, not behind us,” Wells Fargo & Co. (WFC) senior economist Scott Anderson told USA Today at the time.

One-time global giant Citigroup Inc. (C) fell briefly into penny stock territory and came within a heartbeat of nationalization as the U.S. government finally opted to inject more money into the former financial-sector stalwart. A late-quarter restructuring plan seemed to better position Citi.

Nor did the trouble stop with the banks. Two of the U.S. Big Three automakers – General Motors Corp. (GM) and Chrysler LLC – moved closer to bankruptcy as the government rejected the American carmakers’ plans for reorganizing. Indeed, the Obama administration even “suggested” GM’s CEO pursue other endeavors, and laid down serious guidelines regarding future intervention. Even so, bankruptcy may be unavoidable.

But then a funny thing happened on the way to Great Depression II. Citi, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) each announced promising results for the first two months of the year, surprising investors and igniting a late-quarter stock market rally. In an interesting parallel development, a “surprise” announcement by Wells Fargo & Co. (WFC) last week added fuel to that already-existing rally in financial-sector stocks, and in the market in general.

Some confidence returned to the boardroom – at least within the healthcare sector – as major deals involving Merck & Co. Inc. (MRK) and Schering-Plough Corp. (SGP) ($41.1 billion) and Roche Holding AG (ADR: RHHBY) and Genentech Inc. (DNA) ($46.8 billion) moved forward.

Electronics retailing giant Best Buy Co. Inc. (BBY) reported better-than-expected profits as consumer activity suddenly picked up (at least, above the dismal levels of the fourth quarter). The credit markets began to thaw a bit as corporations issued new debt and the U.S. Federal Reserve offered up a plan to buy U.S. Treasuries as a way of keeping interest rates low.

Though the Dow Jones Industrial Average declined 13.3% for the quarter, March was its best-performing month since October 2002. The tech-heavy Nasdaq Composite Index declined 3.07%, but enjoyed a March that was actually its best month ever. The Standard & Poor’s 500 Index declined 11.67%.

Some of the late-quarter economic reports seem to reflect this brighter outlook. In manufacturing, for instance, factories continued to struggle as industrial production fell to the lowest level in almost seven years, though a favorable durable goods report offered some optimism as the first quarter came to a close.

Home sales likewise offered some cause for optimism, rising in February as buyers took advantage of low rates and a tax-break for first-time homeowners. Retail sales statistics were a bit better than expected – especially after removing dismal auto sales from the mix. And inflation – a much-feared foe with the level of government spending that’s taking place – remained well under control, even as talk of deflation also seemed to subside.

Stocks continued their strong run, even after the quarter closed. Since then, in fact, the Dow has rallied 6%, the S&P 8% and the Nasdaq 8%.

Sound Strategies to Follow No Matter Which Way the Market Moves

Nat Levy, a principal with Houston-based McNeil, Levy & Friedman LP, is a five-decade veteran of the financial-services sector, and has seen his share of uncertainty. In the near term, it rarely pays to prognosticate – so he doesn’t.

“I am unable to predict short-term market or economic movements and don’t know of anyone who can do more than guess at this,” Levy says.

Even so, at a time when many investors are talking about “new rules,” or “new realities,” Levy says it pays to stay the course.

The one prediction he will offer is that some investors will look back on miscues they made today with more than a little regret.

“Right now, we find ourselves in one of those “if only I had…’ periods,” said Levy.  “My one educated guess is that in five years from now we’ll look back and think “If only I had invested in this; if only I had remained invested in that, etc.’.”

Stavis & Cohen Financial’s Cohen points to the usual suspects like automakers and banks as industries that continue to face considerable challenges in the periods ahead.  While he sees signs of renewed housing activity in terms of new and existing home sales, he acknowledges that prices continue to fall each month, foreclosures are increasing, and the newly laid-off workers could exacerbate those trends.

Cohen – like Money Morning – believes that commercial real estate may be the next shoe to drop; vacancies are increasing, rents are under pressure, and banks may not be willing to loan large sums of money to related companies looking to refinance.

Because inflation could become a problem, Cohen says investors should have some exposure to gold in today’s environment.

“The unprecedented level of government intervention has added significant liquidity to the marketplace, but, ultimately may lead to higher levels of inflation,” he said. “Gold can serve as a potential hedge against such price pressures.  Additionally, as the country’s debt and deficit positions mount, the dollar could remain under pressure and gold can be viewed as an insurance policy against a weak currency and the uncertain times faced today and in the future.”

Cohen states that investors can invest in gold directly by purchasing bullion or through funds or exchange-traded funds – one being the SPDR Gold Shares exchange-traded fund, or ETF, (GLD) that track the price movements of the so-called “yellow metal.” His firm uses a manager who buys bullions and stores it in a vault, which he says gives his firm’s clients the opportunity to access a product whose price moves more in lockstep with the market price of gold, and is even more cost effective than gold funds or ETFs.

In terms of stocks, Cohen believes investors should consider small-cap shares.

“Historically, coming out of recessionary times, small-caps are among the best performing equity asset classes,” he says. “Granted, many of these companies may have struggled during the dire economic times as investors shun anything other than industry leaders. Now may represent a decent time for cautiously optimistic investors to again look at small-cap companies, particularly when combined with some exposure to gold as a hedge against renewed downside pressures on stocks.”

Cohen recognizes that the newly enacted government programs could prove helpful in jump-starting the U.S. economy – which should enable the recent upward move in stock prices to continue. In particular, he sees some successes in the Fed’s attempts to get corporations and municipalities borrowing again.

“The credit markets definitely are showing signs of life,” said Cohen. “In the first quarter, domestic companies issued over $350 billion in new investment-grade paper and interest rate spreads between [corporate bonds] and Treasuries are coming down. Likewise, according to Lipper, investment-grade [municipal bonds] were up 4% to 5% in the first quarter and investor demand for such offerings seems to be on the rise. In fact, the state of California moved up a recent sale of $4 billion in bonds by a day to accommodate the demand for what turned out to be one of the largest tax-exempt offerings since 2007.”

Mortgage-market distress could also create some investment opportunities for investors who do their homework, Cohen says.

“I am a firm believer that challenges create opportunities, and no products have experienced more significant challenges over the past few years than mortgage-related securities,” said Cohen. “Amid the subprime debacle and related credit crisis, all mortgage products have struggled and even the higher-quality paper is being priced as if it is a toxic asset. We use a fixed-income manager who has been buying up more stable mortgage-backed issues at what he perceives to be tremendous values because of the negativity that has enveloped the entire asset class.”

A market historian to the end, Cohen likes to return to what he knows best when attempting to analyze just where he believes the markets will head next.

“Dating back to 2000 through mid-March, the equity market lost about 3% in value, so history may suggest we are about halfway through what some would call a secular bear market,” Cohen said. “During such times, it is quite common to experience periods when markets really take off. In fact, during the last few weeks in March, equities rose over 20% and some investors have pointed to that move as evidence that the market had bottomed and the turnaround had begun. In reality, since October 2007, we have seen six rallies of various magnitudes.”

Source: After a Tough First Quarter, Investors Have Cause For Cautious Optimism

[Editor's Note: This look at the U.S. economy and stock market is the latest installment in a series of Money Morning quarterly reports that will examine such topics as gold, housing and oil. These reports will now be a regular feature at the end of each quarter.]

Standouts in the broad run-up included shares of Best Buy , up 11.3 percent to $37.24 after the electronics chain’s quarterly profit topped estimates and its yearly outlook boosted optimism about consumer spending.

Retailer Wal-Mart Stores Inc was among the top boosts on the Dow, rising more than 2 percent to $52.88, while the S&P retail index gained nearly 5 percent.

Shares of natural resources companies rose along with higher commodity prices. Shares of steel maker Nucor rose 5.6 percent to $41.25 and U.S. Steel Corp was up 5.9 percent to $24.86.

“Obviously the tide is shifting. We’ve gone from every piece of news being incrementally bad to not as bad as expectations,” said Stephanie Giroux, Chief Investment Strategist at TD Ameritrade in Jersey City, New Jersey.

“The fact that collectively we are starting to see things less negative is very significant.”

The Dow Jones industrial average added 158.42 points, or 2.04 percent, to 7,908.23. The Standard & Poor’s 500 Index rose 16.78 points, or 2.06 percent, to 830.66. The Nasdaq Composite Index jumped 47.47 points, or 3.10 percent, to 1,576.42.

At the current pace, the S&P 500 could have its biggest monthly gain in 22 years, as stocks extend a three-week rally off 12-year lows.

Investors were relieved to see fair demand for $24 billion of U.S. debt offered after a poor auction a day earlier raised fears the government would have trouble funding its plans to help the economy recover.

Shares of banks pared losses after the auction, with JPMorgan down 1 percent to $28.27, having fallen as low as $27.65, while the KBW bank index fell 0.4 percent.

Government data showed the U.S. economy contracted slightly less than expected in the fourth quarter, although corporate profits in the same quarter plunged by the biggest margin since 1994. The number of workers collecting state unemployment benefits rose to a record in the latest week.

Recent better-than-expected housing and retail sales data has given rise to hopes that the recession-stricken economy was starting to show signs of life.

March 26 (Reuters)

On an individual level, the benefit will come from the mix of tax benefits that are part of the package.

On Feb.17, U.S. President Barack Obama signed into law a massive $787 billion stimulus package aimed at jump-starting the domestic economy. While the jury is still out on its future success, average Americans are left to ask: What’s the best way to benefit?

“In general, lower-income folks are more likely to see the most actual benefits from these provisions,’” said Gregory Horning, co-founder and director of SC&H Group Inc., the largest locally based management-consulting and CPA firm in Baltimore.

However, Horning believes that for the economy to really rebound, families must repair and reposition their individual financial positions.

“For years, folks have lived on no savings and counted on equity in their homes as a source of spending,’” Horning said.  “Now, home valuations are down and they need to change their lifestyles and cut their monthly spending to repair their personal balance sheets.  While a couple of hundred dollars from a stimulus package may help in the short-run, we must deal with the root of the problem, which requires a new mindset for the American people.  There are no simple fixes; no good answers.’”

Home Buyer Credit

Even so, Horning sees a few provisions within the stimulus package that could prove beneficial to certain individuals.  In particular, he points to the temporary credit for first-time homebuyers as one area that could help.

Under this provision, first-time homebuyers may be eligible for a credit of as much as $8,000 credit on the purchase of their house (or 10% of the purchase price).  The credit is subject to income limitations ($75,000 for single filers/$150,000 for joint) and can be taken for homes purchased between Jan.1, 2009 and Dec.1, 2009.  Because the collapse of the housing sector has been a major contributor to the economic downturn of the past few years, the government is hoping that this credit will encourage renewed housing activity.

“For first time homebuyers who qualify, this provision may accelerate their decision to pursue home ownership and live the American Dream,’” Horning said. “Essentially, the government is subsidizing $8,000 toward the purchase of a home. Coupled with the current lower property valuations, home ownership has become more attractive for this limited group of individuals.’”

Because of the income restrictions and the fact that buyers could not be prior homeowners, Horning acknowledges that the impact on housing and the overall economy will be fairly limited.

Bill Hickl is managing director leader of the Private Client Services Group for UHY Advisors, one of the 15 largest professional-services firms in the country. Though his client base is primarily high-net-worth individuals who would not qualify for this homebuyer credit, he has been fielding a number of calls about this provision.

“Just last week, I spoke with a CEO of a local business who called to talk about his daughter, who was considering becoming a first-time homeowner,’” Hickl said. “He was thinking about helping out with her down-payment and wanted to get some of the specifics.  I let him know that the purchase could be treated as if it occurred in 2008 for tax purposes as the government is allowing for acceleration of the use of this credit by making an election.  By extending her tax-return filing to Oct. 15, his daughter will have several months to complete the transaction and still be eligible for the credit on the 2008 return.’”

Car Buyer Deduction

Another provision aimed at stimulating additional retail activity is a temporary deduction for car buyers. Under this bill, individuals who purchase a car, recreational vehicle, or even a motorcycle in 2009 may be eligible to deduct the state and local sales taxes, as well as excise tax, on the vehicle.  Again, an income limitation applies, so not every car buyer is eligible, but the higher limits ($125,000 single/$250,000 joint filers) increase the potential for more individuals to take advantage.

“This deduction is ‘above the line,’ meaning that taxpayers don’t have to itemize to be able to reap the benefit,’” SC&H Group’s Horning said.  “They will be able to take a full deduction of the sales tax for cars costing up to $49,500; however, should they buy a more expensive vehicle, they will only be eligible for the deduction up to that amount.’”

Horning believe this provision could have some impact on auto-sales activity as individuals who might be considering a new-car purchase in the next few years could push that decision up to 2009 to take advantage of the deduction.

“It probably doesn’t mean people will be buying more cars [overall] than they [otherwise] would have,’” said Horning.  “This just moves up the timing of that next potential purchase.’”

Qualified 529 Plans

UHY Advisors’ Hickl believes that the expanded definition of qualified higher education expenses may also prove helpful for individuals with 529 plans and children attending college in 2009 and 2010.  Under the stimulus package, computers and related technology will qualify as expenses for tax-advantaged savings plans for the next two years.

“I have a son in college now, so we can personally take advantage of this provision,’” Hickl said “Historically, only direct college costs like tuition and housing were ‘qualified’ expenses.  Now, folks can buy their kids computers and use the college-savings account to pay for them.  Most of our clients set up 529 plans and we are speaking to all of them with college age children about this potential benefit.’”

Home Energy Credit

The stimulus bill also increases (from 10% to 30%) the eligible credit for energy-efficiency purchases made in the home.  SC&H Group’s Horning believes that homeowners who have been planning to replace furnaces or water heaters – or to install new energy-efficient doors and windows – should look into such opportunities this year and next.

“For many, these moves make sense even absent the tax credit,’” Horning said. “Such purchases help homeowners to counter higher utility costs and the credit effectively reduces the payback period of the new equipment purchases.’”

Make Work Pay

The single-largest tax provision within the stimulus package is the “Making Work Pay Credit‘” that provides a $400 credit ($800 if filing jointly) to employees who make less than $75,000 ($150,000 if filing jointly) in compensation.  The estimated cost of the provision is $116 billion over a 10-year period.

Even low-income families who don’t make enough income to owe taxes are still eligible for this credit.

Unlike the 2008 Bush tax rebates, which were distributed directly to eligible taxpayers, the government will not be sending any checks this time.  Instead, the credit can be claimed on the 2009 tax return or received each pay period through deductions on the employees’ paycheck.

Horning points out that the recipients of this credit do not need to take any action in order to participate.  In fact, the Internal Revenue Service has issued new withholding tables that employers must begin to use no later than April 1, 2009.  The tables are designed to promptly and automatically deliver the benefit of the credit to employees so that these dollars get put back into the economy more quickly.  Horning believes that – while the afore-mentioned $116 billion outlay represents a significant cost – the amount per individual, on a case-by-case basis, is not substantial.

Ron Martin, a managing director and tax-department head with the Houston office of UHY Advisors, agrees that the provision will have limited impact on stimulating growth.

“Last year, individuals received $600 or so in the form of a tax rebate and could take that money directly to the Best Buy (BBY) and purchase a new TV,’” Martin said.  “This year, they will not receive a lump-sum payment and instead will recognize something like a $10 windfall on each paycheck.  Since they will not be receiving a significant amount of actual cash in hand, this provision, most likely, will not provide much stimulus.’”

The government will be providing a one-time payment of $250 to non-working individuals: retirees, disabled individuals, as well as recipients of Supplemental Security Income (SSI), railroad retirement and certain veteran benefits.  SC&H Group’s Horning believes it will be hard to pinpoint how much this will help jump-start the economy, noting that such payments won’t solve major issues or eradicate the challenges many of the recipients already face.

Alternative Minimum Tax

The one provision designed to actually impact upper-middle class and more-high-net-worth taxpayers is the increase in the exemption amount ($70,950) for Alternative Minimum Tax (AMT) calculations.  Established in 1969 to close certain loopholes that well-to-do taxpayers were using to reduce their tax liabilities, AMT has begun impacting more middle-income earners because the calculation has not been adjusted for inflation over the years.

SC&H Group’s Horning states that the government has been applying a “patch’” each year in the form of an exemption increase, so the provision in the stimulus bill accounts for nothing more than the enhancement most taxpayers were already expecting. 

On a related note, interest on tax-exempt private-activity bonds issued in 2009-2010 will now be excluded from AMT calculations and Horning believes more investors may consider these municipal securities that are issued to fund stadiums, theaters, and other private-user projects.

“Because of the flight-to-quality and dramatic increase in demand for [U.S.] Treasuries, related yields have declined so much and investors may begin seeing some significant opportunities in other fixed-income securities,’” Horning said.  “While private-activity bonds may find a new class of investor for the next few years – due to the AMT exclusion – I believe that general obligation bonds and revenue bonds that are supported by necessities like utilities may be worth a look, as well.’”

Horning also fears that inflation will rear its ugly head in the years to come as the government struggles to raise revenue to retire the newly issued debt.  He believes that Treasury Inflated Protected Securities, or TIPS, commodities, and other hard assets could serve as a hedge against inflation when allocated within the context of a diversified portfolio.

The Obama Budget

UHY Advisors’ Martin has been talking to clients more about the recently proposed Obama administration budget than the stimulus package.  He sees several moves individuals should be considering now in anticipation of its passage.

“The [Obama] administration has been mindful of the need to get the economy growing again and chose not to override the Bush tax cuts or take other fiscal measures that could hinder any chance of recovery,’” Martin said. It seems that to “recognize the delicate balance between economy, budget, and doing the right thing.  The proposed budget is set to take effect in 2011, so we have the opportunity to visit with clients about moves we should be taking over the next two years.’”

UHY Advisors’ Hickl claims it is not a shocking revelation that taxes will increase on the highest-income earners and is mindful of ways to accelerate his clients’ income levels and other revenue streams into 2009 and 2010, particularly for individuals like athletes with long-term contracts [that include] deferred compensation.

Within the proposed budget, Hickl sees the provision to cap mortgage-interest deductibility at 28% as bad policy.

“Limiting this deduction is actually a disguised income tax increase, in my opinion,’” Hickl said. “Say an individual has a $1 million loan at a 7% interest rate.  The difference between a deduction at the 35% tax rate and one at 28% is $4,900 in additional taxes due.  And that is quite a significant amount.’”

According to SC&H Group’s Horning, some homeowners with cash in hand may choose to pay down their mortgages before 2011, particularly as their investments are declining.

UHY Advisors’ Martin also mentions the proposed change on charitable deductions as an area his clients should focus on prior to 2011.  Like the mortgage interest deductions, under the Obama budget, individuals will only be able to deduct 28% of their qualified donations as opposed to the 35% allowed today.

Since high-income earners make the majority of these contributions, Martin anticipates that charities will be hurt and face a reduction on donations in the years to come.  He does see some ways that careful planning can help alleviate the burden on charities.

“If taxpayers have multi-year commitments through something like capital campaigns, they may consider taking the opportunity to accelerate funding of that commitment to make sure they remain fully deductible before the new rules come into play,’” Martin said.  “Such a move could serve as win-win as the donor gets the full tax advantage of the deduction, while the charity gets its money sooner and can begin putting the much-needed funds to good use.’”

Editor’s Note: Ron Brounes, CPA, is a regular contributor to Money Morning

Source: Seven Ways to Get an Income-Tax Boost From the Obama Recovery Plan

He also shares a British health care conglomerate that provides aid for troubled times and “sells even better when folks are broke.”

This from Adam:

Buy into Eastern Europe’s depression or just make 114% on ours: It’s your shot to call.

In case you hadn’t noticed, retail is in a bit of a pickle these days. The Conference Board’s latest consumer poll puts their Confidence Index down another 12.4 points, to yet another all-time low at 25.

Keeping in mind that anything below 50 is considered bad, I’d have to say that a score of half that ought to be considered really bad.

No shock there, I suppose, since we are looking at massive unemployment right about now. As of late last week, the official figure had us at 8.1%, a 25-year high water mark for folks who are slowly sinking under water.

And that’s only looking at it percentage-wise. Our population has grown roughly 45% since 1985, and 140% since 1930, so it’s safe to say that there are probably more folks hanging around the corner wasting time then ever before in the history of the country, including the dark days of the Great Depression.

Depressing indeed, but before you start thinking this is another one of Lass’ loads of unalloyed dreck, I actually have found another one of those oddball companies looking to expand during this dismal episode.

But First… More Dreck!

There is an odd thing about the current wreckage. Back in 2000, the majority of American households were involved in the stock market in one way or another. This was the dawn of online investing, when most any shmoe who could type their name with two fingers could get a trading account. Inside the biz, many still refer to the tech boom and ensuing crash as the “March of the Morons.”

Not very nice, but there it is. But don’t fret too much, because this most recent crash was in many ways the exact opposite. This time around, it was the wise guys themselves who sank trillions into unfathomable, unvaluable, and in the end, valueless debt arbitrage. The very folks who should have known better fell deepest into the briar patch.

As a result, mega-discounters like Wal-Mart (WMT:NYSE) are actually reporting modest but significant increases in sales, while high-end outfits Saks (SKS:NYSE), Nordstrom (JWN:NYSE), and Ann Taylor (ANN:NYSE) are reporting withering sales declines.

The folks in the Ann Taylor corner suite at 7 Times Square (one wonders how long they will be able to afford THAT address eh?) are specifically blaming the 20% plunge in Q4 on the fact that a remarkable number of women no longer require the “business attire” that is ANN’s stock in trade. The future is so “volatile” right now (that’s biz slang for “god-awful”) the team at ANN won’t even put out a forecast for next quarter.

If you didn’t turn every $1000 you invested last year into 113 GRAND, you really need to give me the next five minutes of your time…

As the Dow lost 40% of its value in 2008, one unorthodox analyst steered his readers to optimized one-year gains of 6,635%, 10,838%, and 11,359%.

Here’s how to get eight months worth of his biggest gainers for 2009 FREE…

The Two Fashion Items That Sell Even Better When Folks Are Broke

But there is one “wearable” shop that is not pulling in its horns. In fact, it is looking to expand its offerings into Eastern Europe. And yes, they know that the once-and-future Eastern Bloc is melting down as fast as (if not faster than) we are here in the States. In fact, they are counting on it.

I am referring to SSL International PLC (SSL:LN). This Brit healthcare conglomerate has the rights to distribute Dr. Scholl’s foot aids overseas. Just imagine all those sore, tired guys pounding the pavement looking for jobs! But SSL’s real winner in these troubled times is their Durex condoms line.

As per Chief Executive Officer Garry Watts, SSL intends on using the downturn to bump its stake 50% in a unit that distributes contraceptives to Russia and nine other eastern European countries. And that’s just the first kiss, as it were: By 2010 they hope to buy up the entire operation.

Blunt and to the Point

In a recent interview with Bloomberg’s Kari Lundgren and Howard Mustoe, Watts put it rather succinctly: “Russian people aren’t going to stop having sex any more than British people are. We’re not immune from the downturn, but it’s a bit like Pizza Hut: If you’re not going out, then you might be willing to drop a five-pound vibrator ring into your trolley.”

Hey, he said it, not me, folks. Okay, stinky feet and Russian condoms are slightly unsettling thoughts (especially around lunchtime). But Watt’s got a point and he’s grinning when he makes it, which makes him different than 95% of the CEOs I speak with these days, who can barely manage a forced rictus smile.

If this is just too much for you to wrap your mind around, and you still want to grab a piece of the action in the “Retail Space,” you can always pick up some of the puts we are recommending in my own WaveStrength Options Weekly column.

Like I mentioned earlier, no one is buying luxury goods. Thus, our Best Buy (BBY:NYSE) play is up some 40% as I sit to write, while our Disney (DIS:NYSE) play is up 114%.

Source: Pick Me Up a Three-Pack When You Go Out, Dear