The American equities market is not letting some worries in Asia drive down its valuations. Although China’s Hang Seng was deep in the red again overnight, the folks on the Street have managed to pull all three major indices into positive territory today.

The big question we are waiting to get answered is if the 1,000 level will be a spot of resistance or support for the S&P 500.

For a handful of companies, the action on the broad market has no relevance. They are surging today whether their trading brethren come along for the ride or not.

One of the biggest movers so far this week has been American Axle (NYSE:AXL). For the second day in a row, the drivetrain manufacturer has watched its share price soar. On Monday, shares were trading for less $3. Today, it took as much as $7.11 to get your hands on the action.

What’s behind the surge? It comes thanks to good news from General Motors.

Good news… from Detroit?

The recently bankrupt automaker has pledged to give the company $110 million to cover costs realized when GM filed Chapter 11. The Detroit automaker also helped American Axle secure a $100 million loan facility.

Together, the financing action helped prove to investors American Axle has the liquidity it needs to continue its operations well into the future. A boosted sales projection (doubling in the next four years) added even more fuel to the fire.

If you are fan of the micro-cap world, you will want to check out the action at Hallwood Group (AMEX:HWG). The tiny textile maker and natural gas producer (it owns a 22% stake in an E&P firm) has watched as its valuation has more than doubled in the past few days thanks to an earnings report released late last week.

During the past three months, the company managed to record a profit of $3.6 million, compared to a net loss of $1.3 million a year ago. Even though revenues were down by nearly 6% from the year ago quarter, investors are rewarding the company because things could have been a whole lot worse.

A company that specializes in military fabrics and natural gas has a lot of obstacles in its way in the current economic environment.

If you think $23 seems like an odd price for a share of a $35 million company, just remember a year ago they were trading for close $75 each.

Finally, with a Category 4 hurricane churning off America’s coast, it is no wonder we are seeing shares of PGT Inc. (NYSE:PGTI) up by double-digit proportions today. The $100 million window and door company just finalized a deal to purchase Hurricane Window and Door.

The move gives PGT a nice exposure to the hurricane-protection sector with perfect timing.

While PGT has a lot going for it right now (it will surely be a strong recipient of American stimulus money), once the Hurricane story deflates, share price will likely drop. If you are looking to buy shares, do it then.

With market volatility on the rise, expect to see more big swings from the country’s smallest companies. They may be tiny, but they are worth watching.

Source: Three Winners: More Big Moves from Little Companies

This from a recent email Charles sent through to Notes HQ:

I’m a big believer in emerging markets – especially Brazil, which has some of the most resilient consumers in the world. It has also kept inflation at bay, while improving its balance sheet. And it’s set to become the Saudi Arabia of offshore oil, with finds of over 30 billion barrels of oil equivalent in just one field. You can buy into Brazil by going long shares of the iShares Brazil ETF (NYSE:EWZ). Since March, this ETF has risen 83.5%. I wouldn’t be surprised if it went up another 100% or more in the coming months.

Unfortunately, there’s one sobering conclusion many investors have so far failed to reach: With grossly over-stimulative monetary and fiscal policies at play, most countries will find it very difficult to recover.

Fortunately, a few well-run countries avoided the fallout from the U.S. housing debacle – as well as the fiscal-and-monetary-stimulus mess that followed. And although they have been badly stung by the slump in world trade, these countries are poised to recover with a satisfying bounce.

One such country is Taiwan, and global markets may be just starting to realize this.

A Backgrounder on a Potential Winner

Because its banks were not active in the United States, Taiwan didn’t suffer directly from the collapse in the U.S. housing market. Taiwan also has not suffered from the typical money-tightening consequence of the financial crisis in the world’s emerging markets; it has no need of foreign bank credit, since it consistently runs a payments surplus and has $300 billion in currency reserves.

However, like all the East Asian countries involved in the supply chain to U.S. consumers, Taiwan did suffer a huge decline in exports in the first three months of 2009; its exports dropped more than 35% in the first quarter – less severe than Japan’s drop, but more than those in Korea and China.

I wrote on this some weeks ago, guessing that the export problem was not fundamental, but simply due to United States de-stocking and the difficulties of obtaining trade finance.

The first-quarter U.S. gross domestic product (GDP) figures published April 29 show that this supposition was correct. U.S. inventories dropped a huge $109 billion; the drop in inventories was by itself responsible for 46% of the 6.1% annual rate of decline in U.S. GDP.

Taiwan’s trade figures for March were already improving somewhat, suggesting that this problem might be alleviating. Recent statements by the major Taiwanese semiconductor companies – firms that are intimately involved in the East Asia/U.S. supply chain – confirm that this transformation is, indeed, taking place. Thus, the Taiwanese economy is likely to at least experience a short-term bounce.

Taiwan’s prospects for sustained recovery are better than many Western countries, because its leadership didn’t panic and jump into the fiscal and monetary policies that are almost certain to cause long-term damage in the countries where leaders opted for such strategies.

In fact, the panel of forecasters from The Economist predicted that Taiwan’s fiscal deficit to be only 5% of GDP for the current fiscal year – less than half the deficit projected for the United States and Great Britain, for example. Its short-term interest rates are below 1%, but it currently has no inflation. And the Taiwanese dollar has declined by 10% against the U.S. dollar since September, making Taiwanese exports more competitive.

The Economist panel expects the Taiwanese economy to shrink by 6.5% in 2009, but that is certainly far too conservative, given the signs of export recovery.

Profiting from the “Other” China

Investors have always worried about Taiwan’s relations with The People’s Republic of China, which claims it as part of the mainland country. However, since the election of the Kuomintang president Ma Ying-jeou last year, relations between Taiwan and Mainland China have improved markedly.

Investors who are aware of Taiwan’s potential have long labeled it as “The Other China.”

On Thursday, China Mobile Ltd. (NYSE ADR: CHL) – China’s largest cellular telephone company – announced plans to invest in Taiwan’s Far EasTone Telecommunications Co. Ltd., a first for Chinese investment in Taiwan (Taiwan has huge investments in China), suggesting that trade relations are no longer cool – but are, in fact, warm.

Three possible avenues into Taiwan seem attractive:

• The Taiwanese exchange-traded fund (ETF).
• And the two largest producers of semiconductors, an industry central to Taiwan’s growth that should benefit from the recent weakness in the Taiwan dollar. In this context, it is notable that the SEMI book-to-bill ratio for the U.S. semiconductor increased sharply in March to 0.61, with the three-month average of orders up 9%. That’s still not a strong number, but it’s moving in the right direction, and matches recent optimism from Taiwan’s manufacturers.

Let’s look at these three Taiwan profit plays:

The iShares MSCI Taiwan Index ETF (NYSE: EWT) is clearly an efficient way to invest in Taiwan; it has risen recently, but is currently trading at a reasonable 13 times earnings.

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE ADR: TSM) is Taiwan’s largest semiconductor manufacturer. It just reported a tiny first quarter profit on a 54% decrease in sales, but said that its order book was very strong and noted that it expected a sharp rebound in sales and earnings in the second half of 2009.

United Microelectronics Corp. (NYSE ADR: UMC) reported a loss for the first quarter, but just invested $285 million to acquire Chinese semiconductor manufacturer HeJian Technology (Suzhou) Co. Ltd., giving it a substantial foothold in that rapidly growing market. UMC expects a profit in the second quarter and rapid recovery thereafter; it has a strong balance sheet and its free cash flow was positive even in the loss-making first quarter.

Source: Three Ways to Profit As Taiwan Rebounds From the Financial Crisis

OK, front and center this morning, yesterday I printed a quote from Karl Marx. This had been sent to me from a source that I didn’t feel as though I needed to research first. Unfortunately, as MANY of you let me know… The quote had some major errors in it. So… I apologize… I hope I didn’t burn any confidence in me with that error… I’ll do much more due diligence in the future!

The euro saw a huge sell off yesterday, and it wasn’t a case of “lets buy the dollar and sell the euro” it was a case of “lets sell the euro”… I think the latter is the worse… Here are the reasons I saw that caused this selling of the euro, and further down the line with the other currencies as well.

1. Soros says euro may not survive crisis without global plan…
2. There’s a potential for a ‘buy American’ rider in the stimulus package sparking debate on the impact on global trade
3. There was a rumor going around that the four largest pension funds in Netherlands saw their assets drop by euro 72 Billion due to the credit crisis, all are allegedly under funded.
4. The Risk Takers are hiding under rocks again…

This is the Obama bounce I’ve been talking about folks… Stocks may still be taking it on the chin, but the dollar part of the bounce is front and center!

How many people follow Glenn Beck? As you know, last summer, I wrote an article for his website on the dollar, and the loss of purchasing power. He had heard about me, when reading Craig Karmin’s Biography of the dollar, which has a chapter on me! Well… I believe that Glenn has taken my stuff and run with it… Last night, he did a great job of showing everyone the money supply that has gone off the charts since last September. He got the data from the St. Louis Federal Reserve, so it’s not like he made the stuff up! I love what he’s calling our money supply and debt situation… “An Inconvenient Deficit” Obviously, it’s a spin-off of Al Gore’s movie…

The deficit and money supply is really getting out of hand folks… I know, I’ll have a few readers send me notes telling me that the money supply stuff is wrong… But, I’ll stick with the data from the St. Louis Fed…

This un-dynamic duo of deficit and money supply, only has one ending folks… And it ends up in tears for the dollar…

But in the meantime, the dollar bulls have the dollar moving higher once again, with the euro trading all the way down to trade with a 1.28 handle.

Well… In the data yesterday, the Weekly Initial Jobless Claims, which were forecast to be below 500K, repeated the previous week’s high of 585K, with an increase to 588K! UGH! I’ve never figured out why these figures don’t feed into the monthly Jobs Jamboree numbers… You would think that you take the weekly figures by 4, and voila! But, that’s not how it works, boys and girls… The Bureau of Labor Statistics (BLS) gets to put their hands in the cookie jar and act like they know what they’re doing!

In other data, New Home Sales fell 14.7% in December to 331,000. Now, that might not sound too bad on the outside…(apparently it wasn’t to the media, for they “forgot” to include this part when reporting the data yesterday) But, when you figure in the fact that the latest 15% plunge to 331K now takes New Home Sales to the lowest since the series began in 1963, breaking below the previous low of 338K in 1981. Add to that the fact that… Sales are down 75% from its peak in mid-2005. And to finish this data set off… Something that leads me to believe we have more suffering in housing to go… The month’s supply of homes reached a new record high of 12.9 months (the 20-year average is 5.7). Can you say… inventories remain too high?

And finally, durable-goods orders decreased by 2.6% in December… UGH! The economy just continues to show more rot on the vine… Even more than most economists had forecast, for sure… There was one economist that was the front runner to all this mess, forecasting it, and being cast as a doom and gloom guy. But now receiving vindication… That’s Nouriel Roubini, who’s in Davos Switzerland this week at the World Economic Forum… That’s where the great quotes from Jamie Dimon came from yesterday… Let’s see if Nouriel Roubini threw us a bone or two…

Roubini said yesterday, that “the worse lies ahead. Banks face bigger credit losses than they realize, more financial companies will require state takeovers and the world economy will keep shrinking throughout 2009, he says. The consensus is catching up with me, but it’s still behind,” Roubini said in an interview in Davos. I don’t know what some people are smoking.”

We’ll get some inkling of the depths the economy has fallen to this morning, when 4th QTR GDP prints… The forecast is for a negative -5.5% to print… And when we see the “makeup” of the growth, and see that without the Gov’t spending it would have been much worse… Somebody had better think twice about suggesting this recession will be “V” shaped…

Oh… And my friends over at Critical Factors research, (they track recessions, and confirmed my call last year at this time that we had moved into a recession) sent me a note about the Leading Indicators data that printed the other day. You may recall that I was surprised to see the Leading Indicators rise? Well, looks like there’s an explanation for that… And to that explanation I turn to my friends at Critical Factors…

“Yes, The Conference Board reported that the Leading Economic Indicators increased 0.3 percent, but note this quote from their press release: “The LEI rose modestly in December, mainly due to the continued and very large positive contribution from real money supply.”

>>>> yes, there’s that “money supply” thing again!

In Germany this morning, inflation bumped higher last month to 1.1%, but still below the European Central Bank’s (ECB) ceiling target of 2%… With Oil prices being pulled up from the ashes, I’m sure the ECB ministers are watching it closely. One thing to remember when thinking of the ECB, and the euro… The ECB has a MANDATE from the Maastricht Treaty, the document that formed the European Union, to provide price stability… That means they are inflation fighters in earnest… Not just guys that decide to become one when it becomes fashionable… Read Fed Reserve…

OK… I want to go back to the Soros statement above that ripped the euro yesterday… Don’t you just love the media? They report this, when Soros probably was dissing the dollar for an hour and casually mentioned that without a global plan the euro is in trouble… Of course he could have said any currency for that matter! I think you have to take what a George Soros says with trepidation… He’s a sly fox, and only says things to move markets that he’s trading in… He’s made millions with this practice… So… For all we know, he could have been short euros, and needed the price to get lower to cover the short! Nah… He wouldn’t do something like that would he? Hmmmm… Check out 1992, and the British pound…

Hey! Jimmy Mack! When are you coming back? Did you see the move in Gold yesterday? It soared $21 on the day… And in the overnight markets it has gained another $13, to $922! I was listening to our metals traders, Jen and Kristin, the other day, and they were quoting prices for minted coins that were so far above spot, I had to stop and ask what was going on…

They proceeded to tell me in so many words, that it wasn’t any of my business and to go back to the currencies! HAHAHAHAHAHAHA! No, not those two sweet ladies! They told me that the demand for coins is still at last fall’s highs, and that the dealers, and minters are charging outrageous fabrication fees… That thought was confirmed by HSBC, (Hong Kong Shanghai Banking Corp), one of the biggest metals dealers in the world… A trader friend of mine there sent me this note…

“One of HSBC’s bullion customers is a large coin manufacturer – we learned today that the demand for investment coins continues at an astonishing pace – the order book for Q109 has already surpassed C2008. The main order flow is European.”

So… There you have it! Gold is hot!

I had a reader send me a note yesterday telling me to be more professional, and compared me to Jim Cramer! ARRRRRGGGGGHHHHH! The horror! The humanity of it! Not Jim Cramer! The reader didn’t say how long they’ve been reading, and maybe yesterday’s rant was their first go at the Pfennig… I’ve got to hope so! I did get a little carried away yesterday, didn’t I? Well… That’s just me. I can’t sit idly by and watch this all unfolding before my eyes and not say something… Oh well… That’s the beauty of this newsletter, A Pfennig For Your Thoughts, It’s FREE! You can always just delete your subscription! But… You’ll be sorry…. HAHAHAHAHAHAHA!

Currencies today 1/30/09 (Christine’s birthday): A$ .64, kiwi .51, C$ .8125, euro 1.2860, sterling 1.43, Swiss .8655, rand 10.14, krone 6.9280, SEK 8.2525, forint 232, zloty 3.4750, koruna 21.72, yen 89.60, sing 1.5075, HKD 7.7555, INR 48.87, China 6.8615, pesos 14.43, BRL 2.30, dollar index 85.82, Oil $41.88, Silver $12.55, and Gold… $921.85

Source: The Dollar Comes Back!

A weaker oil price reflecting poor economic demand ahead shut off a rally in world stocks on Friday while government bond yields sank.

Wall Street looked set for a poor start and the dollar recovered from early losses.

Oil fell below $54 a barrel, on course to end the month down more than 20 percent, as OPEC ministers prepared to meet in Cairo to discuss potential further supply cuts to combat a global fall in demand .

Indian stocks were higher as a siege in Mumbai between police and Islamist gunmen continued, but India’s 10 year bond yield fell to its lowest level in three years on expectations that the attacks will an impetus to rate cuts.

Globally, the MSCI all-country world index was flat, although it had gained around 11.6 percent, the first weekly gain in four weeks.

“On a range of measures, there is undoubted value to be found in many of the world’s equity markets,” said Sarah Arkle, chief investment officer with Threadneedle Asset Management.

But economic woes held back an earlier rally.

The pan-European FTSEurofirst 300 was down 0.3 percent, led lower by oil-related companies.

Earlier, Japan’s Nikkei average climbed 1.7 percent for its best week in a month. It gained 138.88 points to 8,512.27, while the broader Topix was up 0.7 percent to 834.82.

A monthly Reuters survey found that Japanese retail investors became slightly less pessimistic about domestic equities in November, fitting with other signs globally that recent market sell offs may be bottoming at least temporarily.

OPEC TO MEET

Oil fell below $53 a barrel for a while before recovering slightly. The Organization of the Petroleum Exporting Countries is to hold an informal meeting on Saturday in Cairo, as it struggles to slice output fast enough to keep pace with a recessionary reduction in fuel demand in the West that has sent crude prices down nearly two-thirds since July.

U.S. light crude for January delivery stood at $53.32 a barrel, down $1.12.

The dollar regained traction against major currencies after early losses.

It was 0.2 percent higher against a basket of six major currencies, while the euro lost 0.4 percent to $1.2838 . The dollar lost 0.1 percent to 95.22 yen .

Euro zone government bonds rose, reflecting concern about the economy and expectations of interest rate cuts. Two-year Schatz yields sank 10 basis points to 2.213 percent.

By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 28 (Reuters)

World stocks rebounded from a  5-1/2 year low on Friday and oil rose above $50 as expectations  of further interest rate cuts helped to cushion deepening gloom  about the broader economy.

Wall Street was set for a firmer start, one day after the  benchmark S&P 500 index fell to its lowest level since  1997 as troubles at Citigroup (C) and U.S. automakers  triggered fears about the wider economy.

However, hopes that the world’s central banks would cut  interest rates further — with talk that China might lower   borrowing costs later on Friday — helped world stocks off an  earlier 5-1/2 year low.

“The darkest hour is just before dawn,” said Justin Urquhart  Stewart, director at Seven Investment Management.

“The actions being taken are the key difference between the  1930s and now.”  MSCI world equity index was up 0.9 percent  after hitting its lowest level since April 2003.

The FTSEurofirst 300 index also rose 0.2 percent.  Emerging stocks gained 2.5 percent. U.S. stock futures  were up almost 3 percent.

U.S. crude oil gained 1.7 percent to $50.23 a barrel,  having hit a 3-1/2 year low below $49 earlier.

The December bund future fell 30 ticks, reversing  earlier gains. The two-year U.S. Treasury yield touched a fresh record low of 0.9586 percent before rising.

In Asia, the 10-year Treasury note dropped a full point in  price to yield 3.112 percent, after hitting 2.990  percent on Thursday — its lowest level since the 1950s. The  10-year yield was trading at above 4 percent only in June.

“The main risk is the recession and that we are probably  ahead of the worst year over the last century in terms of  economic growth and that this will take its toll on many  industries,” said Kornelius Purps, fixed income strategist at  UniCredit.

“We are probably only at the beginning of this poor  performance in terms of economic growth and other factors will  follow. This is quite worrisome and will keep a bid in the bond  market.”

The yen fell 1 percent to 94.62 per dollar after  hitting a three-week high beyond 94 earlier. The dollar fell 0.5 percent against a basket of major currencies.

LICENSE TO CUT?

Talk of Chinese interest rate cuts complemented a rumour  that authorities might soon announce the creation of a 300  billion yuan fund to support the stock market.

Euro zone interest rates are also expected to fall next  month, and possibly earlier. A purchasing managers index survey  showed on Friday that output of euro zone services and  manufacturing business sank much further and faster than  expected in November to record lows.

JP Morgan (JPM) also said that bigger-than-expected declines in  Canadian inflation also allow the central bank to cut interest  rates more aggressively in December by as much as half a  percentage point.

The Bank of Japan, however, kept its key policy rate  unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa  said more rate cuts could disrupt markets as they might cause  various problems in ensuring smooth fund supply in money  markets.

More from Money Morning:

The reality is that these bailout programs remain with us, meaning we must factor them into our efforts to scout out profit opportunities. And on that point, we see six primary areas of change and opportunity:

• The U.S. Dollar: By pumping an estimated $3 trillion into the global financial system, the U.S. government is setting the stage for the mother of inflationary conflagrations. According to classic economic theory, the greenback should be in an actual freefall right now – especially in the current low-interest-rate environment, where there’s the potential for still more rate cuts and for additional capital outlays by the U.S. government. And that’s just with the current administration. President-elect Barack Obama has made it clear that if an additional stimulus isn’t announced before he takes office, he’ll make that one of his first official acts. What’s saving the dollar, at least for now, is that there’s so much global uncertainty that the dollar is retaining its reputation as a “safe-haven” currency. And, for now, at least, a safe U.S. dollar trumps inflationary concerns. However, should global investors regain confidence for whatever reason, expect the dollar to decline sharply.
• Oil: Many people are focused on declining oil prices as a function of a perceived slowdown in global demand. We think that’s an erroneous analysis for three key reasons. First, oil is still largely priced and traded in U.S. dollars. That means that as the dollar has risen, oil has become correspondingly cheaper. In other words, much of the price decline we’ve seen can simply be attributed to a rise in purchasing power associated with a stronger dollar. Second, China, India and other newly capitalist (and still-reasonably robust) economies are still increasing their oil consumption at a rate that more than offsets the decline in consumption we’re seeing here in the United States and in other developed markets. And third, Brazil aside, there hasn’t been a major new discovery capable of offset global demand on anything more than a temporary basis for more than 30 years, and most major oil fields are in decline or soon will be. Increasing demand and diminishing supply are clearly bullish influences over the longer term. More immediately, however, a stronger dollar negates this and may well keep oil under $100 a barrel for much of 2009. Obviously a terrorist attack would change the ballgame significantly, meaning we could see a spike to levels exceeding our multi-year target price of $225 a barrel. A year ago at this time, we called for oil to spike well up over $100 a barrel, and touch $150, which it essentially did. Even with recent price declines, some energy-industry insiders are starting to subscribe to our bullish outlook: The Paris-based International Energy Agency (IEA) last week projected that long-term oil prices would reach $200 a barrel (although we think that will happen much sooner than the IEA does).
• Commodities: The story is much the same for commodities, in general, and we expect that longer-term investors will be amply rewarded. More immediately, the popular – though erroneous – assumption that a global slowdown will negate demand is driving prices lower, and may continue to do so for the next six months. Gold will be the most obvious casualty in this arena, as hedge-fund-redemption requests and margin calls continue to mount, which is why we expect the price of the yellow metal to remain lower far longer than most people expect (We’ll focus specifically on gold in an upcoming installment of the “Outlook 2009” series). When it does rebound, however, the returns will be high.
• Global Markets: There’s no doubt that the global markets have taken their share of lumps along with their U.S. counterpart in recent months. But we don’t expect them to suffer forever. Countries with high cash reserves as a percentage of gross domestic product (GDP) – such as China, India and Brazil – are becoming less dependent on the fractured U.S. consumer almost daily, and the economic decoupling we’ve seen developing for several years may really take hold in the New Year. This stands in direct contrast to the situation a decade ago, when the Asian Rim and South America were economic train wrecks and the United States and Europe held all the cash. Companies with significant global exposure to the Asian Region, Latin America and Europe – in that order – remain the best bets for relative safety and growth in 2009.
• Stocks in General: Many investors are questioning the wisdom of being in stocks at all. While we certainly understand the pain that sentiment is based upon – and are hurting, too – it’s important to remember that the last time stocks really performed this badly was during the 1930s. Investors who decided to “get out” entirely then missed the investment opportunity of their lifetime. Don’t make the same mistake. Data shows, unequivocally, that investors who buy when the world is going to hell in a hand basket –think 1932, 1942, 1982 and 2003 – enjoy the largest returns. That’s even true if you’re “early,” and buy ahead of the specific market bottom. However, history also demonstrates that investors who pile in at the market’s peaks – such as 1928, 1969, 1999 and 2007 — tend to incur the worst returns.
• Global Stocks in Particular: Led by cash-rich China, we expect global blue chips to remain the best relative bets for safety, income and appreciation potential in the New Year. We are especially focused on companies involved with infrastructure projects and with firms that derive substantial portions of their revenues from Asian consumers. The first is a no-brainer. According to the latest studies from a variety of sources, planned global infrastructure expenditures in this area exceed $40 trillion by 2030. There is not a bigger, more unstoppable trend on the planet today. If you want proof, notice that a big portion of China’s just-announced half-trillion-dollar stimulus package is devoted to infrastructure projects. Infrastructure companies there will certainly benefit. So will consumer-products firms that are positioned to benefit from the rise of an increasingly Asian consumer base, which boasts significant savings and pent-up demand. Many of the best companies are beaten down to the point that they now feature single-digital Price/Earnings (P/E) ratios – lower than we’ve seen in decades. Some are actually trading for less than cash value, despite a strong history of growth. And the companies we’re studying have solid cash flow – and excellent prospects of maintaining it.

Now for the $64,000 question – when could we see a rebound?

We don’t know for sure. Nobody does. History demonstrates that the first and second years of any newly elected U.S. president’s term are almost always problematic. When taken in isolation, we could see a scenario where this is countermanded by President-elect Obama’s planned stimulus, but given the potent combination of flagging earnings and slowing U.S. growth, we’re leery of doing so. 

On the other hand, for a variety of reasons, history also suggests that if we are to see a rebound, however nascent, the probability is highest for a resurgence starting in the middle of next year. First, since the 1970s, the time between the first and last market lows in any given bear market is an average of seven to eight months. If historical trends hold true, this suggests we could see a bottoming out by the middle of next year. That’s consistent and plausible, especially since other data shows U.S. recessions, on average, last 14.6 months – which also points to a bottoming out in late spring or early summer.

But the biggest indicator of all that we may see a bullish rebound in late spring or early summer – however slight – is admittedly based on emotion. Literally. Small investors have fled the stock markets in droves, and so far they’ve yanked more than $175 billion from the markets, with nearly 50% of that coming out during October alone. Granted, this is a mere 3.2% of the $5.5 trillion invested in stock market funds, according to Forbes, but it’s the first year that net equity flows have been negative since … a drum roll please … 2002.

History shows that small investors may be the most telling of all Contrarian indicators. According to TrimTabs, the Investment Company Institute and our own proprietary research, individual investors have a remarkable habit of rushing in near market tops and fleeing near market bottoms.

That means that long-term investors seeking the best wealth-building opportunities should find the immediate price declines we see ahead to be some of the most compelling buying opportunities of their investing lifetimes.

Now for the caveats – and you knew this was coming – we see three wildcards in 2009, and any one of them could prove to be a joker:

• The continued de-leveraging of hedge funds and other financial institutions.
• More credit-default-swap valuation problems.
• And unknowns associated with the ongoing U.S. and global-economic-system bailouts.

There are still huge questions regarding who owes what to whom, how large the debts are, and exactly who’s going to get what help and when. History shows that the most effective bailouts are those that recapitalize institutions and that allow the weak to fail, which is why we are especially leery of the U.S. government’s plan to acquire bad debt while rewarding weaker institutions that should be put out of their misery.

What’s more, as a Money Morning investigative story demonstrated, many banks are using the government bailout money as takeover capital, and not to boost their lending, which at least would have had an expansionary benefit for the U.S. economy. With most of the bailout programs, and through no fault of their own, U.S. taxpayers and investors have been caught in the middle – or left on the sidelines altogether.

The Outlook 2009 Action Plan

For investors who want to get a head start, it’s important to bear in mind that the markets tend to begin their rebound in earnest anywhere from two months to six months before an actual economic bottom. While that doesn’t suggest going “whole hog” into stocks, it does speak to the need to take some steps now to get ready. Here are the top moves to make now:

• Rebalance Now: As markets have declined, many portfolios have done out of kilter, too – not only in terms of value, but in terms of balance. And that lack of balance can seriously dampen returns, even as we await the market recovery – and even more so once the market begins to rally. It’s far harder to catch a moving train than most investors think.
• Think Safety First: There’s no need to rush into the markets. It’s not clear we’ve hit bottom yet. Keep your powder dry for the better days and easier trades we see developing ahead, while bargain-hunting for those stocks with true upside, and that are positioned to capitalize on the strongest global trends.
• Spread your buys over several days: When you’ve found something to buy, wait for a particularly bad day, then place your order in the last half an hour of trading. Leverage the lower prices (and maximize your returns) by spreading your purchases over several days or weeks. That way you won’t get tripped up by committing your entire nest egg when the market looks cheap and will probably get cheaper.
• Go Global: China is still on track for 9.6% growth this year and may, in fact, slow to a “mere” 8.0% next year. Even that reduced growth rate will probably be about eight times the growth rate of the U.S. economy – if we’re lucky. Consider adding exposure to the Asian Rim as part of the rebalancing process, or as a primary focus once the recovery begins in earnest.
• Get Inverted: Continue to use specialized inverse funds to hedge downside risk. We’re not out of the woods by a long shot.
• Stop Your Losses – with Stop Losses: By all means include trailing stops to control small losses before they become catastrophic ones. This market could easily fall further before it gives way to the rally that history suggests is in the making.

Source: Unprecedented Volatility Will Continue to Rock the Stock Market in Advance of a Possible Rebound in Mid-2009

“Fear continues to grip global markets and traders are piling into whatever safe havens they can find,” said James Hughes, of CMC Markets.

The dollar got a boost from a Commerce Department report showing that falling prices may be beginning to have an effect on the housing glut. Sales of new homes rose an estimated 2.7% in September to a seasonally adjusted annual rate of 464,000, in line with economists’ expectations. That was still 33% lower than September of 2007.

In addition, the inventory of unsold homes fell a record 7.3% in September, to 394,000, the lowest level in four years. However, it’s taking more than 9 months after completion for the typical new home to sell, an indication of how far apart supply and demand remain.

Finally, the report noted that the median home’s sales price fell to $218,400. That’s the lowest in four years, and represents a 9.1% drop in the past year.

But, as Marketwatch cautioned: “Government statisticians have low confidence in the monthly report, which is subject to large revisions and sampling and other statistical errors. In most months, the government isn’t sure whether sales rose or fell. The standard error in September, for instance, was plus or minus 12.1%.”

Source: Dollar smacks euro again -  New home sales rise as prices fall

“This is an important step that should help keep a bit of a firewall between the credit crunch and the real economy, and is one of the steps needed to break the money market logjam,” wrote Doug Porter, senior economist at BMO Capital Markets.

Porter added that, “Still, the problems besetting the credit markets are so multidimensional that no move will be a single fix … Notably, the Fed seemingly wants to attempt every liquidity measure in its toolkit before taking the step of cutting its funds rate.”

Some were speculating that the Fed, along with other major central banks, might orchestrate coordinated cuts in interest rates as worldwide markets tank. Bernanke fueled the fire by saying that, “In light of developments, the Fed will need to consider whether the current stance of policy remains appropriate.”

Adding more fuel was the release of minutes from the Fed’s September 16 rate policy meeting, at which some members already favored a cut.

But, “While the Fed chief is clearly leaving the door open for a rate cut ahead, amid downside expectations for growth, it’s not clear it is a done deal yet,” said analysts at Action Economics.

Source: Dollar slips vs. euro as Fed promises to buy commercial paper – Coordinated world rate cut seen as possibility.

All that worked, a bit perversely, in the buck’s favor. “Consistent with the pain inflicted in equity markets, risk aversion was the dominant theme” in currencies, said David Watt, of RBC Capital Markets.

But what of the big bailout that passed on Friday?

“The U.S. $700 billion bailout plan will not do the trick — at least that’s how the currency market feels,” wrote Kathy Lien, director of currency research at GFT Forex.

“Deleveraging or the liquidation of risk is happening on a global scale as investors question if guaranteeing funds and bailing out banks are the right prescriptions for the credit crisis,” Lien added.

Euro holders sold after a weekend crisis summit in Paris, featuring the leaders from Germany, France, Great Britain and Italy, was unable to come up with a unified plan for dealing with banking-sector turmoil.

“European governments are dazed and confused and this isn’t helping confidence and will probably end up costing them more in the long run,” said Jim Reid, of Deutsche Bank.

Source:  Dollar spikes against euro -  Eurozone nations can’t agree on a bailout plan over there