While the recent rally has been impressive, markets never move in straight lines for long. And given that we’re still 80% below the highs, we still have plenty of room to run.

So now is the time you want to be getting your cash ready to deploy in preparation for the pullback. But first, you need to have a strategy. After all, it’s tough to buy companies that nobody else wants. And it’s horrifying to watch the market drop, just as you get back in. Nobody wants to catch that proverbial falling knife.

Here’s the solution…

Calling Market Bottoms – Don’t Fall For The Fake

While many simply tell you to wait until the upward momentum has begun again, nobody can call the bottom with precise accuracy. Besides, when the market bottoms, most investors are too scared to invest anyway.

And on the way back up, they’re still too scared because they think the move is false. Then, after 90% of the move is over, just as they’re getting comfortable, they jump back in and get whacked backed down. Better just to stay away from stocks completely, right?

Not at all. For most, having money in cash is a disaster for the longer-term and a prosperous future depends on successful investing. This is what you need to do to prepare…

4 Strategies For Buying On Stock Market Dips

• Set Price Levels At Which You Buy Your Stocks:

For example, this strategy would involve buying stocks in stages, each one lower than the one before.

Let’s say you want to buy Bank of America (NYSE: BAC). Buy the first chunk at levels 30% below the current price (given the volatility of financial shares these days, big drops are more common). Then, the second entry point should be 30% below the first entry point… and so forth. Of course, the percentages I have given are just for sake of this example.

• Use A Strategy That Limits Your Upfront Outlay:

For example, buy LEAP options. You’ll have less money at risk and at least a one-year, possibly two-year, holding period.

• Sell Put Options:

The premium on put options soars when stocks are falling. It also means that as shares fall, you can place a bet on a much lower entry point and get paid for trying to own it. For example, if Visa (NYSE: V) is at $64, the Visa $40 puts are worth $0. At $50, those puts may be worth $1. At $40, they may be worth $3.

• Sell Covered Call Against Your Stock Positions:

These don’t have to be at-the-money calls. Rather sell out-of-the-money calls and lock in some premiums from exuberance. As the market falls, you can buy back your calls for less money, as the premium will decrease. This provides you with a hedge. If the market goes higher – great – you’ll sell your shares at a higher price.

Whether the market falls from here or not is not relevant.

What is relevant, however, is that you’re prepared to invest in any environment, good or bad. That, plus the ability to act under pressure.

And our free Smart Profits Report archives give you plenty of in-depth tips and strategies to do just this.

Karim Rahemtulla

Source: Buying a Stock Market Dip: Here Are 4 Strategies to Use

Not that we know. But they asked us anyway.

We report to you today from the banks of the Potomac. Our old friend, Congressman Ron Paul, organized an off-the-record discussion with several other members of Congress. The subject was the financial meltdown…and the bailout. We were there to talk, of course, but we were more interested in listening.

“You don’t understand,” said a Senate functionary we met later, “these people live in Bubble World. They’re protected from the real world by their staffs and by the system itself. You imagine that they would know what is going on. But they don’t. They know less than we do. And they’ll be the last to find out. They are so busy meeting constituents…dealing with donors…working out deals with their political parties and supporters…and feeling like big shots…they don’t really have any time to study the issues. So they count on staff and party committees to tell them what to say, how to vote…and what to think.”

Waiting in the corridor of the Cannon building, two men in grey suits walked by…we overheard this conversation:

“Did you vote ‘no’ on that last resolution? You we’re supposed to vote ‘yes.’”

“I thought I was supposed to vote ‘yes’ to cutting off the argument… as far as I’m concerned we’ve heard enough about Nancy’s problem with the CIA…”

“But that wasn’t about cutting off the debate, that was just technical…about allowing them to modify the previous vote…”

“What are you talking about…”

“I don’t know…I didn’t think it had anything to do with stopping all this gabbing about Nancy and the CIA…”

We take it for granted that Members of Congress often don’t know what they are talking about. But it is shocking to realize that they often don’t know what they are voting on either. And neither do the voters.

The Economist reports, for example, that the measures put before California voters in a recent plebiscite were challenged…not by the courts, but by a grammarian. She claimed they were worded in such a way that it was impossible for a reasonably intelligent person to understand what they were supposed to mean.

More on our visit to Capitol Hill:

*** Since the meeting was “off-the-record,” we can’t tell you who was there or what they said. We can only report what we had to say.

“Look…economies…and empires…go in cycles,” we began. We thought we ought to start with the basics, since we didn’t know what they thought.

“Growth…maturity…then, decline. That’s just the way it is. So in order to get an idea of what lies ahead you have to figure out where you are in the cycle.

“You never know for sure, but there are tell-tale signs. The credit cycle, for example, has been on an upswing in the US since the Great Depression. First, there was in-store consumer credit as early as the ‘20s. There was some mortgage credit…and some margin credit for investors too. But during the ’30s, the financial strain was so great that most people regretted their debt and paid it down. Or they defaulted.

“You could get a mortgage back then if you put 50% down…and paid it off in full in 3 to 5 years. And then Franklin Roosevelt set up the FHA…along with Fannie Mae. And pretty soon, you could borrow 80% of the house price and pay it off over 15 years.

“Major credit cards – Mastercard (NYSE:MA) and Visa (NYSE:V) – didn’t become widely used until the ‘60s. And then, credit began to rise more steeply. Total debt had been about 150% of GDP in the ‘50s and ‘60s…but it rose quickly after the ‘80s. By the 2000s, you could get a mortgage for 110% of your house price – an inflated price at that. And you could take 30 years to pay it off.

“As for credit cards, hardly a day passed when you didn’t get a new one in the mail….usually with a higher debt limit. Debt rose…and rose…and rose…up to 350% of GDP. And finally, the whole debt bubble blew up.

“You have to remember that the US economy – in fact, much of the whole world economy – came to rely on more and more debt as a way to expand. At first, a fellow could borrow $1.50…he’d spend it and invest it…and it would lead to an increase in GDP of $1. But, as time when by it took more and more debt to produce more GDP. The fellow would borrow a $1.50…but then, part of it would have to be used to pay the interest on what he borrowed before. Eventually, it was taking more than $6 to produce a single ounce of GDP.

“You can see that this won’t work for long. GDP is like national income. You can’t have debt increasing 6 times faster than income – at least not for long.

“But remember, the US economy depended on this debt-fueled growth. Without the extra credit, the economy will slip back…which is what is happening.

“We’ve reached a turning point. The financial industry has blown itself up. It realized that all those credits it had, from people who didn’t have the cashflow to repay their debts, weren’t worth what they were supposed to be worth. We’re now on the downhill slope of the credit cycle…and most likely, the imperial cycle too.

“What everyone wants to know is how long it will take before we have a genuine recovery. And then, everyone…everyone…seems to think that the government can stir up new growth by pushing more debt onto the public…this time, public debt. And get this…the feds are now adding debt to the system at a rate 4 times greater than the previous record.

“They…you…are running a budget deficit of $1.8 trillion this year. Could be higher. How much in extra GDP do you get from all that extra debt? Well, a good question…because GDP is now going backwards. The latest numbers show output going down at a 6% rate in the US. And that’s one of the world’s better rates. Exporters – notably Germany and Japan – are doing much worse. GDP is falling 14% in Germany. It’s going down at a 15% rate in Japan.

“So, the feds are adding trillions in new credit (debt) and getting no GDP growth from it — zero…zilch…nada. In other words debt is growing infinitely faster than GDP.

“How long can this keep going? No one knows. But one thing we do know is that the economy is not going to start up again and deliver good, old-fashioned, healthy growth. We’re in the process of de-leveraging. That is, we’re on the down-side of a credit cycle. We’re getting rid of debt, not adding to it.”

If we’d had today’s newspaper in front of us, we would have pointed at the headlines.

“Recession Turns Malls Into Ghost Towns,” says the Wall Street Journal. Malls are emptying out because they were built for a world that no longer exists. They were built for a world where people increased their debt and their consumer spending far faster than they increased their real incomes. Now that people are cutting back on spending – in order to reduce their levels of debt – they can no longer afford to go to the mall. As a business or an investment, malls have got to be bad places for your money.

“The private sector is not going to take on more debt,” we continued our explanation. “People know it doesn’t pay. And they’ve got too much already. The private sector is not going to begin a new growth period until they’ve paid off, worked out, defaulted on, or shirked a lot of their present debt load. We’ve estimated that they need to get rid of about $20 trillion worth. And that’s going to take time. And a lot of painful decisions by a lot of people. Bad business, investment and spending decisions need to be recognized…and fixed. Debt needs to be reduced.

“And that’s why this downturn is not going to end tomorrow.”

If we’d had the mall example in front of us, we could have explained that a mall represents a kind of bubble-era investment that now needs to be restructured. After America’s industrial age was over, the country found itself with empty factories and warehouses. They were mostly written off and destroyed. Some were converted – into lofts and shopping malls. Now that the retail age is over, we’ll have to find new uses for malls too.

“This is going to take time,” we told them…and then we took a break to listen…and eat some shrimp.

Source: What We Told the Chiefs of ‘Bubble World’

The stress-test results are expected to show that the 19 banks may have to raise between $100 billion to $150 billion – or even more – in new capital. Investors will cause the shares of the strong players to zoom northward, and will likely savage the shares of the weakest players.

“I can’t think of a time since I’ve been watching banks when there’s been so much uncertainty about the true value of a key set of assets,” Douglas Elliott, a fellow at the Brookings Institution, a Washington think tank, told Reuters.

The U.S. bank stress tests have transfixed the world financial markets for weeks, exacerbating the ongoing financial crisis – worsening the U.S. recession and shaking economies around the world. That’s escalated the burden on the still-new Barack Obama administration and on the U.S. Congress.

The banks being tested include Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), and Goldman Sachs Group Inc. (NYSE: GS). All told, the 19 banks hold two-thirds of total U.S. bank assets.

“Most banks will have to raise capital in some form,” Friedman, Billings, Ramsey Group Capital Markets Group (NYSE: FBR) managing director Paul Miller told Reuters. “The capital raises will be much bigger than people think.”

Miller said that uncertainty about what the tests might reveal has made banks stocks “uninvestable” in the near term.

The issue for investors is that “you just don’t know how the government is going to view it,” Miller said.

Public release of the stress test results is set for Thursday. The government is scheduled to brief the top officials of the banks themselves tomorrow (Tuesday).

Although all but one of the 19 major U.S. banks the government has stress-tested reportedly passed, many skeptics believe the banks are still using all sorts of accounting dodges to keep from revealing just much they still hold in toxic assets and bad loans, National Public Radio reported.

Why wait for the U.S. Treasury Department’s bank stress test when Money Morning can highlight the four secrets that will let you separate the winners from the losers in the U.S. banking system?
Call it the “Money Morning Bank Stress Test.”

Money Morning Contributing Editor Martin Hutchinson last week evaluated the 13 largest U.S. banks and rated them as either “Zombies,” “Walking Wounded,” “Risky But Proud,” and “Hidden Gems,” and concluded that nine of the banks pose some degree of risk. But he also found that four of the financial institutions are “Hidden Gems” that might be worth a look for investors.
On Thursday, we’ll finally see how it all plays out.

Market Matters

Chrysler LLC filed for bankruptcy and then forged a potentially “game saving” partnership with mighty Fiat SpA (OTC ADR: FIATY), Italy’s largest car manufacturer.  General Motors Corp. (NYSE: GM) will be saying good bye to its Pontiac brand (any interest, Fiat?).  Bank of America’s Ken Lewis was stripped of his board chair, but will continue to put out fires from the chief executive office.   Earnings season moved forward and Exxon-Mobil Corp. (NYSE: XOM) did NOT set a new record for a change.  International Business Machines Corp. (NYSE: IBM) bucked the cost-cutting trend and actually raised its dividend.

With Treasury set to release the stress test results on Thursday, rumors are circulating that Bank of America and Citigroup may be in need of additional capital, though both are pleading their cases.  Meanwhile, Citi began lobbying for permission to pay retention bonuses to key employees [it worked for American International Group Inc. (NYSE: AIG) and Merrill Lynch (NYSE: SQD)], who may seek the greener pastures of other (ailing) financial institutions.

Telecommunications firms were in the spotlight early in the week as chipmaker Qualcomm Inc. (Nasdaq: QCOM) raised its revenue outlook and Verizon Communications Inc. (NYSE: VZ) actually announced increased earnings in the first quarter.  Verizon may be teaming up with Microsoft Corp. (Nasdaq: MSFT) to develop its own touch-screen cell phone to cut into Apple Inc.’s (Nasdaq: AAPL) iPhone market share.

Drugmakers Pfizer Inc. (NYSE: PFE) and Bristol-Myers Squibb Co. (NYSE: BMY) posted quarterly results that beat Wall Street expectations, as did The Dow Chemical Co. (NYSE: DOW) and Starbucks Corp. (Nasdaq: SBUX), though the latter’s major restructuring (store closures) prompted a 77% decline in profits.

MasterCard Inc. (NYSE: MA) confirmed that 2009 will be a challenging year, though rival Visa Inc. (NYSE: V) beat earnings estimates, as debit card usage increased, resulting in greater fee income.

The Procter & Gamble Co. (NYSE: PG) struggled last quarter, with weaker sales, as shoppers traded down to lower-priced consumer goods.  Exxon-Mobil, Chevron Corp. (NYSE: CVX), and Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) were victims of the declining global demand for oil.  Still, Exxon’s long-term outlook remains strong as the company continues pouring money into development projects to be fully prepared once the recession ends.  In fact, management even boosted its stock dividend.

Economically Speaking

While the U.S. Federal Reserve seemed to offer some “cautious optimism” about the overall direction of the economy, the policymakers avoided any sugarcoating and hedged their comments for fear of an unforeseen development (such as the “swine flu,” also known as the A/H1N1 flu).

While the virus quickly expanded across the globe, most of the worst cases have been limited to Mexico, where the already depressed economy will be further impacted from business closures and travel restrictions.

When SARS (Severe acute respiratory syndrome) hit in 2003, China’s gross domesic product (GDP) was estimated to have been hurt by about 1%; According to early projections by Moodys Corp.’s (NYSE: MCO) Economy.com, the Mexican economy will contract by 6.2% in 2009 (revised from the -4.5% estimate to account for the flu).

The Fed plans to leave rates at near 0.0% and stands prepared to purchase more Treasury and mortgage-related securities to keep the economy moving in the right direction.

The first quarter’s gross domestic product (GDP) highlighted a relatively hectic week on the economic front.  While the economy contracted from January through March at a worst-than-expected 6.1% clip, analysts found some positives deep within the release, as consumer activity actually picked up during the quarter.

The spending component rose by 2.2%, after falling by 4.3% in the fourth quarter.  Additionally, a decline in inventories hindered the release; however, economists point out that such a reduction indicates that manufacturers have scaled back production and will not be burdened with excessive supplies that may need to be deeply discounted to be sold. As demand slowly returns, they will be able to boost production once again.

Meanwhile, consumer confidence surprisingly soared to levels not seen since November 2008, which is especially good news, since the consumer accounts for about two-thirds to 70% of the activity in the economy.

Weekly Economic Calendar

Source: Market Moves Will Remain on Hold Until Bank Stress Test Results Are Released Thursday

But their pleas fell on unsympathetic ears as Obama pressed forward with plans for enhanced consumer protection laws that go beyond credit card restrictions approved by a U.S. House committee Wednesday.

The credit card executives requested the White House meeting as they face outcries of anger from beleaguered cardholders and Congress.  Representatives from a “who’s who” of industry leaders attended, including Citigroup Inc. (C), Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM), Capital One Financial Corp. (COF), Visa Inc (V) and MasterCard Inc (MA).

“They’re saying that the economic recovery will take longer if Obama takes punitive action against lenders, but the Obama folks…need more of an explanation,” Linda Sherry, director of national priorities at Consumer Action, a watchdog group that tracks credit-card practices, told Bloomberg News.

As unemployment and credit card delinquencies rise, card issuers are on the hot seat for imposing large late fees and slamming delinquent customers with huge interest rate increases.

Delinquencies are soaring throughout the industry in concert with unemployment, which reached a 25-year high of 8.5% in March. Charge-offs, which are loans that banks have given up on, increased to an average of 8.02% in February from 4.53% a year earlier, Bloomberg reported.

Capital One reported a $111.9 million first-quarter loss on higher reserves for soured loans on Wednesday. Bank of America reported a $1.8 billion first-quarter loss in its credit-card services unit.

Lenders have tried to protect themselves with late fees, tightening credit limits and closing accounts, angering both lawmakers and consumers.

The meeting came a day after a bill to curb credit card fees and limit penalties cleared a key panel in the House of Representatives

The legislation – called the Credit Cardholders’ Bill of Rights – stops credit card issuers from imposing arbitrary interest rate increases and penalties and halts onerous billing practices. A separate version of the bill is under review in the Senate.

Legislators have expressed outrage that many card issuers have received government bailout money under the Treasury’s Troubled Asset Relief Program, essentially paid for by the U.S. taxpayers who use the cards and are saddled with the high fees.

President Obama’s economic adviser, Lawrence Summers, last weekend accused the companies of enticing consumers with aggressive marketing campaigns and deceptive interest-rate terms, encouraging them to become “addicted” to credit.

The White House specifically wants any legislation to limit issuers’ ability to charge fees when customers exceed their credit limits. Obama’s chief of staff, Rahm Emanuel, recently told House Financial Services Chairman Barney Frank that Obama also wants card issuers to offer longer terms for introductory, low teaser rates.
The administration also wants card companies to apply excess payments first to balances with the highest interest rates, and to tell customers how long it will take to pay off their balances if they only make minimum payments.

The banks are saying the proposed regulations will make matters worse by raising costs, restricting credit, and ultimately hurting borrowers more.

“If the government keeps changing rules, it may make it harder for consumers to get credit,” Ken Clayton senior vice president of card policy at the American Bankers Association in Washington, told Bloomberg.

“It means less credit available to vast numbers of Americans at the very wrong time,” he said.

Why pass up guaranteed money when it’s just sitting there waiting to be collected? That’s what we thought when analyst Martin Hutchinson pointed this out to us: On May 28, investors can collect $3,177 in guaranteed cash from just one stock. And by June 4, you can increase that amount to $4,201. Martin’s written a report on how to collect this money yourself. And you can hear him talk about it in his special video report attached. As he explains, just take a few simple steps by April 26 and you’ll pocket some nice income. The deadline is firm… and the companies guarantee this money. This is something worth taking a look at.Just Go Here.

Source: Obama Pushes Credit Card Issuers on Fees, Rates

]]> http://www.contrarianprofits.com/articles/obama-pushes-credit-card-issuers-on-fees-rates/15926/feed 1 http://www.contrarianprofits.com/articles/and-then-theres-thisthursday-november-13th-2008/8439 http://www.contrarianprofits.com/articles/and-then-theres-thisthursday-november-13th-2008/8439#comments Thu, 13 Nov 2008 18:26:34 +0000 Ed Steer http://www.contrarianprofits.com/?p=8439 On Tuesday, both gold and silver started to decline at one of their usual times…about 3:00 a.m. New York time on Tuesday morning…with the bottom coming at the close of London trading. The price managed to recover somewhat after that…but once again (at 3:00 a.m. New York time on Wednesday morning) gold and silver prices began to decline. There was a temporary bottom at the London close again yesterday, but the recovery was short-lived, and both metals were taken down right into the close of after-hours trading on the Globex.

Monday’s activity showed another decline in gold open interest…down 2,312 contracts. Tuesday’s sell-off brought another o.i. decline in gold of 906 contracts. Without doubt, yesterday’s activity will show a further decline…

This from Today’s Financial News:

All across America, huge companies are selling at deep discounts. One of those companies is General Electric (NYSE:GE). It is one of the most prominent, well-known and successful companies in the world, yet its shares are selling for prices just shy of half what traders were getting one year ago.

In fact, GE has not been this cheap in over a decade. The last two times shares of General Electric were this cheap, investors more than doubled their money in the following few years.

Imagine having the opportunity to purchase shares of the company for just $22 this time last year when shares were peaking at $42.

Investors would have pushed their own mothers out of the way for that kind of opportunity.

Let’s face it. General Electric has been in business for a long, long time. And it will remain in business for an even longer period of time. Because the company is such a diversified mega-conglomerate it has the power to withstand immense turmoil.

A Wall Street panic like the one we saw recently is nothing new to this Blue Chip. GE has endured huge price declines many times in its past. Each and every time it did, share price rebounded dramatically higher than where it started.

As I write, GE’s fundamentals are in ranges we have not seen in a very long time. With a reading of just 9.6, the company’s price-to-earnings ratio is insanely low. It should be twice that figure, at least. The downturn has created the ultimate value play.

That is why Warren Buffett recently wrote the company a check for $5 billion so he could get his hands on the profit potential. You do not become the nation’s richest person by paying too much for something. Follow his lead.

Shares of GE are priced at levels we should not see except during the most catastrophic economic events. We are nowhere close to that situation. Granted, the company’s earnings will suffer over the next few quarters. But the decline will not be anywhere close to justifying this huge share price decline.

General Electric is oversold. Warren Buffett knows it. I know it. Now you know it.

Buy shares of the company and wait for the rebound. In just a year or two, when shares are once again trading for $40 and more, you will be very, very glad you did.

Discover what it is like to be rich

Since we are following in the footsteps of Buffett, how about we take another piece of his sage advice…

Buffett is constantly discussing his investment philosophy: buy what you know and use. This theory is why Campbells Soup and McDonalds have remained relatively unscathed by the credit crunch.

To learn about the next undervalued superstar, all you have to do is open your wallet. I bet you have a few credit cards stashed in there.

All of the major credit card companies – names like Visa (NYSE:V), Mastercard (NYSE:MA), and American Express (NYSE:AXP) – have seen their valuations drastically reduced during the recent bear market. None of them are as undervalued as Discover Financial Services (NYSE:DFS) and its powerful Discover Card brand.

Selling for less than $11, down from over $32 less than two years ago, shares of the company are a downright steal.

Again, this company and its products are in a very strong position. No matter what happens in this economy, people will still use their credit cards. And even if every American cuts their cards to shreds, Discover still has a strong network in 184 other countries.

Like I mentioned above, all of the major credit card companies have been hit hard in recent weeks. And all of them have created fantastic buying opportunities. But only Discover adds a powerful technical investing layer to the mix.

Over the next few weeks and months, we are bought to hear the mainstream media discussing record-breaking delinquency rates. More people than ever will be late with credit card payments as the economic machine grinds to a halt.

For the nation as a whole, folks that cannot afford to pay their credit card bills is a terrible thing. But for credit card companies, like Discover, that are allowed to charge huge annual interest rates and levy fees for just about everything, late payers create a wealth of revenue streams.

Shares of the company are trading right at all-time lows. It means no investors have ever bought shares of this company at prices this cheap. It also means if anybody wants to sell, they would have to do it at a loss. It puts a solid floor under share price and is a phenomenon technical investors love.

Even if the economy were to take a strong downward slide, Discover’s firm price floor would help avoid any serious share-price decline. It will also create a catapulting function as the market and the economy rebound.

As long as you buy shares below $12, your position should create some fantastic profits.

The coal industry cannot die

While we are on the subject of investing in what we know and use, let’s discuss another product that we are both using right now, electricity.

Electricity is the commodity this world depends on every second of every day. And chances are the electricity your computer is using as you read this report was created by coal. It is a good bet because about 50% of this nation’s electricity is generated by burning coal.

If you have heard any of the presidential debates, coal is going to be a major energy focus over the next four or eight years. Both candidates are pushing for increased growth in the clean-coal industry.

That means coal is not going away anytime soon. But if an outsider were to look at the prices for the raw material or the share price of the companies mining and selling the indispensable fuel, they may be inclined to believe coal’s days are numbered.

They would be dead wrong.

Coal will play a vital role in the global economy for decades, if not centuries, to come. Thanks to new technologies, coal can be burnt in an ultra-efficient, super-clean process. It can even be used to make the fuels that power our cars, trucks, trains, and planes. Coal is the next “super fuel.”

One company poised to take advantage of any growth in the coal-producing industry is James River Coal Company (NASDAQ:JRCC). It is yet another company with shares trading for just a fraction of what they were a few months ago.

Right now, you can get your hands on shares for just less than $20.

In June, they would have cost you over $60. This time next year, they will likely cost you at least that much.

There are two important facts to understand about the coal industry.

First, there is a global coal shortage. Demand far outstrips supply no matter where in the world you go. China, India, Australia, and Russia are desperate to get their hands on more fuel. Fortunately, the United States has over a quarter of the world’s coal supply in our own backyards. Finally, we have the power in our hands.

The second thing you need to know is that once a coal-fired generating plant goes online, it cannot afford to shut down. It will need a continuous supply of coal for decades to come. It is just the opposite of nuclear-operated facilities. A nuke plant only needs fuel every twenty years or so. Coal plants are addicted to fuel.

Combine a nearly constant demand stream with a lack of supply and every economist will say you have a perfect recipe for profits. Throw in a stock price that has been unduly beaten down because of unfounded fears of an industry slowdown and you have an opportunity to score big time as share price rebounds.

James River Coal Company is trading well below dirt-cheap territory. Take advantage of Wall Street’s mistakes and buy shares under $22 while you still can.

An American classic

Finally, there is one more all-American company investors absolutely must know about. This one is truly a Blue Chip selling at penny-stock prices.

Take a look at a chart of Ford Motor Company (NYSE:F) and you will see a history of ups and downs. The company is in the heart of a highly cyclical industry constantly expanding and contracting. But no downturn has ever been as big as this one.

A decade ago shares of Ford were selling for over $37. Today, you can get them for less than $3.

It is the price of a mere cup of coffee at Starbucks and is a price Ford shareholders have not seen since the Reagan administration.

Granted it may be a long time before the company sees shares trading for over $35, but it certainly will not be long until we see them at $10 or even $15.

The domestic auto industry has reached its bottom. It is impossible to argue any other way.

Just look at the deal General Motors (NYSE:GM) and Chrysler are working to create. Obviously, if it can get its hands on Chryslers strong Jeep and minivan lineup, plus billions of dollars in desperately needed liquidity, General Motors will be a major benefactor. But so will Ford.

The auto industry will consolidate. There will be one less major competitor. Prices will begin to rise and margins will increase substantially. This is a deal that could save Detroit and make a lot of smart investors rich along the way.

But there is even better news.

Just recently, Congress handed Detroit automakers its own version of a rescue package. It came in the form of $25 billion in loans. The deal gives the automakers an insurance policy that will ensure they make it through this latest cyclical downturn. After all, no politician will ever let Ford go belly up on their watch.

Experts agree by 2010, the nation’s car industry is going to embark on a serious upswing. The cars that Americans bought during the last boom cycle will be wearing out, Detroit will have a new, high-tech product lineup, and customers will once again be walking into showrooms with pockets full of cash.

You can wait for the company to start making big headlines and get shares at $10 or more. Or you can invest at penny-stock prices and hold onto the shares as Ford gets back on its feet.

In less than 24 months, we will be entering the fourth-quarter of 2010. This credit crunch and recession talk will be in the history books. Most importantly, your shares of Ford will be worth three or four times more than they are right now.

Investors have an exciting road ahead. We have made it through the worst of the market turmoil. The economy is going to slow but it is finally back to fundamental investing. No longer will we see wild swings wiping out entire sectors. Now the weak will be eliminated and the strong will flourish.

Invest in the strong companies while their prices are dirt cheap and watch your profits grow as Wall Street figures out how to fix this mess. In just a few years, the credit crisis will be behind us and some huge profits will be in your pockets.

Source: Blue chips at penny stock prices

The requirement was tagged onto the Housing Bill as it rushed its way through Congress. It aims to clamp down on $100 billion that the IRS claims small businesses owe in taxes.

But Mark says there might be more to this measure than just collecting unpaid taxes. What if the IRS are preparing to introduce an internet sales tax? This would raise large revenues for the state, but cause an administrative nightmare for small, online merchants.

Either way, it’s time to start saving those receipts…

If you can take the IRS at their word, then supposedly the U.S. Treasury loses nearly US$100 billion in unpaid taxes from small businesses.

That’s a big number, and I believe it’s a gross overstatement. I’ll explain why in just a moment. But in reality whatever the number is, the new housing bailout bill is designed to dramatically reduce it.

The IRS believes that America’s small businesses are evading billions of dollars in taxes through unreported credit card transactions. And for that reason, it’s long been at the top of their legislative agenda to require credit card issuers and electronic payment systems like PayPal to report sales data to the IRS.

Tax Inquisition Planned to
Bailout Deadbeat Homeowners

The housing bailout bill does just that, broken down in terms of payments to businesses accepting the cards. Essentially, the bill requires Visa (NYSE:V), MasterCard (NYSE:MA), Discover (NYSE:DFS), American Express (NYSE:AXP), PayPal, Amazon (NASDAQ:AMZN), Google Checkpoint (NASDAQ:GOOG), and virtually every other “electronic payment system” to track, aggregate, and report to the IRS, information on nearly every electronic transaction.

They must report:

• The gross amount of payment card and third-party network transactions
• The name, address, and taxpayer identification number of the participating merchant

However, the bill gives these systems more than two years to gear up for these requirements. Mandatory reporting won’t come into effect until 2011.

Basically, what the bill does is to give the IRS a way to check what a credit card company or electronic payment system is actually paying a small business compared to what the business owners are reporting on their tax returns. If the two numbers are wildly out-of-sync, then you’re likely to be audited.

eBay Powersellers, Beware!

How might this bill affect you? If you’re an eBay (NASDAQ:EBAY) Powerseller, for instance, and sell US$40,000 of cosmetics each year over the Internet, at the moment, eBay doesn’t have to tell the IRS anything about the sales.

But starting in 2011, eBay will have to send you – and the IRS – an annual report. The report would say for example that Connie’s Cosmic Cosmetics received US$40,172.13 in gross payments from eBay for that year.

And here’s where it might get very dicey with the IRS. People who operate businesses are supposed to declare their gross income on Schedule C (or a corporate tax return). Then they’re supposed to deduct all the costs of doing business to arrive at a net figure of taxable income.

However, a lot of small businesses don’t keep particularly good records. All the owners may know are what they have left at the end of the year. And that’s what they report as their income, without accounting for their gross income or their expenses. Any Internet business that takes this approach after 2011 will be in for a serious wake-up call!

The Numbers Don’t Add Up!

As I mentioned a moment ago, the IRS believes small businesses are evading taxes to the tune of US$100 billion annually. That’s the number IRS Commissioner Mark Everson dangled in front of the Senate Budget Committee in 2006.

Everson also said that if Congress unleashed the IRS against small business, it could recover “between US$50 billion and US$100 billion without changing the dynamic between the IRS and the people.”

Now, Congress has done exactly that. Only the numbers don’t add up. A more recent study from the Treasury Department says that credit card transaction reporting would net less than US$10 billion in added revenue.

And indeed, according to the Congressional Budget Office, the new provisions will raise slightly less. The Budget Office estimated they’ll raise a total of US$9.8 billion over a 10-year period.

The Hidden Agenda for Reporting Credit Card Transactions

That’s a lot of dough, although it’s a pittance for the tax-and-spenders inside the beltway.

For that reason, I don’t think matching up credit card transactions with eBay power sellers is the real reason Congress enacted this part of the housing bailout bill. Instead, I think there’s a hidden agenda for a much bigger take.

I could be wrong, but it seems to me that setting up an infrastructure that matches credit card transactions with payments to Internet merchants is a tailor-made solution to help collect sales tax.

Right now, most Internet transactions still aren’t subject to any form of sales tax. States will be chomping at the bit to get the IRS to share this data with them, so they can directly bill merchants for in-state sales. Any company that does business on the Internet, but doesn’t charge sales tax is at risk.

It’s not necessarily simple to “know what you owe,” either. In addition to the sales tax regimes in effect in nearly all 50 states, online merchants that collect sales tax must negotiate a maze of city, county, and municipal taxes.

Plus, they must file sales tax returns in the jurisdictions in which they sell goods or provide services. Small merchants that can’t justify investing thousands of dollars in software that can make the necessary calculations, and file the necessary returns, will be forced out of business.

Then there are the periodic calls for some kind of future national sales tax or value-added-tax. The infrastructure this bill creates will make this tax easy to collect. Everything will be in place, and the IRS can simply send a bill to merchants that don’t pay the tax.

Even if this worst-case scenario doesn’t come to pass, it’s quite clear that if you operate a small business, the IRS has you in its sights. And come 2011, you’d better have the data to track every dollar you spend in business expenses against the gross income reported to the IRS. And if you don’t, you can count on a tax inquisition.

Source: Small Business Owners Beware: Say Goodbye to Tax-Free Internet Sales

Their valuations would make it tempting – as both firms are trading near their 52-week lows – but Bader al-Saad said it’s more about the companies’ plans for recovery.

“In Citi or Merrill, if there is good opportunity, we will look into it. Do we increase our stake? It all depends on the performance and strategy,” Saad said when asked whether KIA might raise its stakes in both troubled U.S. banks.

In January, the $250 billion Kuwaiti fund agreed to invest $3 billion in Citigroup and $2 billion in Merrill. Back in 2006, the KIA invested more than $700 million in the Industrial & Commercial Bank of China, making it the bank’s No. 1 investor at the time.

In March later, KIA invested an undisclosed amount in Visa Inc.’s (V) historic initial public offering.

Should KIA – the world’s oldest sovereign wealth fund – follow through with its intentions, its contributions would rank near the top in the list of Citigroup’s lifesavers. In addition to the $3 billion Citigroup already received from KIA, the beleaguered Citigroup has received a $7.5 billion cash infusion from Abu Dhabi Investment Authority and nearly $7 billion from Singapore Investment Corp. Pte. since last fall.

And in addition to the previous $2 billion from KIA, Merrill said in late December it would receive a $6.2 billion cash infusion, with up to $5 billion of that coming from Singapore’s state-run Temasek Holdings.

Lehman Looking for Capital

With its stock down more than 16% this week and more than 53% on the year, Lehman Brothers Holdings Inc. (LEH) has begun looking overseas for more capital, The Wall Street Journal reported.

The Wall Street firm has already spoken with one investor in South Korea, where it is well-connected through its vice chairman Kunho Cho, the newspaper reported.

Bailouts Across the Board

State-run sovereign wealth funds currently control $3 trillion – a figure experts expect will soar to $12 trillion by 2015. For perspective, the estimated U.S. gross domestic product (GDP) for 2006 was slightly more than $13 trillion. Some forecasts say that they will control $20 trillion by the middle of the next decade.

The richest sovereign funds include the Abu Dhabi Investment Authority, or AIDA ($875 billion), the Government of Singapore Investment Corp. ($330 billion), and Norway’s Government Pension Fund Global, or GPFG ($322 billion), although several others could be even larger.

And with such a fat wallet, many of these “Global Cash Barons” have been on a spending spree bailing out financials or investing in emerging market upstarts.

For an in-depth look at sovereign wealth funds, their motives and how to profit from them, check out Money Morning’s Investment Report: Three Ways to Profit From Sovereign Wealth Funds – the “Next Wall Street”

Source: Kuwait Sovereign Wealth Fund Considering Bigger Citigroup and Merrill Stakes

Still, a few prominent players are set to report this week led by The Walt Disney Co. (DIS) (entertainment), Cisco Systems Inc. (CSCO) (tech), and American International Group Inc. (AIG) (financial services).

The Microsoft Corp. (MSFT)/Yahoo Inc. (YHOO) (and occasionally Google Inc. (GOOG)) soap opera will be worth watching – if only to make sure that Microsoft’s withdrawal isn’t a cover ploy for a hostile run at Yahoo [For a related news story in this issue of Money Morning that details Microsoft’s decision drop its pursuit of Yahoo, please click here].

A slow schedule on this week’s economic calendar will prompt a much greater focus on the dollar as investors speculate on whether the price run-up in commodities – and oil – is at, or near its end. Gold prices will help make that determination [For a related news analysis of gold prices in this issue of Money Morning, please click here].

U.S. Federal Reserve Chairman Ben S. Bernanke is scheduled to address the Columbia Business School on mortgage issues, though he’ll surely also be asked about central bank policies by a rapt audience whose members will hang on his every word. [Wasn’t he supposed to be on vacation?]

Last week’s earnings saw some energy companies that were benefiting from the most recent surge in energy prices. Though Exxon Mobil Corp. (XOM) only claimed the second-highest profit ever (it also holds the title for the single best quarter ever), the results nevertheless disappointed Wall Street, which was obviously pulling for a new record.

Likewise, Chevron Corp. (CVX) and BP PLC (BP) reported favorable periods. In the wake of the recent initial public offering (IPO) of credit-card processor Visa Inc. (V), rival MasterCard Inc. (MA) doubled its earnings last quarter as its international business helped overcome domestic weakness. Consumer-products giant The Procter & Gamble Co. (PG) also received good news from overseas with higher sales of consumer goods like diapers (Pampers), razors (Gillette), and shampoo (Head & Shoulders) from certain emerging markets.

Not all was rosy, however, as Sun Microsystems Inc. (JAVA) and food giants Kellogg Co. (K) and new Warren Buffet favorite Kraft Foods Inc. (KFT) each fell prey to the continued economic “challenges” in the U.S. market.

On the transactional front, investor Kirk Kerkorian will boost his stake in Ford Motor Co. (F), in turn a nice boost for the domestic auto industry. Time Warner Inc. (TWX) will be spinning off its 84% stake in its cable operation, Time Warner Cable Inc. (TWC).

And privately held M&M’s-maker Mars Inc. will buy Wm. Wrigley Jr. Co. (WWY) for over $20 billion in cash with financing help from famed sweet-tooth junkie, Warren Buffett.

Market Matters

Recession? What recession? For days, weeks, even months now, naysayers had been predicting the emergence of that dreaded “R” word with the release of 1st quarter GDP. Additionally, they claimed that the labor picture would continue to worsen, gas prices would hit $4 a gallon by summer, the dollar would be worth next to nothing, corporate earnings would signal more “gloom and doom,” and high-net-worth investors would be making dramatic allocation shifts from the “risky” equity markets.

Not so fast … the data released last week appeared to portray an economy closer to a rebound – far from the dire business climate the gloom-and-doomers had been predicting. A stronger dollar that may have placed a ceiling on oil (and other commodities) prices, and rich folks seemed to be looking for bargains in stocks.

Do we here at Money Morning buy into that totally bullish scenario?

Not necessarily.

But we do agree that the next few days, weeks, and months are going to get more interesting.

The latest Fidelity Investment’s Millionaire Outlook reported (mildly) bullish findings among its surveyed investors who have average investable assets topping $4 million. Instead of decreasing their equity allocations, 27% of these millionaires plan to add stock positions during the next 12 months. Only 7% expect to sell out of equities, which logically deduces 66% will be staying the course. Real estate seems to be another “favored” asset class, as 14% of respondents say they will increase exposure to related investments. That doesn’t quite sound like “gloom and doom” at once.

Oil flirted with the $120 a barrel level before sliding on a stronger dollar and news that the Fed may play the “wait and see” game (see below). Equity investors again took a “things could have been worse” approach and sought out value in the aftermath of last week’s economic and earnings reports. Some analysts believe that a stronger dollar will mean the end to the rally in commodities, and investors (hedge funds) will take some related profits and move back into stocks.

Despite all the recent negativity, the Dow Jones Industrial Average surged more than 500 points in April, and the Standard & Poor’s 500 Index and Nasdaq Composite Index both rose about 5% – hardly the recessionary results many had been anticipating.

• Chinese Internet media company Sohu.com Inc. (SOHU) announced its first quarter revenue soared 156% year-over-year to $84.8 million, exceeding the high end of company guidance by $16.3 million. Shares climbed 14.51% on the news, closing at $70.81 a share.

• Crude oil rose to a record $119.93 a barrel in New York on the shutdown of a North Sea pipeline and as a strike and militant attacks reduced output from Nigeria. Oil has shot up 80% in the past year as supply failed to keep up with surging demand in China, India and the Middle East.

• Investor Kirk Kerkorian said he bought 100 million Ford Motor Co. (F) shares – a 4.7% stake in the company. He intends to buy more in a vote of support for Chief Executive Officer Alan R. Mulally, according to Bloomberg News.  Ford rose 9.5% to close at $8.21 a share.

• Verizon Communications Inc.’s (VZ) profit climbed 9.8% boosted largely by the telecommunications carrier’s wireless growth. Verizon reported net income of $1.64 billion, or 57 cents a share, for the first quarter, compared with $1.5 billion, or 51 cents a share, a year earlier. Revenue rose 5.5% to $23.83 billion.

• Visa Inc. (V) said profit jumped 28% in the company’s first earnings report since its record $19 billion initial public offering last month. Net income climbed to $314 million, or 39 cents a share, in the quarter ended March 31, from $246 million a year earlier, the company said today in a statement distributed by PR Newswire.

• Bank of America Corp. (BAC) will expand efforts to help Countrywide Financial Corp. (CFC) borrowers avoid foreclosure on troubled mortgages, the Associated Press reported. Liam McGee, president of Bank of America’s global consumer and small business banking operation, said the bank would modify at least $40 billion in loans from at least 265,000 borrowers over the next two years. “Bank of America will continue to offer home loan products to those who can afford them,” McGee said. “We also recognize that some consumers who are experiencing financial challenges but who ultimately have the ability to pay their loans need our help to pay their loans, and we are ready to help them.”

• Corn prices jumped yesterday (Monday) as investors bet that more rain in Midwestern states would force farmers to plant less of the staple crop. Corn for May delivery jumped 22.75 cents to settle at $6 a bushel on the Chicago Board of Trade. Corn prices have shot up 26% this year.

• Natural-gas producer Questar Corp. (STR) announced first-quarter profit rose 23% on higher output and soaring fuel prices yesterday (Monday). Net income for the three months ended March 31 rose to $185.8 million ($1.05 per share) compared with $151.1 million (86 cents per share) a year ago.