Xerox Corp will buy Affiliated Computer Services Inc for $6.4 billion in a cash-and-stock deal that expands the copier company into technology outsourcing and data management.

Xerox shares fell 13.4 percent to $7.77 while ACS shot up 16.7 percent to $55.06.

Abbott Laboratories said it would buy the drugs unit of Solvay in a $6.6 billion deal, giving Abbott full control of its Belgian development partner’s cholesterol treatments and exposure to emerging markets.

Abbott stock rose 3.7 percent to $49.11.

“Deal announcements are helping the market off to a good start, especially as we had a bit of selling off last week,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

“People were waiting for a time to get in, and now, they have it.”

With Monday’s gains, the Dow Jones industrial average is up more than 15 percent for the quarter so far, which would make it its best such period since the fourth quarter of 1998.

A Jewish holiday observed Monday and the end of the third quarter two days later could translate into thin volume and volatility as fund managers reposition their assets amid fewer market participants, investors said.

The Dow Jones industrial average <.DJI> rose 118.28 points, or 1.22 percent, to 9,783.47. The Standard & Poor’s 500 Index <.SPX> gained 14.76 points, or 1.41 percent, to 1,059.14. The Nasdaq Composite Index <.IXIC> jumped 35.48 points, or 1.70 percent, to 2,126.40.

GenTek Inc shares soared nearly 40 percent to $37.75 after the maker of specialty chemicals and vehicle engine components said it agreed to a takeover by a subsidiary of private equity firm American Securities LLC for $411 million in cash.

The Dutch biotechnology firm Crucell said Johnson & Johnson bought 14.6 million new Crucell shares for over $400 million as part of a flu vaccine development deal

China Unicom <0762.HK>, that country’s No. 2 mobile carrier, said Apple Inc’s popular iPhone would be sold in China starting in October at a retail price of about $730.France Telecom’s Orange also said it would sell iPhones later this year.

Apple shares edged 1.3 percent higher.

The Federal Reserve Bank of Chicago said its National Activity Index was minus 0.90 in August, down from a revised minus 0.56 in July, but its three-month moving average of economic indicators improved for the seventh straight month to its highest level since June 2008.

Sept 28 (Reuters)

Sales of new homes rose for a fourth straight month in July and at their fastest pace since September 2008, while the inventory of unsold homes fell to the lowest level in 16 years, the government reported.

“These are great numbers, and they should definitely add fuel to the move higher in the market,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

“It’s all very positive, not just because of the macro implications but because they will drive consumer confidence numbers (higher).”

The Dow Jones industrial average <.DJI> added 19.57 points, or 0.21 percent, to 9,558.86. The Standard & Poor’s 500 Index <.SPX> rose 2.15 points, or 0.21 percent, to 1,030.15. The Nasdaq Composite Index <.IXIC> gained 5.05 points, or 0.25 percent, to 2,029.28.

Homebuilders were among the top gainers, with the Dow Jones home construction index <.DJUSHB> up 3.2 percent. Shares of D.R. Horton Inc jumped 5 percent to $13.70, and Pulte Homes Inc gained 3 percent to $13.45.

Buoyed by a surge in aircraft orders, durable goods orders jumped 4.9 percent, the largest advance since July 2007, after falling by a revised 1.3 percent in June, the government said.

Earlier, the Mortgage Bankers Association said U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June.

Aug 26 (Reuters)

But an early rally in U.S. stocks faded about midday in New York after Treasuries rose as investors swooped in to take advantage of sharp losses on Friday.

Oil rose to a 10-month high near $75 a barrel and other commodities also surged as optimism that major economies were pulling out of recession drove hopes of rebounding demand. .

Global stocks as measured by MSCI’s all-country world index <.MIWD00000PUS> rose 1.2 percent and was on track for a fifth straight session of gains.

The yen fell while the U.S. dollar slid against commodity currencies, such as the Australian and New Zealand dollars, as investors became more comfortable with riskier trades given the upbeat assessment of the world economy.

“Economic data is in favor of a stronger recovery than expected. We can be quite bullish on risky assets,” said Romain Boscher, head of equity management at Groupama Asset Management.

Euro zone industrial new orders in June rebounded 3.1 percent month-on-month, or more than expected, the European Union statistics office Eurostat said.

In the United States, economic activity improved again in July from extremely weak levels earlier this year, suggesting the recession is waning, a report from the Federal Reserve Bank of Chicago showed.

In addition, China’s latest data for July indicated that while growth was moderating after a strong second quarter, the recovery remained on track to achieve the government’s goal of 8 percent growth for the full year.

“The Chinese news was good and we had some positive news out of Europe as well,” said Rob Montefusco, a trader at Sucden Financial in London. “Technicals are pointing upwards.”

But U.S. stocks pared earlier gains. About 1 p.m. (1300 GMT), the Dow Jones industrial average <.DJI> was up 15.34 points, or 0.16 percent, at 9,521.30. The Standard & Poor’s 500 Index <.SPX> was up 1.11 points, or 0.11 percent, at 1,027.24. The Nasdaq Composite Index <.IXIC> was down 1.49 points, or 0.07 percent, at 2,019.41.

European shares hit their highest closing level in nearly 10 months, boosted by banks and miners.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.9 percent up at 975.19 points, the highest closing level since early November.

Banks were among top gainers, with DJ STOXX banking index <.SX7P> rising 1.8 percent.

Japan’s Nikkei average <.N225> jumped 3.4 percent, booosted by hopes for a global recovery and lifted by camera maker Canon Inc <7751.T> and other exporters.

Investors increased their risk-taking in the wake of stronger-than-expected U.S. existing home sales data and upbeat comments from Federal Reserve Chairman Ben Bernanke.

Copper prices rose to their highest in more than a week, helped by strong investment demand and bets the economic crisis is petering out.

Jesper Dannesbee, a senior commodities strategist at Societe General, said real demand has not improved that much it but will improve gradually through the year.

“This is follow through from Friday. There is a general appetite for risky assets driven by cheap money and lax monetary policy,” Dannesbee said.

Gold edged below $950 an ounce, under pressure from a firmer dollar, but remained rangebound as support from higher oil prices and investor demand prevented it falling further.

Spot gold was at $949.80 per ounce

U.S. Treasury debt prices rose, with the 30-year bond gaining more than a full point, as investors did some bargain hunting after Friday’s sharp losses and after the Federal Reserve bought government debt.

The benchmark 10-year U.S. Treasury note was up 19/32 in price to yield about 3.49 percent.

Benchmark euro zone government bonds ended flat as data bolstered the recovery view, but caution on its sustainability eased the selling pressure.

“The stock market has been the barometer for growth and potential inflation,” said Troy Buckner, managing principal of NuWave Investment Management in Morristown, New Jersey. “And yes. it’s been an extreme correlation between equity market movements and commodities, especially copper, aluminum and crude oil.”

But Buckner said that prices have climbed “too far too fast,” leading his firm to short crude and heating oil, while reducing long positions in copper and aluminum.

Euro zone government bonds ended flat as economic data bolstered the view the global economic recovery is under way but caution about the recovery eased selling pressure. Investors worried whether new U.S. debt issuance this week would be welcomed by buyers.

U.S. crude rose 51 cents to $74.40 a barrel.

Aug 24 (Reuters)

Caution was the order of the day, with the dollar rising against the euro in a seesaw session in which risk tolerance rose and then fell as investors weighed the outlook for growth and corporate earnings.

Data showed orders in Germany, Europe’s largest economy, rose at the strongest monthly pace in nearly two years in May. But economists said the yearly comparison would remain weak for some time.

Euro zone government bond prices fell and the Bund future retreated from seven-week peaks as heavy European supply of almost 14 billion euro cut safety bids for bonds.

Another decline on Wall Street rekindled a safety bid for U.S. government debt, offsetting worries about demand for this week’s sale of $73 billion in bonds.

Tumbling energy shares dragged down European and U.S. equity markets as oil fell more than 2 percent, pressured by investors’ caution over recovery and an expected increase in gasoline stocks during the heart of the U.S. driving season.

Exxon Mobil Corp fell 1.7 percent and Chevron Corp dropped 1.3 percent in U.S. trading, while Royal Dutch Shellshed 0.75 percent and Total lost 1.2 percent in Europe.

“The markets are in a consolidation mode,” said Andrew Bell, head of research at Rensburg Sheppards. “To propel the markets higher, we have got to see evidence of the turning point in earnings and of the recovery and economic growth moving from less bad to a little bit better.”

At 1:30 p.m. EDT (1730 GMT), the Dow Jones industrial average was down 67.41 points, or 0.81 percent, at 8,257.46. The Standard & Poor’s 500 Index was off 6.44 points, or 0.72 percent, at 892.28. The Nasdaq Composite Index lost 18.77 points, or 1.05 percent, at 1,768.63.

Disappointing UK industrial output data pulled shares lower in London, with utilities among top European decliners.

The FTSEurofirst 300  index of top European shares closed 0.8 percent lower at 826.36 points. The FTSE 100 closed down 7.91 points at 4,817, a fresh two-month low.

British manufacturing output unexpectedly fell 0.5 percent in May, official data showed, making it less likely the economy returned to growth in the second quarter.

Copper prices turned negative as concerns over demand and world growth persisted. Copper for three-months delivery in London traded at $4,930 a tonne.

Gold erased earlier gains to trade near break-even as the dollar recovered lost ground against a basket of currencies, reducing the precious metal’s appeal as an alternative asset.

Spot gold prices rose 20 cents to $924.20 an ounce and the U.S. Dollar Index  was up 0.25 percent at 80.584.

The euro was down 0.23 percent at $1.3942, while against the yen, the dollar fell 0.56 percent to 94.83.

An expected increase in U.S. gasoline stocks for the week ended July 3, ahead of the long U.S. Independence Day holiday weekend, pressured oil.

“Consumer confidence is weighed down by higher retail prices and rising unemployment and so the number of Americans taking to the road over the holiday weekend was probably lower than last year,” said Harry Tchilinguirian, senior oil analyst with BNP Paribas.

The benchmark interbank cost of borrowing euros fell to a new low on Tuesday as a banking system flush with funds remained reluctant to lend money into the real economy.

The benchmark 10-year U.S. Treasury note was up 11/32 in price to yield 3.47 percent. The 2-year U.S. Treasury note was little changed, yielding 0.94 percent.

Asian stocks edged up slightly but struggled, with the MSCI index of Asia-Pacific shares outside Japan rising 0.4 percent. Japan’s Nikkei share average <.N225> dipped 0.3 percent as a stronger yen hit exporter shares.

NEW YORK, July 7 (Reuters)

Standard & Poor’s/Case Shiller 20-city home price index fell 0.6 percent in April, after a 2.2 percent decline the month before. Economists expected an April drop of 1.8 percent

“It’s a little better than expected, but not much. On a top to bottom basis, home prices are down 30 plus percent, which underscores the amount that home prices have to climb to get to normal territory,” said Dan Greenhaus, an analyst at Miller Tabak & Co in New York.

“While they’re better than expected in the short term, in the larger sense the housing market remains under great pressure.”

On this last day of the quarter, fund managers often enhance portfolios as part of “window dressing” by selling losing stocks and scooping up the winners. The process can add to volatility.

Analysts noted the shortened week could lead to thinner volumes and increased volatility. U.S. markets will be shut for the U.S. Independence Day holiday on Friday.

S&P 500 futures rose 2.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futuresgained 29 points, and Nasdaq 100 futures added 2.75 of a point.

The S&P 500 is up 16.2 percent so far this quarter, putting it on track for its best period since the fourth quarter of 1998, when the index jumped nearly 21 percent. The S&P 500 has gained 37 percent since hitting a 12-year closing low in early March as early signs of an economic rebound surfaced.

NEW YORK, June 30 (Reuters)

Dow component Boeing Co could weigh on the market after Australia’s Qantas Airways Ltd canceled orders for 15 new Dreamliner planes and deferred orders for another 15 in a new blow to the project.

Boeing fell 2.9 percent to $41.30 before the opening bell.

As investors try to assess the market’s next move after a sharp bounce, J.P. Morgan Securities said the S&P 500 index  is likely to fall to between 830 and 875 through September, given its virtually uninterrupted rise since its March lows.

The strategists also urged investors to use the correction to build positions in cyclical stocks. The index ended Thursday at 920.26.

The broad S&P had rallied as much as 40 percent from March’s 12-year low, but the run-up has stalled as initial optimism about a stabilizing economy has been tempered by worries the recovery could be tepid. The index is up about 36 percent from the March trough.

Data on tap for the day includes a report on personal income due at 8:30 a.m. EDT (1230 GMT) and consumer sentiment at 9:55 a.m. (1355 GMT).

S&P 500 futures eased 2.60 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futuresslipped 14 points, and Nasdaq 100 futures were off 4.50 points.

Palm Inc could boost technology shares after it posted a narrower-than-expected loss and said demand was strong for its new Pre smartphone. Palm jumped 11.9 percent to $15.69 in premarket trade.

Stocks could also be buffeted by end-of-quarter “window dressing as portfolio managers sell stocks with big losses and buy some of the quarter’s best-performing stocks to help improve their returns.

On Thursday, stocks rose on investor relief that Fed Chairman Ben Bernanke withstood a barrage of pointed questions from Congress on the Bank of America-Merrill Lynch deal relatively unscathed. Retailer and home builder shares led markets higher for much of the session.

NEW YORK, June 26 (Reuters)

The broader S&P 500 bled more, ending the day down just over 3%. The tech-centric Nasdaq was worse off still, losing 3.35%.

And today, the bloodletting spilled over into Asian measures. Hong Kong’s Hang Seng (-2.9%), Japan’s Nikkei 225 (-2.8%), Australia’s S&P/ASX 200 ( -3.1%) and South Korea’s Kospi Composite ( -2.8%) were among the worst hit.

“Asian investors are connecting the dots – with the World Bank’s help – that the U.S. economy is nowhere near turning around,” Tony Sagami, editor of Asia Stock Alert, told the Wall Street Journal’s Asian Edition. “Any Asian companies that depend on Americans for a big chunk of their sales need to prepare for lots of red ink.”

But it’s not just Asian markets.

Russia “officially” entered a bear market after yesterday’s 0.6% selloff pushed the Micex index down 20% from its last peak. Indeed, the MSCI Emerging Markets Index ended the session down 10% from its 2009 high. What do you call that? Half a bear market?

“After the World Bank report yesterday we see more concern about the return of negative growth dynamics,” Commerzbank AG’s Michael Ganske, told Bloomberg. “Investors realize that all the discussions of a sharp, V-shaped recovery are not going to materialize.”

NOW they realize, eh? We wonder how long it will be before they’ll forget that the word depression doesn’t end with a “V”. It ends with a lower case “n” or, as Bill Bonner is fond of saying, “a corrective force equal and opposite to the deception and delusion that preceded it.”

And there’s still plenty more deception and delusion to come, folks. For starters, the FOMC meets tomorrow, no doubt armed with a sack full of optical illusions and prestidigitations for the investing public. History shows, however, that we humans prefer a blissful illusion to a decaying reality…even if the shoots are turning brown before our noses.

or a closer look at what’s going on around town, we decided to ask the Rude readership for some boots-on-ground analysis. As usual, you obliged with emails from Sweden to Singapore and Atlanta to Alabama. In today’s column, we present the second and final installment of our green shoots vs. premature celebration mailbag. Please enjoy…

From Anytown, U.S.A., a reader reports…

Regardless of what the official figures are on inflation, prices are going up. Here are a few examples.

· Grape juice, Walmart store brand, up 17%

· Corn chips, up 27% [price unchanged, but the bag went from 28 oz. to 22 oz.]

· Gasoline, up 84% since January.

· Commodity Futures data provider, up 50% [he apologized, but said the exchange fees are up sharply.]

· Homeowners insurance, down 5%. I guess the cost to replace a house isn’t what it used to be.

I could go on, but you get the point. Meanwhile, I am retired, with a pension that is supposed to include an annual COLA [cost of living adjustment], but because the government declared that there was no inflation last year, I will not receive a COLA come July 1.

My IRA/401(K) accounts are heavily overweighted toward oil, natural gas, gold, etc., in an effort to keep my purchasing power at least even with inflation, and I just hope that it works. Now if we can just sell our house [which we own free and clear] my wife and I are looking to move to Latin America.

A lot of our friends think we are crazy, that the government will never let things “get too bad” here. I think that they are crazy to have that much faith in the government, and I would rather live where people actively distrust their government, but I guess that it is differences of opinion that make a market.

From Texas, a reader reports…

In the Hill Country of Central Texas, life continues at what passes for normal in these parts. The Texas economy overall has been able to withstand the credit crisis quite well. Foreclosures are almost non-existent out here in the sticks since the mortgage loans were never any of the alphabet soup variety and the lending banks keep their own paper. Real estate seems to be selling but at the normally slow pace that is historic for our area. Real estate prices never got overheated here so the market has remained slow and stable. Even the local Chrysler dealership is still in business (must have made a large-enough contribution to the Democrats’ campaign). I own an industrial building and my tenant tells me his business has slowed somewhat but he is still doing a good volume. One note of economic concern is tourism. Friends own a Bed & Breakfast on the lake and they tell me their guest-count has dropped dramatically.

Out on the West Coast, we just bought a second home in San Clemente, CA. It’s a gorgeous ocean-view home that was foreclosed and then we bought it on a short-sale from the bank. I calculated we got a 60% discount overall. From what I see in Southern California, they’re in a world of hurt.

From Oakland, California, a reader reports…

Well, I’ve got some doom and gloom. My IRA is still down over 40% from its high. At the beginning of the year I could not find work for 4 months and finally swallowed my pride and went on unemployment. My house is under water. Bank of America says that I do qualify for a loan adjustment but they won’t do it “right now” because I’m not over 2 months late on my payments.

On the flip side I have started getting work lately and I’m still making money with the short report. Puts and gold seem to be where it is at right now.

From Florida, a reader reports…

I know it is politically au courant to blame all spending on Obama, but that ignores the truths that the Congress is doing a helluva good job in that field as well AND that Eisenhower started building the Interstate highways with money we didn’t have and that every congress and every administration since then has spent more than it has taken in. Our two ruling parties are equally fiscally irresponsible.

As for Kudrin’s “white lies” about US currency, I remember while being trained for intelligence work a lengthy discussion of information, misinformation, disinformation, propaganda and outright lies. And while there are differences in them, it seems these days everything we hear from governments and most media stinks of one or another kind of spin. I read Agora financial info every day to try to get unadulterated information without the spin. Keep up the good work. And keep entertaining us with the fashion reports on the emperor’s new clothes.

From north of the border, a reader reports…

I live in Peterborough, a city of about 75,000 which is 90 miles NE of Toronto.

Things here are slow, but not extremely so, even though we depend on the auto industry and tourism. We have a high retired population and people are very price conscious. Housing sales died during the winter but have come back a little since. Prices are off 10 to 15% on average and houses over 350k usually sit a long time and are then marked down. Some businesses are running ads suggesting people “just think positive”. Since everyone is still looking for the bottom, I’d say we still have a ways to go. I expect this winter to be really ugly.

And finally, an unpaid international correspondent reports from Singapore…

1) Unemployment; graduates are finding it difficult to find jobs, other than the “odd jobs” that don’t fit the qualification; most of which have vacancies because the cheaper foreign workers that were brought in during the boom phase were repatriated back to their countries…Its déjà vu for people who graduated in the 70s; they are repeating the mantra from then – “Graduation = Unemployment”.

2) Retail sales are down pretty big, but those shopping malls continue to pop up all over the place and many of them are continuing their work-in-progress. The government is supportive of these projects… again, uncertainty over the economic climate is putting a gloom over these things.

3) Property prices fell approximately 30%, but have since rebounded about 15% with the stock market rally. The same companies that are building those shopping malls continue with these condominium projects.

5) Consumer credit still seems pretty okay; those stupid banks continue to pull out all the stops to get people signed up for their credit cards.

6) Healthcare costs continue to rise regardless of economic conditions and there is quite a bit of public outrage at the moment; no worries, just let the government handle everything… we’re a nanny state. (That disgusts me btw and I’m pretty close to swearing never to work for the government… having said that, I might choose the porridge over my ideals).

Source: For Better or Worse, Part II

• The Dow Jones Industrial Average remained steady above 12,000.

• The leading indicator of existing home sales was down over 21% from the previous year, and the official unemployment rate was just beginning its upward creep by crossing the 5% mark.

• The first official admissions of the “R” word. In early April 2008, the International Monetary Fund (IMF) declared a 25% chance of a global recession, and Federal Reserve Chairman Ben Bernanke told Congress that gross domestic product “could even contract slightly.”

• The novelty of bailouts began. Bernanke also assured Congress that the Fed’s emergency authorization of a loan against $29 billion of Bear Stearns assets wasn’t putting taxpayer money at risk: “I feel reasonably confident that we’ll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that.”

• The dollar’s six-year slide against the euro, hitting its lowest ever at $1.60 in late April. It also fell below the 7-yuan mark in China for the first time.

• And oil, comfortably above $100/barrel, was heading for its summer crest of $147.

A scant 12 months later, the Dow is trying to stagger back from a plunge to 6,500. Home sales are hinting a possible turnaround, unemployment (even the official, conservative figures) is expected to reach double digits before long, “recession” and “bailout” are household words (often accompanied by four-letter ones), the dollar is recovering… and a barrel of oil is worth half that hundred dollars. Hardly worth pulling out of the ground.

What happened? And even more important for us as investors, what’s going to happen?

The Casey Energy Opportunities team pulled together the pieces of the oil sector picture that other sources tend to scatter or ignore. We’ll give you a broader understanding of the drivers within the oil industry, the markets in which they operate, and how you can use that knowledge to push your profits upward.

The Oil Industry Now: A Rock, a Hard Place, and a Supply Glut That Isn’t

Everyone who drives a car or heats a home with petroleum has welcomed the fall in oil prices from their high in the summer of 2008.

While it’s hard to argue that filling your tank at $2 per gallon is a lot easier on the wallet than $4 or $5 per gallon, the broader economic effects of such low oil prices are troubling.

Leading the concerns is the drop in oil exploration and drilling that accompany a drop in price. Below the $50/barrel mark – and for many companies the bar is closer to $65 even for conventional fields – oil producers typically spend more money getting oil out of the ground than they can recoup by selling it. At the same time, turbulent financial markets have tightened credit. These two factors have pressured producers to allocate exploration budgets away from drilling projects and toward meeting debt obligations and day-to-day operating costs instead.

The plunge in prices has consumed the cash buffers of even the major oil companies. ConocoPhillips, for example, announced in January that along with eliminating 1,300 jobs and writing down $34 billion in assets, it was also planning to cut its 2009 investment budget by 18%. Exploration projects are part of both writedowns and spending cuts. The results of curtailed exploration are two-fold. First, some oil companies will be simply unable to survive the economic crisis. Second, supply in the longer term is being sacrificed to stay afloat now.

Storage facilities are bulging. The chart below shows the contents of the Cushing, OK, storage facility — where NYMEX deliveries take place — have recently doubled from their average 2008 volume. Along with a host of other facilities around the world, it got this way because of an unusually dramatic contango at the beginning of 2009. (A contango is a kind of market inversion, when the current [spot] price dips lower than the future price.)

In January, the spot price of oil plummeted as low as $37/barrel, while futures for July delivery were trading for $52. That meant if an oil company could buy and store product for seven months, it could lay out $37/barrel and be guaranteed a profit of $15 – or 40%, minus costs – in July. And indeed the buying frenzy took off, reinforcing the decision to turn off the drills.

So for the moment, we are artificially flush with oil, and demand has dropped as the global economy will likely shrink for the first time since World War II. It’s no surprise that oil prices have been staying down.

Many analysts say we won’t feel the effects of declining exploration for a few years. But the numbers are emerging already. According to the U.S. Energy Information Administration (EIA), non-OPEC countries demonstrated an average annual growth in supply of 570,000 barrels/day from 2000 through 2007. In contrast, they recorded a drop last year of some 300,000 barrels/day.

At the same time, OPEC appears to be conforming to its production cuts of 4.2 million barrels/day, begun in September 2008. The oil cartel is known to announce cuts that its members don’t actually follow; it’s in their economic best interest, if only in the short term, to sell all they can. But this time, oil has plunged far below levels to sustain their economies. Even Saudi Arabia expects to run a budget deficit this year.

OPEC, which produces about 40% of the world’s oil, would like to see prices around $75/barrel, at least. But the fragile global economy would have a difficult time absorbing such a price at the moment, and the cartel decided against further production cuts when it met in March. In fact, some three weeks later, Saudi Arabia actually announced a price cut on all its grades of crude to European, North American, and Mediterranean markets – a dramatic attempt to spur demand amidst high inventories.

So, entwined as it is with the economy, the oil industry is currently in a conundrum. The fix it requires – higher prices for its product – will choke the framework in which it operates.

At the same time, we’ve got supply problems ahead.

How Did We Get Here Anyway?

Like many aspects of the markets, movements in price are driven partly by real factors and partly by perception. Rags-to-riches-to-rags-to-riches Texas oilwoman Sue Sanders summed it up when she noted wryly in her 1940 autobiography that “nothing succeeds like reports of success.”

Last year’s run-up of oil was no exception: part real, part report. Some of the real factors:

• The weak U.S. dollar. The United States is not the only country that buys oil in U.S. dollars. The price per barrel is pegged to it, in fact. When the dollar is weak, the cost of U.S. exports drops; and indeed by December 2008, the U.S. trade deficit had fallen to its lowest in nearly six years ($39.9 billion, according to U.S. Commerce Department data). However, a weak dollar means it takes more dollars to buy a barrel of oil. Global concerns over the strength of the U.S. economy, including America’s ever-rising level of debt, had undermined the dollar to the point that OPEC members began to murmur about dumping it for the euro or a basket of currencies.

• Geopolitical turbulence in oil-producing countries. The Iraq war, oil-related militancy in Nigeria, and Iran-Israel-U.S. posturing over nuclear issues were hotspots in the first half of 2008. The average nightly news covered casualties in Iraq, but industry watchers tracked attacks on pipelines and oil facilities. Likewise, in Nigeria, sabotage and oil worker kidnappings by militant groups such as the Movement for the Emancipation of the Niger Delta (MEND) regularly shut down facilities to repair, negotiate, or improve security. And as spring warmed up, so did the war of words between Iran and Israel. By early July, Iran had gone so far to indicate it would move against shipping in the Persian Gulf if attacked. The United States would have moved next, of course… thus driving up the price of oil in the jittery oil markets, which depend on Persian Gulf shipping lanes.

• Unusually low crude and gasoline supplies entering the 2008 summer driving season. In early April, the EIA reported significant drops in supply – gasoline declined by 4.53 million barrels and crude oil by 3.2 million barrels, a one-two blow that surprised and worried industry watchers. Behind the gasoline slump were lower refinery margins, called crack spreads. In mid-March, when refineries would normally be coming off their maintenance schedules to churn out gasoline for summer driving, the margin for turning a barrel of crude into gasoline was negative for the first time in three years. Refineries sought profits in other oil products, and the markets responded to the expected imbalance in supply and demand.

• High demand. China is a stand-out here, and for more than its usual energy appetite. China has a penchant for aiming to break records – from its goals in five-year plans and building projects to its haul of Olympic medals – and in the first half of 2008, it was visited by some dramatic examples: a great earthquake and major snowstorms, events that disrupted the country’s energy industry. Combine that with the fact that China was also preparing for the Beijing Olympics in August, and it’s easy to understand why it was buying oil very heavily until mid-summer.

On the perception side of price drivers, it’s hard to overlook the fact that the market push stayed strong in the face of increasingly gloomy economic data. Casey Research was earlier than most in predicting the economic crash (we published reports such as “The Coming Currency Crisis” in June 2006), but by spring 2008, even officialdom was dancing around the word recession.

Normally, news of burgeoning foreclosures, plummeting home sales, spiking personal and business bankruptcies, rising unemployment, and other economic indicators would tend to exert a bearish influence. After all, consumers generate 70% of U.S. economic activity, and if they stop or cut back on driving to work or the shopping mall, telephone relatives or business partners instead of flying out to see them, reduce purchases of items containing plastics, turn down the thermostat, and other weather-the-storm measures, oil consumption should decline.

It took months for all these drivers to realign – but as we all know, they did, and then some. The chicken-and-egg debate, whether oil’s sky shot triggered or portended the economic debacle in the closing months of 2008, will require more distance and data to resolve. But it’s true that the dollar had started its comeback by mid-summer, supply had caught up, geopolitics had settled a bit, China backed off on its buying, no major hurricanes hit – but economic realities did.

Meanwhile, Congress jumped up and down and cried “Speculators!” “OPEC!” “Oil producers!” in tidy sound bites.

The Next Big Plays: Where You Need to Be

Oil companies are influenced by the range of market drivers and economic conditions according to size. The junior oil producers, those with market capitalizations of $250 million or less, have the small-business advantage of flexibility when times are good. These times aren’t good, of course, and even well-managed juniors with good projects are in trouble. Their vulnerability is in the credit market. You’ve likely heard of credit lines being revoked and refinancings denied to people with impeccable credit. Now imagine pitching a drill project without a wallet full of assets ready to lay on the table.

Mid-tier producers, with market caps between $250 million to $2 billion, will look to mergers and acquisitions to survive. The majors ($2-20 billion market cap) and Big Oil (over $20 billion) will also be shopping. With low oil prices shutting down exploration, development, and even production, these companies will be looking to replace their reserves instead by purchasing smaller, solid companies with proven production. It’s simply cheaper.

We see two ways to profit from this trend.

First, we buy shares in undervalued, producing companies that are profitable even below $40/barrel, are best of peer, and own large reserves. These are the companies that Big Oil will be looking to acquire. One such company, an oil sands producer, is currently a part of the Casey Energy Opportunities portfolio.

Second, we believe that owning a potential consolidator is the best position. As debt load and low commodity prices overtake them, junior producers will be forced to consolidate their projects. We currently own one such candidate, and are scouting for others with such muscle. Consolidators will be purchasing projects from the bank at 25 to 30 cents on the dollar.

Our tactics have already paid off handsomely in the last six months: all our recent recommendations have been on fire. A few tripled their value, and one generated a return of 540%.

As we’ve seen, supply problems are looming, no matter what timetable of Peak Oil you may believe in. With increased demand inevitably come higher prices. Our approach at Casey Energy Opportunities positions us to take advantage of the trend in both the short and longer term. And we guide our subscribers not only when to buy or sell, but also when to take profits and a “Casey Free Ride” to eliminate risk.

We’d like to offer you the opportunity to kick the tires of Casey Energy Opportunities RISK-FREE for 90 days, with 100% money-back guarantee. Click here to give it a try.

Source: The Price of Oil

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 February 2, I said:

If the VIX is rising, that means the Dow Jones should be falling, possibly breaking under 8,000 sometime in the next few weeks and head towards 7,000.

The play should be obvious. But I’m going to point it out anyways because I’m feeling saucy.

If the Dow Jones drops under 8,000 as the VIX spikes, buy a put on the Diamonds ETF (NYSE:DIA), which is an ETF that tracks the value of the Dow Jones Industrial Average.

As I write, the Dow is trading at 7,140. So if you sold puts on DIA, you’d have made 11% in about 40 days time.

Now is the time to get out of this trade (if you haven’t already).

Why?

On Feb 24, I talked about how “big round numbers” can be huge psychological turning points for the market. I said that 7,000 was one of those turning points because it market a ten-year long resistance line.

Well, 7,000 has been breached, as you can see from the chart above.

The Dow briefly flirted with 6,500 (which was also one of my targets) and then zoomed up right past 7,000 again.

This is pretty freaking bullish. Quite frankly, it gets me really agitated.

No, it’s not because I’ve shorted every stock in the world. It’s because there’s nothing to really get excited about.

It seems that the news, which is being seen as positive, really isn’t.

First, Citigroup says that for the first two months of the year, it made a profit. Man, that’s complete BS if I’ve ever heard it.

Then Bank of America said it won’t be accepting anymore TARP money.

If banks don’t have to count hundreds of billions in toxic asset write downs… of course they’d have a profit (so would most other banks).

So, why would these two banks not count write downs in their estimates?

Maybe mark-to-market accounting rules will be suspended this week. Then the banks won’t have to worry about write downs anymore.

From the Wall Street Journal…

After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.

The FASB said they’d have it done in three weeks.

If these rules get suspended or relaxed, this market is shooting higher on the back of the financials. Heck, it’s already shooting higher on the mere thought of these rules being relaxed.

Considering the financials were the sector that led the Dow Jones down to its recent lows, it should come as obvious that the financials will lead the Dow Jones higher in the weeks ahead.

Go long the Dow Jones by buying the Diamonds ETF (NYSE:DIA).

7,000 is your stop. But I have a feeling this market is pushing past 8,000 in the weeks ahead, if these rules are relaxed.