1. Set Aside Emergency Cash: Make sure you have six months worth of emergency cash that is liquid and accessible. Put it in a savings account where you can easily get to it if you need to. Yield is not as important as liquidity.

2. Build Cash Reserves: Everything from cars to houses has plummeted in value – and prices are likely to get even cheaper over the next six months. When you find that dream home, you want to be ready to pounce, so try to keep a stash of cash reserves on hand for big-ticket items.

3. Keep an Investment Watchlist: If you’ve got potential stock purchases in mind, be sure to keep a list of them on your radar. Stocks are also likely to get cheaper before the end of the year. I’ve said this for a while now, but once the market corrects some more, we may be looking at the investment opportunity of a lifetime, so you’ll want to ensure that your capital is ready for action when the time comes. Look for great ideas now.

4. Get Stock Advice: If you need a hand generating investment ideas and tips on where to invest your money in this tough climate, get some professional advice and let the experts do the work for you.

Another way people are beating this sour economy is by turning their hobbies into income generators. Some people are selling handmade scarves, others offloading their stamp collections.

Our friends at The Sovereign Society have discovered a new hobby that allows you to passively earn up to $70,000 a year. You could pick up this hobby in a matter of minutes. If you’re interested, click here to learn more.

So how’s the financial world faring so far this week? One chart should set the scene:

A seven-month high for our favorite metal may be sign that investors are losing faith in…. umm… everything. In fact, gold is up 33% since October, making it one of the planet’s finest asset classes during this “credit crisis.” Who’d have thought?

“I’m still very bullish on precious metals like gold and silver,” notes Byron King. “In the medium-to-long run, the stimulus bill will not be good for the U.S. economy, and I think the dollar is going to get burnt into toast over the next few years.” (Toast wouldn’t be that bad, we think… at least you could eat it.)

“If you are looking for gold stocks, find companies with high-grade ore in the ground and enough money in the bank to fund the current operational plans. I’m also looking at metals companies that are attractive to potential suitors, like large miners that want to pick up some great reserves.

“The bottom line is you need to own precious metals. Own gold. How much? For now, the more, the better. Own coins, if you can get ’em. Own bullion, if you can get it. Own shares in good miners with reserves in the ground while you can buy ’em. Just get some gold.”

Byron’s got a handful of gold stocks just like he described above in his Energy & Scarcity portfolio. Get the tickers — and a whole lot more — by subscribing, here.

(And there’s a whole other way to profit from gold’s rise… check out the P.S. below.)

By the time you read this, Barack Obama will have likely signed the stimulus bill, bringing to law the most hyped piece of legislation of the last few decades. He chose a special location to sign the bill, one of great historic importance and apropos to the credit crunch — the Denver Museum of Nature and Science. Huh? Yeah, among the 50 states, Colorado is purportedly on the front lines of the “green” energy revolution. Barack wants to play the part of George Washington this time around.

Anyway, the final price tag on this bestial bill exceeds $787 billion. Reduced to its simplest form for convenient public consumption, the new law looks like this:

The pie chart helps lawmakers avoid coming up with their own excuses for not reading the 1,073 pages of drivel littering the House floor right now. If you don’t want to come up with your own excuse, you can read some of the details here.

The only reason to write something this long is to dissuade anyone from reading it. As flat tax champion and former Vancouver marquee speaker Steve Forbes once wrote, “Abraham Lincoln’s Gettysburg Address, which defined the character of the nation, is all of 268 words. The Declaration of Independence runs about 1,300 words. The Constitution, which has served us for more than 2 centuries, comes to some 5,000 words. The Holy Bible has 773,000 words. The federal income tax code and all of its attendant rules and regulations: 9 million words and rising.”

One thing Congress wants to make sure you do understand: The bill’s “buy American” clause is still intact. Despite widespread warnings of 1930s-style protectionist meltdown in global trade, Congress went ahead and passed the provision.

The final version requires building and public works projects funded by the package to use only U.S. goods, like steel, iron, copper, concrete or wood. The revisions in the bill say the clause can’t violate existing trade agreements — giving the chocolate-making countries in Europe some relief. But as Reuters pointed out today, “Countries such as China, India, Brazil and Russia, which are not members of an international government procurement agreement, would be shut out.”

Just what a country in debt should do… shut out its bankers and trade partners…good thinking.

California might be grabbing all the headlines, but there’s a long line of state governors with their hat in their hands waiting for federal bailout money from this bill .

Kansas announced over the weekend it is suspending income tax refunds and state employee paychecks. New York, facing a $15 billion budget gap, is implementing all sorts of odd new taxes, including a 4% smack for downloading music and videos over the Internet. John Corzine is cutting programs left and right to fill the $2.1 billion gap in New Jersey.

In the Trendsetter State, Gov. Schwarzenegger is still flexing his muscles in front of the State Senate. The state has already shut down $3 billion in projects, delayed $3 billion in tax refunds and welfare checks and forced government employees into shortened workweeks. They’ve got three weeks to close the $42 billion gap between tax receipts and spending… or the state will simply run out of cash.

The credit crisis might lead to another improvement Californians would be happy with too: the legalization of marijuana.

Illegal weed sales exceed $14 billion in California each year — ironically just a billion short of California’s budget deficit last year. Considering the potential tax revenues at stake, it might be too tempting for the Governator to say no. According to a recent Harvard study, a national legalization of marijuana would reap $7 billion in annual tax revenues and save over $13 billion in law enforcement costs. That’s not even taking into account the assured boom in junk food sales.

Four more banks failed over the weekend, brining the 2009 total to 13. Friday the 13th proved to be bad luck, indeed, as the FDIC shut the doors of banks in Florida, Nebraska, Illinois and Oregon. All told, they took a $341 million chunk out of the FDIC’s apparently limitless coffers.

Retailers are showing small blips on the life-support monitor this morning. Wal-Mart, for example, surprised slumbering stockbrokers yet again with better-than-expected fourth-quarter earnings.

Little surprise, there, though.

“The 20% annualized pace of contraction in retail over the past six months,” writes our Rob Parenteau, “could not be sustained without delivering the United States to a point of mass starvation.

“Still, the free fall phase may be over, but the contraction is certainly not.

“Retail sales have been dragged down in part by the plunge in unit auto sales. Total units sold have already plunged below a 10 million annualized run rate — a level last observed in the 1980-2 double-dip recession. Eventually, replacement demand will become a factor supporting a bottom, and we are within months of approaching the 1971 spike down below 8 million units, the low of the past four decades.

“The Fed’s intervention in the asset-backed market is aimed in part at thawing the deep freeze in auto sales, but we suspect households will remain focused on rebuilding their saving rate. Purchases of big-ticket consumer durable items will continue to be postponed as precautionary saving becomes imperative.”

If you’re interested in real leading indicators of the credit crisis, rather than the useless sound bites you get from the mainstream press, check out Rob’s edition of The Richebacher Letter, here.

The Big Three automakers are due to turn in restructuring plans to Congress this week … if they want to maintain government funding, that is. GM is rumored to be cutting its number of brands in half, firing thousands of employees and closing more factories. Chrysler and Ford will likely follow suit. Officials from the UAW will, no doubt, continue to deny their own planned obsolescence.

The Dow nearly fell 300 points in the first half hour of trading this morning. Now flirting with 7,500, the Dow is a breath away from testing its credit crisis lows. No amount of stimulus can help the Big Board now.

“Just remember this,” urges Chris Mayer, as stocks seem poised for another dive. “All it takes is a few really good ideas to make a bundle in the stock market. Some stocks you buy, make some money with and sell. Some you lose on. But the biggest dollars will come from a few stars you buy, hang onto and then watch go up something like fivefold in a few years.

“Just a few great stocks can make all the difference. The odds of finding one of those rare gems is a lot better in a market like this than in one that’s been steadily rising for years. So don’t give up the quest.”

What’s the world’s greatest investor doing these days? Buying up the debt of legendary American brands. Warren Buffett’s Berkshire Hathaway picked up $250 million worth of debt from Tiffany & Co,, the famous jeweler. Factor this in with recent purchases of Harley-Davidson, Swiss Re, Goldman Sachs and GE and the trend is clear… the Oracle’s on the hunt for world-famous businesses in desperate need of cash.

Remember this mantra too… it could be a whole lot worse: Japan announced today its economy shrank a stunning 12.7% in the fourth quarter of 2008. That’s four times worse than the reported American contraction in the fourth quarter and the worst three-month stint for Japan since 1974.

China could care less. As the whole world burns, the Shanghai Composite has quietly climbed to a nearly six-month high. The index is up 30% year to date.

Despite the fundamentals plaguing the dollar, today’s flight out of stocks has the dollar on the up and up. In fact, it’s soaring…the dollar index is up a point and a half from Friday, to over 87.5.

And dollar strength spells oil weakness today. Light sweet crude is down two bucks, to $35 a barrel.

“With all the hubbub,” writes a reader, “over executive pay and who should regulate it, doesn’t it seem strange that no one addresses the root cause: that shareholders are deprived of their rights to make appropriate management decisions because of arcane state laws (proxy and other) and indefensible SEC rules that allow management to ignore stockholders and control companies for their own benefit, instead of managing for the benefit of shareholders. Management is simply not accountable to shareholders!”

“Dwight D. Eisenhower,” starts another, “in his farewell address to the nation warned of the growing threat to the nation from the military-industrial complex. Subsequent administrations have ignored his warning, to the peril of the country and the economy. Military spending is the least productive in the long run, doing nothing to build up the country. Instead of tanks, missiles, aircraft, etc. that our fear has bought us, we could have a first-rate health care system; a great educational system; up-to-date, state-of-the-art infrastructure; and fully funded Social Security programs.

“We have, in our paranoid fear, squandered all of these for military prowess, which impoverishes the nation in the end. The GAO has reported the audit of military spending every year since 1989 has not passed muster because the military has not been accountable. We, as Russia before us, are sinking under the inordinate weight of this monster.”

Cheers,

Ian Mathias

Source:Economy Down Gold Up, Stock Advice, Stimulus Bill to be Signed, Retail Forecast and More!

We don’t have to like the changes underway, but we do have to respond to them intelligently if we hope to preserve and increase our wealth. The time has come for us “free market” aficionados to dry our tears and try to figure out what to do next.

The federal government’s attempts to reshape the U.S. economy will provide numerous profit opportunities. Take, for instance, the inevitable move toward taxing carbon emissions. Attaching a price to carbon dioxide would, obviously, increase utility bills (and the price of anything made with electricity). As a result, consumers of energy would try to avoid this taxation by utilizing cleaner sources of energy.

Right now, many natural gas-fired power plants are brought online only at times of peak demand, while coal is considered a “base load” fuel since it’s cheaper. But a carbon tax would raise the price of coal (and the extra carbon it emits) closer to the price of natural gas. So it’s seems likely that carbon taxes or any other “climate change” legislation that comes from the Obama Administration will favor natural gas-fired electricity at the expense of coal.

Assuming the political popularity of natural gas will keep growing, and that solar and wind power production cannot increase fast enough to be meaningful (even with heavy subsidies), it makes sense that natural gas-focused exploration and production (E&P) companies and their critical suppliers like National-Oilwell Varco (NYSE: NOV) will enjoy years of attractive growth opportunities. NOV has an attractive business selling brand-new, highly efficient rigs built for shale gas drilling.

At the moment, a glut of natural gas has produced a drop in number of drilling rigs operating in the U.S. This drop was already discounted by the crash in the oil service stocks last fall. But the faster the rig count falls, the faster the gas glut will dissipate as 2009 wears on. If demand for natural gas rebounds later in 2009, while supply is falling, then prices could move much higher in a short period of time. I’m going to keep monitoring the supply situation closely because I think it will yield several good trading opportunities this year. And the best way to get a handle on supply is to follow where and how the smartest companies are investing.

I recently tuned in to several Webcast presentations made at the BMO Capital Markets North American Unconventional Gas Conference. The larger presenters included Talisman Energy, Comstock Resources, Southwestern Energy, Ultra Petroleum, and Range Resources — several of the visionary early movers into shale gas drilling.

These companies employ cutting-edge technology in the natural gas industry. As a group, they delivered much of the production growth the U.S. has enjoyed in recent years. We can’t do without this shale growth. Keep in mind that virtually all new electric power plants brought online in recent years have been gas-fired plants.

Most of the premier shale gas plays (Barnett, Marcellus, Fayetteville, Haynesville, etc.) can be booked into reserves and brought online at cash costs between $2-4 per million cubic feet of gas. With natural gas prices currently at $5.50, the economics of adding to shale gas reserves and production makes sense. Even if they don’t immediately hook up newly drilled wells to gathering pipelines, most of these exploration-and-production companies will still want to drill at a fairly rapid clip to book new proved reserves in 2009.

The E&P industry, like most others, contains the “haves” and “have-nots.” The haves tend to be public companies with premium valuations that reflect their huge inventories of low-cost drilling opportunities. The have-nots tend to be private highly leveraged companies that hit the accelerator on any resource that looked economic in the high-price environment. Many of them are releasing low-end rigs and will not survive this downturn.

Ultra Petroleum is certainly at the top of the “haves” list. It controls tons of acreage in the obscenely profitable Jonah and Pinedale fields in Wyoming. Because its acreage is so cheap to develop, it can keep expending production very quickly, and incremental returns on invested capital are enormous.

The same goes for Range Resources. Range is a first mover and considered an expert in developing the Marcellus Shale. It looks to have locked up most of the highest-quality acreage in the Marcellus. The Marcellus is definitely promising, but it has different characteristics across its wide geography. Range has the most profitable gas wells because it has the most experience, expertise, and proprietary seismic data. At the BMO conference, Range estimated that its Marcellus wells have the potential to earn 20% internal rates of return at $4 natural gas.

The good news if you’re exposed to E&P or service stocks exposed to shale gas: The stocks have already crashed in anticipation of an ugly environment for natural gas pricing, production, and drilling in 2009 and 2010. If conditions stabilize, rather than continue collapsing, many of the stocks exposed to growth in shale gas drilling — including NOV — should regain plenty of lost ground.

The big concern with NOV recently was J.P. Morgan’s downgrade. I read J.P. Morgan’s report and agree with many of its points. But I disagree with its method of getting to a $31 price target for NOV (I think $31 is much too conservative). It gets to $31 through a discounted cash flow model in which it assumes 2009-2011 returns on invested capital will average 8%. This is down dramatically from the 2005-2008 average of 16% and equal to the 2002-2004 average of 8%. I have two issues with this:

1) Hardly any company was investing in rig equipment during 2002-2004. The upturn in day rates didn’t really gain traction until 2004. On the next up cycle, most of the world’s drilling fleet will be approaching 30 years of age. So many of the oldest rigs will be scrapped and there could be a shortage of newer, more productive rigs that NOV helps create.

2) J.P. Morgan gives no consideration to NOV’s greatly strengthened negotiating position relative to its customers, since it scooped up several competitors. It is a one-stop shop for equipment and consumables for every E&P and drilling company worldwide. It can afford to take advantage of this down cycle with more cheap acquisitions. Such moves won’t dilute shareholder value — thanks to its strong balance sheet and cash flow.

3) J.P. Morgan gives no credit to NOV for its excellent integration of Grant Prideco — a company with very attractive growth prospects (considering that its product lines are levered to the strongest trends in oil and gas production, including stronger drill bits and better drill pipe).

So J.P. Morgan reflects the bear case on NOV, yet it still gets to a $31 price target.

J.P. Morgan’s target implies that NOV should trade at 3 times its estimated 2009 EBITDA, in line with the offshore drillers. In my view, NOV deserves to trade at more than twice the EBITDA multiple of the drillers, since it’s a far less capital-intensive business model. NOV will not be generating losses during this downturn, nor will it be forced to spend a lot on maintenance capital expenditures (as drillers must, depending on the age and shape of their fleet).

I expect the market to come around to this view when NOV reports earnings in early February. Sure, the segments of NOV’s business that are the most sensitive to the rig count will slow in 2009, but the stock market excessively discounted this slowdown when it hammered the NOV share price from its crash from $92 last July to $18 in November.

At the current quote of $25.62, NOV is a very cheap stock that could easily rebound to the mid-$30s in the coming months. I think the trend for NOV will be up over the next month or two as the market anticipates that 2009 and 2010 earnings will not be as bad as previously expected.

Source: Investing for Comrades, 101

You can find Debbie Downers in the stock market as well. Today’s example is Mattel (NYSE: MAT). After it reported lower earnings and an 11% drop in sales, it dragged Hasbro (NYSE: HAS) down with it.

The reasoning behind most of these moves is that the pressures hurting one company in a sector should be impacting the competition as well.

But that isn’t always the case.

We can find numerous examples of companies in the same industry with the same pressures that deal with those challenges differently. Southwest Airlines (NYSE: LUV) was able to put up considerable numbers over the past year as it’s competition suffered greatly. It did this by hedging its oil costs correctly.

Maybe Hasbro hasn’t done the exact same thing as Mattel – and will report similar earnings figures? But who’s to say they did. As smart investors, we cannot assume that is the case. As of this writing, Mattel is down 16% and Hasbro is down 9%.

Lets think about that, a 9% percent drop on no information about their business model. It’s the kind of emotional movement that value investors love.

Source: Mattel’s (NYSE: MAT) New Doll: Debbie Downer