The Bear Stearns bailout was supposed to prevent the crisis from rippling through Wall Street. Obviously it hasn’t done that. It’s merely thrown the crisis into slow motion and prolonged the agony.

– Addison Wiggan and Ian Mathias in The 5 Min. Forecast have a different view: The government is not willing to bailout another bank…

Long story short, Lehman is as close to going out of business as ever. The firm is still gripped by credit- and mortgage-related losses. Its merger with a government-owned bank in Korea is now rumored to have fallen through. S&P has threatened to cut ratings, again. And the market is terrified that the U.S. government is not willing (or even able) to bail out ANOTHER “too big to fail” financial.

– Selling hits Lehman’s stock.

– Lehman is “ripe for a hostile takeover,” says Jennifer Yousfi in Money Morning. But the clock is ticking. According to Jennifer, “As the list of potential saviors continues to dwindle, so does investor confidence in Lehman Brothers.”

– US futures are pointing down. “Stocks head squarely toward sharp losses as financial  worries and slowdown jitters call the tune.  Data on trade, jobless claims and import prices on deck. 

–  There’s always a way to profit. Martin Hutchinson in Money Morning says as Treasury bonds suffer from higher government borrowing and inflation the Rydex Juno Fund (MUTF:RYJCX) should see major gains. Ian Davis in DailyWealth says it’s difficult to see how investors can lose on fat-dividend paying Taiwanese stocks.

– The dollar continues to rally. It hit a one-year high against the euro and a basket of currencies.

– Charles Delvalle in Investor’s Daily Edge says investors should factor in 6 to 12 months of dollar strength after the buck broke above its eight-year resistance line.

– The rising dollar is having having a negative effect on crude oil prices. Prices are down to just under $102 a barrel.

– Chris Mayer, however, remains bullish on oil long-term future for two fundamental reasons.

– Gold prices regained some strength. Reuters reports that “investors who propelled gold to a lifetime high of $1,030,80 in March on inflation fears and a struggling dollar are ditching their bullion holdings as the US currency stages a dramatic rebound.”
– Lee Lowell at The Smart Profits Repor, however, gold is oversold. He also says the dollar rally is mainly due to sentiment.

Existing-home sales were up 3.1% in July. But the sales rate was still 13.2% below a year ago. Meanwhile, inventories spiked 3.9% from last month to a record 4.67 million homes for sale at the end of July – 11.2 months of supply at the current prices.

The sector’s drubbing could be a great opportunity for value investors. But Ian Davis in The Growth Stock Wire advises investors to hold off on bottom fishing for homebuilders…

Predictably, homebuilder stocks dropped on yesterday’s existing-home sales news. The SPDR S&P Homebuilders (AMEX:XHB), an ETF that tracks the sector, dropped 1.3%. But Ian says there could be more bleeding in this sector yet.

The value may already be there, but the situation is still murky. For starters, most of these companies don’t have any earnings right now. Therefore, we can’t use price to earnings (P/E) as a guide. Instead, let’s look at the sector’s price-to-book value.

As you can see, in terms of book value, homebuilders are dirt-cheap.

Thing is, Datastream only updates book value on a fiscal year-end basis. Since all of the homebuilders in the index have fiscal year-ends between October and December, these book values are at least eight months old (most big builders are showing price-to-book values around one according to second-quarter reporting).

The median price of a new home is down 5.6% since 2007’s fiscal year-end, so you can bet that homebuilders’ book values will be revised lower in December.

Last week, Taipan Daily editor Justice Litle gave six reasons why the China bears are wrong. Justice says continued growth, the recent correction in oil and the country’s personal savings rate mean China’s fundamentals are strong.

However, J. Christoph Amberger in Today’s Financial News says analysts who predict Armageddon for America based on a 20% drop in the Dow and discount a 60% drop in the Shanghai Stock Exchange may just have sand in their slide rules. 

Ian Davis in The Growth Stock Wire says it’s a tale of two contests in China…

Despite the success of the Olympics, Chinese stocks are in the gutter. According to Ian:

The index that tracks shares available to mainland Chinese investors, the Datastream ‘A’ Shares China Index, is down 58% from its October 2007 peak. Each time this index looks like it’s ready to begin a sustained rally, it simply gets hammered again. Chinese investors may be happy watching the games, but they’re losing a fortune in the stock market.

However, this may set up a great buying opportunity for investors…

Huge declines like this often create great values. In a bull market correction like this one, the earnings (the “E” in P/E ratio) often remain healthy, but share prices (the “P”) go far beyond what anyone thinks is possible. Thus, you get stocks selling for low P/E ratios… say under 12 [...]

China’s P/E ratio has dropped to 16. This is still significantly higher than its long-term median of 10, but significantly lower than it was a year ago. Chinese shares also trade for a price-to-book ratio of nearly three, so they’re not a screaming buy yet.

Ian says wait until shares sink to less than 12 times earnings and less than two times book value before buying.

Source: Are Chinese Shares a Buy? Here’s the Answer… 

One sector that’s taken a pummeling recently is insurers, says Ian Davis in The Growth Stock Wire. The Datastream Property and Casualty Insurance sector has lost 28 percent of its value since last summer.

This could lead to a great profit play when the time is right. Ian is an expert in finding stocks that are hated, cheap and in an uptrend. Right now, the insurance sector is certainly hated and cheap… the trick is finding the right moment to buy in. More from Ian…

Property and casualty insurers are trading for less than 10 times earnings and close to book value. They’re also trading at good discounts to their historic levels. The price-to-earnings ratio for the sector is currently 13% below its median. The price-to-book ratio is at a more modest 8% discount.

Despite these cheap valuations, I don’t expect much from this sector for months to come. When a sector experiences a severe selloff, it usually grinds sideways, even dropping a little. I call this the “sandpaper” stage. We have to wait for investors to get frustrated enough with the sector to give up completely.

So I don’t think now’s the time to buy. But the sector is getting incredibly cheap… and it should be a terrific buy soon (more credit problems are the wild card here, however).

However, when that time comes, Ian says the best-performing insurance ETF is the PowerShares Dynamic Insurance Portfolio ETF (AMEX:PIC). Otherwise, you could consider what Ian calls “the ultimate insurance stock”: Warren’s Buffett’s Berkshire Hathaway (NYSE:BRK.A).

Despite insurance activities weighing down on Berkshire’s 2Q results – the company generated $2.9 billion in net income, or $1,859 per share, during the quarter that ended June 30, down from the $3.1 billion net income, or $2,018 per share, it reported in the same period a year ago – Berkshire beat analysts’ expectations.

According to BusinessWeek, the company said it expects underwriting profits to be significantly lower in 2008 because of increased price competition and because the string of relatively catastrophe-free quarters is certain to end.

That correction may now be underway. Crude oil has dropped more than $15 in the last three days. And Ian says there’s a lot more downside is in the works. In fact, he says oil could be headed as low as $50.

And if oil crashes natural gas will be close behind. Ian advises staying out of both markets until the current correction plays out…

Natural gas is like crude oil’s younger sibling. The natural gas price shadows the price of crude oil wherever it goes.

The two have a follow-the-leader relationship because about 18% of natural gas usage can be switched to petroleum products. Also, drilling these two forms of energy requires many of the same resources… like geologists, drill-rig operators, and rigs.

———- Advertisement ———-
S&A’s 5 Most Popular Research Services Now FREE Online

For a limited time, you can get a “sneak peek” at every special report, recommendation, and newsletter issue of S&A’s 5 most popular investment research services.

Normally, we charge $99 up front for access to just one of these services. But for the next 30 days only, we’re giving you unlimited access to our members-only website – at no up front charge.

Click here for details.
———————————–

The following chart shows the close relationship between crude oil and natural gas.

Where Crude Oil Goes, Natural Gas Follows

As you can see, the two energies rarely diverge by much. However, the price of crude oil has outpaced natural gas in the last couple of years. That’s not unusual… the natural gas price often lags the price of crude oil.

Like an older brother, the crude oil market is much bigger than the natural gas market. So the price of crude oil is determined on the world stage. But natural gas prices are determined by region. So the price of crude oil drives the natural gas price and not vice-versa.

According to a Department of Energy study, if crude oil pops up 20%, natural gas climbs 16% over the following year. Eventually, natural gas rises the full 20%. But the price rises more slowly as the fuels return to their normal relationship. (On average, a barrell of oil costs eight times as much as 1 million BTUs of natural gas.)

So natural gas has been playing catch-up for the last two years. Now that crude oil is falling, we’ll see the same thing in reverse. Natural gas will also fall, but more slowly than crude oil.

Let’s say crude oil does fall to $50 (a huge fall, but not impossible). That would be a 66% decline. If the historic relationship between the two fuels reasserted itself, natural gas would be $6.24 per million BTU. That’s a more modest drop of 52%.

So I don’t think natural gas has as much downside risk as oil… but the picture is still ugly. My advice is to stay out of both energy markets until the correction plays out.

Source: Another Nasty Oil Correction Is Close at Hand

On Sunday Anheuser-Busch (BUD) accepted a $49.9 billion takeover bid from Belgian-based InBev (INB). This consolidation in the market has sent brewery stocks rallying while US benchmark indexes tumble.

If the takeover goes through, Ian Davis  in The Growth Stock Wire says InBev will be the undisputed leader in the global market. This is not only a safe option during an economic downturn, but it’s also a great way of investing in emerging markets…

I’ll start today’s column with an incredible statistic… 48.

Forty-eight is how many out of every 100 domestic beers sold in America are made by Anheuser-Busch (NYSE:BUD).

This is why, along with companies like Nike (NYSE:NKE), Coca-Cola (NYSE:KO), and Harley-Davidson (NYSE:HOG), Anheuser-Busch is one of the most valuable brands ever created… And it’s why a Belgian brewery will most likely be the proud owner of the company.

On Friday, InBev (EBR:INB) – which makes Stella Artois and Beck’s – got a little closer to acquiring Anheuser-Busch. InBev is the world’s second-largest brewery by volume sold.

This consolidation talk has been bullish for the beer sector. As the following chart shows, an index of brewers is up 13% since February. The S&P 500, on the other hand, is down 10.8% over the same period.

Brewers Have Soared 13% Since February

This strength is a classic case of a “defensive” sector doing its job. Here’s the argument: In tough economic times, consumers tend to cut down on expensive motorcycles and boats, but they’ll keep drinking beer. (If they’re behind on their subprime loan payments, they may even increase their beer intake.)

———- Advertisement ———-
Become a Dividend Grabber Subscriber – for 50% off

You can get in on Sean Goldsmith’s latest “grab” for only $500 – but only until tonight at midnight.

For the details click here.
———————————–

Anheuser-Busch isn’t solely responsible for the Brewery Index’s strong performance. Since February, Boston Beer (NYSE:SAM) is up 6.9%, Molson Coors Brewing (NYSE:TAP) is up 16.3%, and Constellation Brands (NYSE:STZ) is nearly flat at -1.4%. This is actually fantastic performance when the S&P 500 is cratering.

These shares are also doing well because speculators are betting more consolidation is in the works. Whether this consolidation happens or not, you should still consider a position in breweries. They’re simply one of the steadiest sectors in the market… especially during a recession.

Consider that Anheuser-Busch’s earnings grew from $1.33 per share in 2000 to $2.44 per share in 2003, during the dot-com crash. And here’s a look at how its stock and other major alcohol distributors performed.

Performance from March 2000 to March 2003 Boston Beer (SAM) 81.8% Molson Coors Brewing (TAP) 10.0% Constellation Brands (STZ) 93.3% S&P 500 -40.5%

As you can see, breweries are a solid recession investment. (They’re also a phenomenal way to invest in emerging markets. A single company often dominates an emerging-market’s beer industry.)

Brewery stocks are getting too much media attention these days (because of the Anheuser-Busch story)… so I won’t be surprised if they move lower over the next few weeks.

However, if the takeover goes through, InBev may be an interesting investment opportunity as the world’s undisputed king of beers. If you buy this stock – and others like it – you’re getting in on one of the world’s steadiest trends.

Source: A Simple Investment That Can Soar in a Recession

Today, though, I’m going to talk about another beneficiary of the commodity boom… one you’ve probably never considered a commodity play: Thailand.

For starters, Thailand has large reserves of iron ore and rubber. China’s construction and automobile industry have driven the price of these two commodities through the roof in the past several years.

Thailand is also the world’s largest exporter of rice, responsible for 26% of all rice exports. Rice has tripled in price in the last four years. It climbed 175% in the first five months of 2008.

This is part of the reason Thai stocks have done so well lately. The Datastream Thailand Index has climbed 23.7% in the last year.

However, despite their recent gains, Thai stocks are still well below the all-time high they reached in 1996, more than 12 years ago.

———- Advertisement ———-
On August 14, “A.O.P.” Recipients to Collect Biggest Payout in 27 Years…

While most Americans rely on their 401(k) or pension plans to fund their retirement, some savvy investors are now getting paid thousands of extra dollars per month from the U.S. gov’t authorized “A.O.P.” plan.

The next “A.O.P.” payout is set for August 14th and will distribution records, paying out a potential $10,000 – $40,000 per person.

Click here to learn more.
—————————————–

Out of all the countries effected by the 1997 Asian Financial Crisis, Thailand is the only one that hasn’t fully recovered. Take a look:

As you can see, Thai stocks soared in the ’80s and early ’90s. At the time, Thailand was a “tiger” economy, growing by more than 9% per year. However, by 1997, the economy became overheated, and the Asian Financial Crisis began…

So, is Thailand a good investment today?

From a trend standpoint, Thailand looks great. Thai stocks have steadily appreciated since 2002.

Thailand is also moderately free. It’s the 54th freest country in the world (out of 157), according to the Heritage Foundation’s Index of economic freedom. This is a measure of how much government control businesses face in a country.

However, Thailand has had some trouble lately…

Two and a half years ago, Thailand’s president was ousted while addressing the U.N. in New York. Coups are never good for business, although this one was bloodless and generally supported by the people.

However, the new military-imposed government started off on the wrong foot. It installed controls on foreign capital, which immediately sent the Thai stock market into a tailspin. Fortunately, these restrictions were partially lifted, and the stock market has since recovered (aided by the commodity boom).

Finally, Thailand is relatively cheap. Its price-to-earnings ratio (P/E) is 11.4, 12.3% below its median level of 13 (the U.S. market carries a P/E of about 21).

You’ll need specialized knowledge (and a specialized broker) if you want to buy individual Thai stocks. There are also three Thai ETFs. You can investigate them at www.etfconnect.com. Type “Thai” or “Thailand” into the search box on the top right-hand corner of the web page.

Asia’s phenomenal growth will eventually produce a new bull market in the region’s stocks. If you’re looking for a unique way to play it, keep this commodity producer on your radar.

Good investing,

Ian Davis

Source: A Small Asian Commodity Play Your Broker Won’t Mention

It seems there’s no time like the present for getting into gold. In New York trade the precious metal rose lockstep with crude — the black goo hitting yet another record price at $143.67 a barrel. Gold futures for August delivery rose $1.80, or 0.2 percent, to $933.10 an ounce.

A Unique Gold Mining Business Is Making Some People Rich

Ian Davis

In today’s essay, I’m going to tell you about a new era of gold mining. This type of mining has no exploration costs. It requires no digging or drilling. The mineral veins are incredibly consistent and yield 29 times more gold than the average mine.

You could call it e-mining.

On average, one ton of rock from a gold mine yields around 0.18 ounces of gold. One ton of discarded mobile phones, on the other hand, contains about 5.3 ounces of gold (according to a study done by Yokohama Metal, a recycling firm). Cell phone manufacturers like gold for its conductivity and malleability.

That same ton of phones also contains, on average, around 100 kilograms of copper, three kilograms of silver, and a slew of other metals.

Right now, recycling, and especially recycling “e-waste,” makes up a small portion of the waste disposal business. For example, recycling only accounted for 9.8% of first-quarter revenue at Waste Management (the largest U.S. waste disposal company). Most of that recycling revenue came from processing corrugated cardboard and newsprint.

However, the e-waste niche has a lot of growth potential. High metals prices are making it economical to sort all of this stuff out. Currently, in the U.S., less than 20% of e-waste is separated from other trash for processing and recovery.

———- Advertisement ———-
Don’t Miss Your Last Chance to Get True Income at a 50% Discount

We are officially launching our brand-new research advisory, True Income, to the public on July 1st…

And because you are a current subscriber to one of S&A’s services, we’re giving you a chance to become a charter member for HALF the official launch price.

Keep in mind, this offer ends tonight at midnight. After that, we may never offer True Income at this price ever again.

Click here for details.
—————————————–

Actually, all types of “processing and recovery” have a lot of growth potential. The “green” movement – with leaders like Al Gore and Ted Turner – has never been stronger.

So today, we’re going to look at the waste sector. As you’ll see, the potential growth in recycling is the latest revenue stream in a very consistent industry.

The following chart shows the performance of the waste disposal sector since 1973, including dividends.

As you can see, the latter half of the 1970s, and all of the 1980s, was a great time to invest in waste collection. If you had invested in the sector between 1975 and 1990, you would have made a 32.6% a year, including dividends. By 1990, Waste Management sold for 80 times earnings.

Since then, the sector has struggled. If you had invested in waste collection between 1990 and today, you would have earned just 3% a year, including dividends. I guess the waste industry ran too far too fast. And waste disposal lacked the “tech” story everyone wanted to hear back then.

But today, the public is much more willing to fund environmental protection than 20 years ago. Country’s like Brazil, Russia, and China are getting richer, which means more money to spend on cleanup. Global warming is all over the news. And as I explained, e-mining is attractive due to high commodity prices…

As you can see from the chart above, waste has been in a nice uptrend since 2003. Also, the valuations for waste companies are back to reasonable levels. The Datastream Waste & Disposal index has a P/E of 19.4… which is a bit less than the overall market.

You have a few options if you want to invest in waste companies. One is buying the big players, including Waste Management (WMI) and Republic Services (RSG).

Another option is the Market Vectors Environmental Services ETF (EVX). This fund tracks the AMEX environmental services index, which is loaded with companies that e-mine, haul garbage, manage sewers, filter water, and do all things related to cleanup. If you’re looking for a typically boring, steady business with a few hi-tech kickers, this one is worth a look. Or at least see how much those old cell phones are worth.

Good investing,

Ian

Source:  A Unique Gold Mining Business is Making Some People Rich

It’s a blue-chip company. But it’s not a bank. Or a car manufacturer. Or Mircorsoft. Or Google.

It’s cigarette company Philip Morris.

Despite litigation and all the negative publicity, Ian Davis in the Growth Stock Wire thinks an investment in cigarettes is an excellent recession play – they do have a 15% annualized growth rate after all…

 Back in the day, cigarette smoking was a respectable business.

In the 19th century, Philip Morris (PM) was a luxury cigarette company and had one tiny, boutique shop on London’s Bond Street.

In 1901, by royal warrant, Philip Morris & Co. became the royal tobacconist to King Edward VII… and with success came growth. Just one year later, the company expanded its business to the United States.

In 1938, the company went public… and investors have been reaping the rewards ever since.

Between 1957 and 2007, Philip Morris was the single highest-returning stock in the United States. A $1,000 investment in Philip Morris in 1957 would be worth about $5.8 million today.

Although Altria’s (MO) returns are the best in the business, other tobacco companies have performed almost as well. Even today, amid declining smoking rates in the U.S., tobacco companies continue to outperform other equities.

———- Advertisement ———-
The Only Investment Legally Obligated to Pay You 181% Gains By June 15, 2009 It’s not a stock, option, gov’t bond, or anything else you’ve likely heard of…

But this unusual investment entitles you, BY LAW, to receive 50% to 400% gains on precise dates in the future.

A recent Dow Jones study said this investment has crushed the S&P 500 by 543% since 2001.

Click here for details.
—————————————–

Take a look at the performance of the Datastream Tobacco index since 1973. As you can see, the index has maintained an amazingly consistent 15% annualized growth rate for most of its history.

And more importantly right now, downturns in the tobacco sector do not seem to correspond with market downturns.

Tobacco Is Alive and Well in the U.S.

I’m not saying tobacco companies can’t correct… In 1999, the tobacco index fell by a precipitous 60%. But the stocks were back at new highs a year later…

The fall came after the index was selling for a relatively high 23 times earnings. The companies had settled a number of lawsuits in 1998, and investors were optimistic. After an adverse court ruling in Florida, the index fell down to a P/E of 6.1.

The constant risk of litigation is why this sector is usually so cheap, with a median P/E of 13. But right now, it’s relatively pricey…Although well below all-time highs, the tobacco index is selling for 15 times earnings (18% above its median). Investors are probably bidding these stocks up, cashing in on their reputation for being a safe haven in a tough market.

With these valuations, I wouldn’t hop on tobacco right now for a short-term trade. But as you can see, the sector has always been a good long-term hold.

Good investing,

Ian Davis

P.S. In 1985, Philip Morris changed its name to Altria Group. Then earlier this year, Altria spun off Phillip Morris International to focus on the U.S. market.

Right now, Altria is the most expensive cigarette by price to earnings. Historically, Reynolds American (RAI) and UST have held this honor. Apparently, investors liked the spinoff and have bid up Altria’s stock price accordingly.

Reynolds American is currently the cheapest tobacco company in the Datastream index. It is trading at a P/E of 10.2, about 29% below its median.