What I do have is the letter that I would need to see him write in order to convince me to sell my gold and silver and hold dollars instead.

Seeing this letter is not the only condition under which I would sell my precious metals, of course, but since Bernanke is the dollar's Commander in Chief, he certainly has the sway to pursue the types of policies that would turn me dollar bullish.

Without further ado, here's the letter I'm waiting for:

"Dear America,

I'm sorry. I was wrong.

Yesterday, buyers mustered the strength to build on Wednesday's strong rally. In fact, the bulls pushed the S&P 500 above a key resistance point at 1,085.

I've talked at length about how pessimism was at an extreme and a bounce for stocks looked likely. Recent economic data has been good enough to support the notion of an economic recovery, and while not setting records, it is at least strong enough to avoid a double-dip of recession.

Most of the recent data was in line with expectations: factory orders were up 0.1%, productivity was down 1.8% and labor costs were up 1.1%. However, Wednesday's strong new home sales for July (up 5.2% when a loss was expected) was probably the single most important data point.

I know - I'm supposed to talk about gold or oil or coal again today. That's what you were promised as a reader of this publication.

I hope you'll forgive me, but today's missive has little to do with commodities.

I read an article that just can not go unmentioned. It's either the funniest and best written nod to George Orwell I've ever seen, or it's a frightening representation of the world we live in.

Before I go on, you should take a look for yourself - it truly must be seen to be believed.

What a great rally that was yesterday.

"Extreme pessimism? Let me introduce you to slightly improved economic data."

I believe that pretty much sums up yesterday's powerful move higher.

Manufacturing data came in better than expected. Along with Tuesday's improved consumer confidence number and good news from emerging markets, it was enough to offset a disappointing early read on employment from ADP.

The stock market failed to build on the rally from Friday. The S&P 500 fell below support at 1,050 yesterday.

Right now, sentiment is just awful across the board. And we're heading into what's traditionally the worst two months of the year for stocks: September and October.

I firmly believe that Ben Bernanke and I share a common viewpoint. We both have no idea what he's going to do four months from now.

There's simply too much uncertainty. We don't know what's going to happen with the multitude of economic indicators and whether they'll spell success or failure for his policies.

So let's back up and look elsewhere for certainties. I think I've found some bullish news for commodity investments.

Why?

As of this writing, there seems to be little chance that President Obama and his colleagues in the Senate and Congress will extend the Bush Administration's tax cuts.

Personally I think taxes as well as government, both state and Federal, should be cut to the bone.

Despite a nice rally on Friday after Fed Chief Ben Bernanke assured us that he can save the U.S. economy if it deteriorates further, some economists are still forecasting a "double-dip" of recession.

Now, after what we've been through over the past couple of years, it's easy to believe that the sky is still falling. After all, unemployment is still high, the housing market is in terrible shape, debt at the Federal and the state level, especially, is at record highs and the banks still have too many bad loans on their books.

And to make matters worse, none of these toxic conditions appear to be improving. In fact, they seem to be getting worse. We are still losing around 500,000 jobs a month. Also, there's a year's worth of housing inventory. And if you include the "shadow" inventory of homes that seem likely hit the market, it's more like two years.

First, I must start with an apology. Due to a crashed email server, you did not receive your Daily Profit yesterday. Obviously, the server is up and running today, but still my apologies for yesterday's failure. In the future, you can always check the Wyatt Research website for the Daily Profit. Now on to today's business...

Stocks were unable to hold onto the enthusiasm from better than expected new jobless claims yesterday. This probably didn't come as much of a surprise. After all, the jobless claims number was still poor, and with the 2Q GDP revision and Fed statement today, there was still plenty of uncertainty in the air.

The Dow Industrials dipped below the psychologically significant support point of 10,000 early in yesterday's sell-off. But interestingly, buyers stepped in and drove the index as 10,111 before weakness resumed.

Yes, the Dow still closed weakly at 10,040. But yesterday was the first day in several where there was any significant buying interest. And it makes sense, when you consider we are dealing with a range bound market.

I remain super bullish on gold - I just bought some more last week. Yesterday I talked about how to buy gold and silver, and how to make sure you don't get ripped off.

I also remain totally engrossed with the price movement of several major commodities, the most important being oil. I've talked recently about the all-encompassing importance of oil with regard to every single investment and asset class. If you don't know how oil supply and price affects every single one of your investments, then you might not be in a good position.

Unfortunately, I also have a good amount of cash on hand. I say 'unfortunately' because like many investors, I feel like I've fallen into the trap of being fearfully inactive. I have little faith in the broad stock market, but I do like some companies in the commodity sector. I've talked at length about owning Exxon (NYSE: XOM), Archer Daniels Midland (NYSE: ADM), and a handful of others. I like companies like Exxon and ADM because they will survive a currency crisis. They have pricing power, they have international reach, and they have products that everyone needs.

Stocks have been unable to make any headway over the past few sessions. And late-day sell-offs have been a common theme.

I often refer to oil prices as a proxy for growth expectations. And with oil prices set to drop below $72 a barrel today, it's clear that investors are not bullish on growth. Of course, recent economic data has indicated that economic activity in the U.S. has slowed down.

Perhaps the biggest drag on the economy is housing. That's nothing new. But New and existing home sales have been weaker than expected after the expiration of the homebuyer tax credit in April.

Today's letter has very little to do with an explicit commodities opportunity, but it has EVERYTHING to do with how you should be investing today.

If I could condense my investment thesis into a single sentence, it would be "Boil down the markets into the simplest possible terms, and invest accordingly."

It's a strategy cribbed from the world's best investors such as Peter Lynch, Warren Buffett and Jim Rogers. But that's not why I keep it simple. I keep it simple because it cuts down on the amount of time I would waste researching unnecessarily complicated investments.

For instance, I know very little about the prescription drug business. Johnson and Johnson (NYSE: JNJ) might have the greatest pipeline of revolutionary life-extending drugs in the world, but I'm not a student of bio-chemistry. It would just take too much time for me to do the research on each of their drugs, let alone the standard balance sheet due diligence.

The bidding war for fertilizer company Potash Corp of Saskatchewan (NYSE:POT) is getting very interesting. Last week, the company rejected a $34 billion buyout bid from mining giant BHP Billiton (NYSE:BHP). BHP countered by saying it would make the bid a $38 billion hostile bid, which means BHP takes its offer directly to the shareholders.

To counter this move, Potash Corp has been in talks with other companies to see if they can get the buyout bid higher. China's Sinochem and Brazil's Vale have been mentioned as having interest. And Potash's board is already saying that a "superior offer" is expected. That's good, because Potash Corp. currently has a market cap of $44 billion, and rising.

2 of the 3 economic reports we got yesterday were disappointing, to say the least. New claims for unemployment jumped to an 8-month high and the Philadelphia Fed's manufacturing survey made a huge swing lower. Only leading indicators for July came in as expected.

The results of the manufacturing are worrisome. Business activity retreated for the first time in over a year in the Philadelphia area. That's caused at least one investment bank, JP Morgan to lower its 2010 GDP estimate.

Even though July's leading indicators still point to slight growth, there's no doubt the U.S. economy has weakened considerably in the last few months. Of course, that's not news to many Americans. Fidelity Investment is reporting that hardship loans from 401K accounts are on the rise.

Our discussion of the GM IPO has been timely: the company filed with the SEC for its IPO yesterday. Now, we can answer some of the looming questions.

First of all, it sounds as though GM will not issue new shares, but rather simply sell more of the existing ones. That means the current common shareholders will not be wiped out. It also means that individual investors will be able to buy GM shares on the first day they are available.

We have a lot to cover. First and foremost, there are your replies to yesterday's question about the coming GM IPO. Daily Profit readers absolutely flooded my inbox with responses. And it's probably no surprise that you are not happy about how the GM IPO is being handled.

Many of you said you would never buy a GM product again. I wonder if GM considered how angry potential customers might be over this IPO? If not, they should have.

You've no doubt heard about the wildfires ravaging Russia's countryside. These fires have seriously impacted Russia's wheat harvest, and have sent wheat prices soaring around the world.

This morning, mining company BHP Billiton (NYSE:BHP) offered $39 billion, or $130 a share for the world's largest fertilizer company, Potash Corp of Saskatchewan (NYSE:POT).

The United States is losing the renewable energy race. And as you might guess, it's China that's out in front.

China has pledged $738 billion for renewable energy projects over the next 10 years. The U.S.? Well, not so much.

I realize I opened a can of worms yesterday with my comments about Congress and the suggestion that members of both parties are now more beholden to corporate interests (via campaign contributions) than they ever have been.

Don't worry, I'm not going to back away from that statement. In fact, I plan to pursue it because it is of critical importance right now.

But first, I must acknowledge several comments I received from Daily Profit readers taking me to task for griping about corporate campaign contributions but ignoring campaign contributions from unions and other special interest groups.

As expected, the Fed didn't have much to say about the U.S. economy or future stimulus plans that could be construed as positive. The Fed acknowledged that the economic recovery has slowed in recent months. But I think we all knew that.

The Fed also announced it will reinvest the proceeds of its mortgage-backed securities into Treasury bonds. The $10 billion a month the Fed is making off these assets is quite literally a drop in the Treasury bond market's bucket. It will do little to effect interest rates or liquidity.

Yesterday was a "sigh." Today is an "ugh." The labor market in the U.S. just can't get any momentum going.

Today's non-farm payroll number for July came in lighter than expected. And the number of job losses came in higher. Put those together and you get a bad overall employment number. Ugh.

Through the miracle of statistics, the unemployment rate held steady. But it doesn't really matter. Every investor knows that number is a sham, and stocks would be off today even if the "official" unemployment number fell to 5%.

I've said repeatedly that employment will be the last sector of the U.S. economy to show gains. But it still feels like we are being overwhelmed by the negativity of the employment numbers.

In the July 29th issue of Daily Profit we asked what you think about P/E's for the S&P 500. Here's the exact question:

I'm curious to hear whether you're bullish or bearish on the stock market. The Wall Street Journal has the current P/E for the S&P 500 at 17 and the forward P/E based on earnings estimates at 13. Let me know what you think.

The emails came streaming in...

We've posted below some of the more engaging comments (and certainly excluded the most inflammatory, off topic, or just too long comments). Take a look and see what investors like you have to say.

The parade of positive earnings reports marches on. The number of companies in the S&P 500 that are beating expectations continues to run at a better than 70% clip.

It's interesting how sentiment was so conflicted coming into 2Q earnings season. We discussed at length here in Daily Profit how analysts had lowered estimates and investors appeared to be expecting earnings growth to slow.

Here's something you don't see every day: stocks, Treasury bonds and gold all sold-off yesterday.

One might think that when investors sell, they sell everything. But the financial markets are all about money-flows. When investors sell stocks, they put the cash in bonds for the safety and the quick yield.

Positive results for second quarter earnings have pushed the S&P 500 to the support/resistance point at 1,115 yesterday. And it looks as though that level will fall easily today.

FedEx (NYSE:FDX) doesn't report until September 16, but the company was kind enough to raise its earnings guidance yesterday, and that helped encourage investors that the global economy is improving.

Before European regulators released the results of the banking "stress tests", which were designed to test whether Euro-zone banks were healthy enough to withstand economic shocks, Goldman Sachs (NYSE:GS) estimated that European banks probably needed to raise somewhere in the neighborhood of 38 billion euros to shore up their balance sheets and offset non-performing loans.

Barclay's went for a much more expensive neighborhood, at 85 billion euros.

It looks as though the tone of earnings season has taken a bullish turn. Weak earnings from banks, along with a couple revenue misses had investors on edge.

But yesterday's decidedly positive results from Caterpillar (NYSE:CAT), 3M (NYSE:MMM) and UPS (NYSE:UPS) sparked a big rally. And positive earnings from Microsoft (Nasdaq:MSFT), Verizon (NYSE:VZ) and Ford (NYSE:F) look like they will extend the rally.

Up, down, up down. To say that the stock market has been volatile over the last week is like saying King Kong was big monkey. It's true, but it doesn't really give the complete picture.

Investors and traders really don't seem to know what's coming next. I've tuned into CNBC a few times during the trading day recently, and you can see the frustration on the commentators' faces. It's as if they know that, no matter what they say, they will be wrong.

What a difference a day makes. Yesterday morning, the situation looked dire for stocks. Headline revenue misses from IBM (NYSE:IBM) and Goldman Sachs (NYSE:GS) took the Dow Industrials Average down well over 100 points at the open.

But that initial decline marked the lows for the day, and stock prices rallied the entire day and finished with some impressive gains.

The latest round of earnings reports are taking stock prices lower. 2Q earnings started off good with a glowing report from Intel (Nasdaq:INTC), but have taken a turn for the worst.

The issue is revenues. IBM (NYSE:IBM), Texas Instruments (NYSE:TXI) and Goldman Sachs (NYSE:GS) all came in a little light on revenues. Companies are meeting or exceeding earnings estimates, overall S&P 500 earnings have been 17% above expectations, according to Bloomberg.

Citigroup (NYSE:C) and Bank of America (NYSE:BAC) both posted disappointing earnings this morning. Both banks beat quarterly earnings estimates. But revenues were weak.

Despite record low interest rates, loan demand is not improving, and may even be getting worse.

It's hard to be disappointed with JP Morgan's (NYSE:JPM) $1.09 a share earnings for the second quarter. After all, analysts were looking for just $0.74 a share. But still, JP Morgan's 47% earnings beat isn't being called a "blowout."

If this has you scratching your head a little, don't worry, I suspect you're not alone.

Intel's blowout earnings report last night is certainly making it look as though earnings estimates were revised too low for corporations. And so the overwhelmingly pessimism that drove stocks lower since early May seems to be shifting to optimism that maybe things aren't that bad after all.

Intel's second quarter EPS were $0.51 on revenue of $10.8 billion. Those numbers crushed the analyst expectations. Analysts wanted $0.43 with $10.3 billion in sales. Guidance was also way above expectations. Intel's management expects third quarter revenue of $11.6 billion from $11 billion.

Last week's rally ahead of earnings was a good indication that the stock market had priced in lower 2Q earnings estimates. And in fact, stock prices fell to the point where some upside was possible as earnings come in. It sounds simplistic, but sometimes, stock prices must sell-off before they can rally.

Alcoa's (NYSE:AA) earnings last night were excellent. It would have been predictable for Alcoa to miss on revenues and still come in with the right earnings-per-share number. But Alcoa beat on revenues and boosted aluminum demand for the year.

Perhaps even more importantly, railroad company CSX (NYSE:CSX) reported that auto shipments were up big.

After last week's strong recovery rally, we will find out soon if the fundamentals will support higher prices. Yes, after I've discussed it for the last three weeks, 2Q earnings season is finally here.

Today, we hear from Alcoa (NYSE:AA), chipmaker Novellus and railroad company CSX (NYSE:CSX). Tomorrow, Intel (Nasdaq:INTC) is up. Thursday brings us Google (Nasdaq:GOOG) and JP Morgan (NYSE:JPM). And then we'll wrap up the week with Citigroup (NYSE:C) and GE (NYSE:GE) on Friday.

We should get a pretty good feel for how earnings will be after this week.

Another good day for the stock market. The S&P 500 is now pushing resistance at 1,070. Is it too much to ask for another up day to take us through that point?

Before we break out the bull-market bubbly, let's remember three things: with the exception of the weekly new jobless claims report, there has been virtually no economic data this week. Most recent data has showed the economic recovery is softening, leading stocks lower.

Green. After 10 out of the past 11 sessions ended in red, green was certainly a welcome color for the stock market yesterday. And more importantly, it wasn't just a little green, either. It was a lot.

The S&P 500 bounced off of support at 1,018 on Tuesday and vaulted all the way through resistance at 1,050 to close at 1,062 yesterday.

The Bloomberg headline reads "Stocks Fall on Earnings." As you know, I've been watching for signs that 2Q earnings would be disappointing. And while analysts have lowered their estimates slightly, we have still not seen any significant profit warnings for 2Q earnings season.

Earnings season kicks off with Alcoa (NYSE:AA) next Thursday, July 12. It would seem as though the window for earnings warnings has all but closed.

I hope everyone had a relaxing holiday. Holidays can definitely help all of us recharge our batteries. And sometimes, a break can even give investors a more positive perspective on stock prices.

It looks like we may have a good rally at hand, at least for today. And with the S&P 500 now trading at around 10x next year's earnings, we could even say that any rally would be based on valuations.

British and Danish researchers recently published a study in the Journal of Current Biology that is of interest to investors.

They asked 28 people to submit a list of songs they’d like to buy online. Then, they had to select which of the songs they liked most. Then, their selections were rated by two music experts.

Today, I want to focus on one important factor that can help you avoid a major pitfall in gold stock investing: location.

I frequently get asked by readers to look at specific companies in the gold sector.

It’s a tricky business because there are thousands of junior gold mining companies, and well over 90% of them will never mine a single ounce of gold. So for regular investors, the gold sector is a minefield of unknowns.

They say that man has an instinctive fear of the unknown. And for good reason - if you have no conception of the dangers you face, or no information about the risks you endure, then the imagination takes over. An unknown scenario has the potential to be a worst case scenario.

Well, Friday's Daily Profit was certainly timely. In case you missed the piece titled Is China an Afterthought?, I said "I won’t be surprised to see China do both – raise rates and incrementally revalue the yuan."

Just two days later, China announced that it will completely remove the yuan from its dollar peg. That news sparked a global rally for stocks last night, and Chinese stocks in the U.S. are moving higher as well.

Could slowing growth spark a stock market rally? Usually, we tend think of slowing growth as a main reason for stock prices to head lower. But I can’t help but think, in the case of China, that the strong growth numbers it’s put up have convinced investors that China’s economy is a bubble and that Chinese stocks are fundamentally unsound.

There have been plenty of headlines out there from big name hedge fund managers calling for the imminent crash of China’s export economy. And in a demand-challenged world, this message has certainly resonated. Chinese stocks are down across the board.

Yesterday’s huge move took the S&P 500 above 1,105 to close right at 1,115. TradeMaster Daily Stock Alerts’ Jason Cimpl told his readers he’s bullish going into next week. And yesterday’s close at 1,115 will keep him from selling his latest round of upside trades.

That’s good news for TradeMaster readers, because one stock they bought on Friday made a 50% move in just two days. Jason’s bullish stance suggests there are more gains ahead for this little beauty.

Yesterday, ratings agency Moody’s downgraded Greek debt four levels to non-investment grade or “junk” status yesterday. The downgrade triggered a late slide for stock prices and what started as a bullish continuation of last week’s gains ended up as a down day.

Yeah, I’ve really missed having Greece in the news.

Today I’m going to blow the lid clean off of what I consider to be the biggest tar-pit for individual investors in the market today.

Exchanged Traded Funds – (ETFs) have been sold to the public as easy ways to buy into specific sectors in the stock market. They’re billed with attractive descriptors like “low-load mutual funds” or “poor man’s hedge funds” - or any of a variety of warm, fluffy names depicting them as “easy” ways to capture huge profits.

I’m reminded of an axiom known as the Designers Triangle, which states: a project can be done fast, cheap or good. Pick two.

I’ll amend this axiom for investors. The Investors Triangle states: an investment can be profitable, easy, or fast. Pick one. The obvious choice you’ll make is “profitable” – and these types of investments are rarely easy or fast.

Remind yourself of this axiom the next time someone tells you that a prospective investment has all three characteristics. Most of the best investors in the world made lots of money over a long period of time, and I don’t think any of them would tell you it was especially easy.

I spent much of last week telling Daily Profit that oil prices were set to rally. Oil prices found a bottom on Tuesday June 8 at $70 a barrel. Oil briefly crested $76 and finished the week at $74.48.

Today, oil prices are once again pushing toward $76 a barrel. But even better, some of the oil stocks in Energy World Profits posted 10%-15% gains last week. And that’s probably just the beginning of the gains for land-based oil stocks.

After yesterday’s bullish close, I was hoping that we might see something that’s been extremely rare lately: two consecutive up days.

The S&P 500 actually added 3 points on June 3, the day after an impressive rally. But it sure seems like it’s been longer. Before that one, you have to go all the way back to April 28-29 to find back to back gains for the S&P 500.

Yesterday I wrote about the prospect of the U.S. Federal Government seizing or outlawing the private ownership of gold bullion.

In short, my conclusion was that it would be too difficult and unconstructive for the government to seize or outlaw gold.

And perhaps I simply don’t have the remarkably creative mind of a revenue-strapped politician - but some readers wrote in with some other scenarios that I hadn’t considered.

Assaf K. wrote:

“Governments don't have to seize gold to make it an unpalatable investment. They can increase taxes on gains from precious metals transactions. Alternatively, they can impose various fees and commissions on any such transactions. I wouldn't disparage the creativity of Obama et al. when it comes to capital controls.”

That’s definitely a realistic scenario. Already, capital gains from gold and silver are taxed at an individual’s personal income tax rate, rather than at the lower capital gains tax rate. With income taxes due to rise next year, it wouldn’t surprise me if President Obama and his Democrat led Congress saw fit to raise taxes on gains made in gold and silver, and otherwise introduce a variety of Orwellian measures to stymie the lure of investing in precious metals.

Today’s topic might seem somewhat oblique to general investment strategy, but I think the ramifications of this issue are kind of an 800 pound gorilla in the room.

Some very intelligent, highly successful, amazingly talented gold investors routinely suggest that the end-game for the dollar will be preceded by the seizure of gold assets by the Federal Government.

If there’s a significant likelihood that gold will actually become illegal, then all my suggestions and research intended to help you find compelling gold investments are completely off course. It won’t matter if I help you find your next 10-bagger gold stock if the government seizes gold assets and halts trading on such companies.

So I want to tackle this issue head on.

This undercurrent of worry in the gold investment community may be born from the fear that history sometimes tends to repeat itself. Gold investor’s prudence in holding gold may be punished by President Obama’s administration, should he choose to replicate the policy of President Franklin Roosevelt and outlaw the ownership of gold. There’s no doubt that as the 'Godfather of liberal thought' that Obama looks up to FDR, and certainly wishes to follow in the footsteps of one of America’s most popular presidents.

If the euro strengthens, it means that investors see progress on the debt issues and there. And it will indicate that the European Union will not be dismantled anytime soon. Any gains in the euro will come at the expense of the U.S. dollar. So based on stability in Europe, or the relative value of the U.S. dollar, oil will rally.

China just surprised economists with a stronger than expected export data for May. The implication is that global demand isn’t as weak as expected. And demand in China is probably stronger than expected. That means oil will rally.

Also, earnings are down compared to output.

So in sum, the employment picture is bleak.

But that’s only one side of the story. The very next headline reads “Job openings rise to highest level in 16 months”.

I hesitate to mention this ‘commodity’, just because it’s not a commodity in the strictest sense of the word. But in many ways, it is the most influential commodity in the world. No, I’m not talking about oil, or gold or even water.

This commodity trades hundreds of billions of dollars in volume every day, and its price swings effect everything from your heating bill to your food costs, gas, gold, silver – everything.

This über-commodity, ironically, has practically limitless supply, and what’s more, the entire world reserves are managed by a cartel of producers who can increase or decrease supply at any moment.

Pretty sweet gig if you can get it.

Right now, this commodity is trading near its 4 year highs. The last time it was this expensive, it dropped about 17% in 9 months.

Investors are apparently not real happy that payrolls grew by only 431,000 in May. Nor are they pleased that the unemployment rate dropped to 9.7%. 

Are investors being unfair? Are they seeing a glass that’s half empty? 

No, not really. Nearly all of the new hiring in May was for census workers. In fact, 411,000 of the 431,000 jobs were essentially government handouts. The private sector only created 41,000 jobs in May, which was less than expected. 

That was an excellent rally yesterday! The S&P 500 broke through important resistance at 1085. For more insight, I will turn to my trusted sidekick, technical analyst for TradeMaster Daily Stock Alerts Jason Cimpl…   

After the weakness on Tuesday, I was beginning to doubt the bulls ability to take the market higher. The group came through yesterday and took back 1085, which needs to become support. Volume was low again, but internals were commendable as buyers out numbered the sellers by 5 to 1. Today the big resistance to watch will be 1103 and 1115. SPX 1103 stopped the market dead in its tracks last week. Stronger lateral resistance exists at 1115 which dates back to December 2009 and is also the 20 DMA and gap resistance.   

To call the explosion of the Deepwater Horizon oil rig and the subsequent well damage that’s allowed millions of gallons of oil spill into the Gulf of Mexico a tragedy is an understatement.   

Eleven men died when that rig exploded on April 20th. And now, critical fisheries along the coasts of Louisiana, Alabama and Mississippi are being destroyed. The commercial fishing industry in these states is threatened and a way of life for these fishermen may be coming to an end.   

An oil slick is reportedly nine miles off the coast of Pensacola.   

BP itself is under siege, too. The stock is in a virtual freefall as repeated efforts to cap the leak have failed. It could be months before the leak is stopped. Costs to the company could hit $22 billion. And that’s if BP didn’t do anything wrong. 

I hope you all had an enjoyable long weekend. I also hope you enjoyed the”subscriber’s only” market analysis video that TradeMaster Daily Stock Alerts Jason Cimpl shared with us on Friday.  

Every Friday, Jason makes a video for his TradeMaster members where he shares his top-notch chart analysis and provides a forecast for the coming week that includes everything from the”big picture” view to specific entry points on his top stock recommendations.

Jason has identified virtually all of the important turning points for a variety of assets over the last year. His TradeMaster readers made money when natural gas prices bottomed in October of 2009. They were ready when the U.S. dollar bottomed in December 2009. They caught big moves in oil and were perfectly positioned for the tech stock breakout that started in March 2010. They even made money when the stock market sold off on the European debt news.

On Tuesday, I discussed in Daily Profit how cooperation between the U.S. and China was critical to helping investors get past the fears of the Euro debt problem, and keep the world focused on growth.   

I don’t think it’s any coincidence that last night, Chinese officials came out and said they were long-term investors in China, just as Treasury Secretary Geithner finished a round of meetings in China.  

This is exactly the type of cooperation I was talking about. China’s massive currency reserve and trade surplus are meaningless if the global economy goes back in the tank. So it’s in China’s interest to support the euro.   

It’s looking as though U.S. stocks made an important low yesterday. The S&P 500 fell below February’s low of 1044 and then made a powerful reversal to close at 1,074.   

Leading the way was Goldman Sachs (NYSE:GS). It put in a low at $134.20 and closed the day at $142.56. Today it’s up another $2 or so.   

This powerful reversal move by Goldman is significant for a couple reasons. One, it’s something of repudiation of the idea that financial contagion is spreading from Europe to the United States. And that fear has been driving stock prices lower over the past couple of weeks.   

It’s been really hot in Vermont this week. It scratched into the 90s yesterday, and it looks like it’ll do it again today. I usually try to get outside for some exercise, either some bike riding, tennis or golf, but at this point I’m just not acclimated to summer weather.

You might remember just a couple weeks ago when I talked about the snow we were getting. There’s a saying in Vermont that goes something like, “if you don’t like the weather, wait 10 minutes.”

So yesterday I took it easy and just decided to shoot some empty beer cans with my Ruger .357 magnum single action revolver. While not as strenuous as a few sets of tennis or a 10 mile bike ride, throwing some lead down range is at least as therapeutic, even if I only managed to hit two of the four cans with a full box of ammo at 50 yards.

In the meantime, some of you sent in some great commentary about silver stocks for me to peruse. And, not surprisingly, many of you hit the nail on the head.

There’s no ignoring the European debt problems today. Real estate loan defaults are crippling a few Spanish banks, and the IMF has advised that Spain’s banking sector needs to consolidate quickly to provide a more solid backstop against defaults.   

If this reminds you of the scramble here in the U.S. to have weak financial institutions like Merrill Lynch and Countrywide be absorbed by stronger companies, it should.  

And we should also recall that while consolidation helped mitigate some of the potential effects of the financial crisis, it wasn’t a smooth road. Even the strong banks eventually required billion in bailout money to keep them afloat

It’s my birthday today, so I apologize if this article is somewhat harried, short, or discombobulated.

I’m one year older, there’s one more grain of sand gone from the hourglass, but I have no reason to complain. The weather is nice, I’m healthy and there are opportunities to grow richer.

If I could have just one birthday wish granted, it would be for every one my readers to protect their bottom dollar by buying one investment today, this very moment. I don’t know what will happen to stocks, the dollar, the euro, but I do believe that there are steps we can all take to protect ourselves from calamity in all three. More on this investment in a minute.

But for right this very second, it’s hard to be bullish on the broad market – as I’ve pointed out many times in this letter; we’re in the middle, and perhaps nearing the end of a long-term secular bear market.

Don’t believe me? Take a look at this 12 year chart of the S&P 500:

I really, really don’t want to talk about the euro today. And I think I’ve made myself quite clear about oil prices. (In fact, I just recommended another top-notch Bakken oil producer to Energy World Profits readers last Thursday that should be good for a quick 30% gain as well as outstanding long-term growth. You can learn more HERE.)   

Today, there’s something else on my mind.   

As usual, there’s a wide range of debate over whether stocks are overpriced or not. The Wall Street Journal says that the price-to-earnings ratio for the S&P 500 is currently 19. Based on forward earnings estimates, it’s 14. Clearly, a p/e of 19 is above the historical average of approximately 16. And the forward p/e of 14 is below the historic average. It’s likely that the truth lies somewhere in the middle. I have no problem stating that stocks appear more or less fairly valued at the moment.  

I hope you had a pleasant weekend and were able to get outside and enjoy the weather if it was amenable in your locale. We experienced some unseasonably warm weather here in Vermont, and I tried to stay outside as long as possible. I even fired up my new Weber charcoal grill, a birthday present from my wife. I grilled some sirloin steak, some mushrooms on a kebab and even some corn.

I’ve heard conflicting views on whether to grill the corn in its husk, or to grill it “naked.” This time I opted for naked, grilling it on the cob over indirect heat for about 10 minutes, and the corn had some nice caramelized flavors. I seasoned it ahead of time with salt, pepper and a little olive oil. If you have a bbq corn recipe (or any bbq recipe for that matter) please send it my way at editorial@resourceprospector.com.

Today’s article isn’t all grill recipes, though. I’ve wanted to write about corn, the commodity, for quite some time. It’s just tough to pull myself away from alluring topics like gold and energy. And I should apologize, because agriculture isn’t something that’s very exciting to read about – not like precious metals or oil. But commodities like corn, soybeans, wheat, pork bellies, cattle, sugar and coffee all fall into the realm of my purview.

So far this year, the S&P 500 has dropped 3% or more in one session 3 different times. The two previous times, it clawed back some of the losses over the following week. We’ll have to wait and see of there is any upside after yesterday’s big drop.   

The S&P 500 is now testing the lows from the “flash crash” on May 6. This is interesting because it was assumed that trading that day was something of a fluke as computer trading programs went haywire. But now that stocks are back to those levels, we must consider that the drop may not have been a fluke.  

The question now is: can stocks find some strength? Or perhaps a better way to ask the question is: are the sellers done?   

It’s time to start over. Every year after St. Patrick’s Day I plant some snap peas, beans and a few other easy-to-manage vegetables from seed. But this year, we’ve had more than a couple rogue snow storms, frosts and other non-seedling friendly weather events in the past month alone. So, I’m starting over. It’s not a big deal. Seeds are relatively cheap, and I have plenty.

But it does mean I’ll have to wait a bit longer to enjoy fresh vegetables. In the meantime, I still have a huge stockpile of frozen and canned vegetables as well as a store of dry food goods like rice, beans and pasta.

If you have any tips on window-box vegetable gardening PLEASE send me a note at editorial@resourceprospector.com.

I hope you can see the analogy for the markets. You might call the May 7^th flash crash a “rogue frost” for the seedling-like bullish trend in the broad market. And like every investor should be, I am diversified in a variety of stocks that would stand to benefit from continued strength in the broad market.

During the depths of the financial crisis, Warren Buffett plunked down $5 billion dollars on Goldman Sachs (NYSE:GS). It’s reported that this investment has returned nearly $4 billion as some sense of normality has returned to Goldman’s valuation.   

Also during the financial crisis, Warren Buffett sold put options on the S&P 500. A put option is a contract that allows an investor to buy or sell an asset at a certain price on or before a specific date. So when Buffett sold put options on the S&P 500, he agreed that if the S&P 500 falls below a certain level, he will pay out.   

Reports are that Berkshire Hathaway could be dinged for as much as $63 billion if these put option contracts go against Buffett. But it’s also reported that Buffett took in $9 billion when he sold the puts.   

I hate to pick on Jim Cramer. He seems like a nice guy, and his show is nothing if not entertaining. After all, he literally has bells and whistles on his show, so there’s little argument that he’s an entertainer.

But yesterday, Mr. Cramer did something that bothers me deep down in the most contrarian cockles of my heart: he told his viewers to buy gold. Even worse, he parroted some half-assed gold-bug tenets as reasons to buy gold right now.

Why am I so uncomfortable seeing Mr. Cramer pound his noise-buttons for gold? Well, the best reason to ignore him is the one I’ve already mentioned. Jim Cramer is an entertainer. I don’t get investment advice from Jay Leno, so why would I get it from Cramer?

The second reason, as I’m sure you’re familiar with, is that Cramer isn’t especially good at picking individual investments on his TV show. I know he’s worked for hedge funds and he’s a big “Street” hotshot, but as far as I can tell, he’s wrong at least as often as he’s right.

It’s often said that the stock market doesn’t like uncertainty. When uncertainty rises, stock prices tend to fall.  

When Lehman Brothers filed for bankruptcy protection on September 15, 2008, it started a landslide for the S&P 500. Investors didn’t know what toxic assets other banks were holding, so they sold. Banks became suspicious of what other banks might be holding, so they stopped lending.    

It may seem incredible that we’re still talking about Greece’s debt problems, but the reason we are is due to the amount of uncertainty that is dredged up by the Greek situation.   

Before May, there were plenty of investors wondering if the stock market had gotten too far ahead of the economy. Sure, stock valuations themselves have stayed within historic norms, supported by strong earnings growth.

But with unemployment stuck at persistently high levels, ongoing imbalances in the economy, and record high budget deficits, it’s reasonable to wonder how long earnings growth can continue. Now, after the debt issues with Greece have revealed some serious dissension in the European Union and questions about the future of the euro as a currency, we’ve seen an abrupt reversal. 

I was trolling Bloomberg last night and I came across the following quote:  

“The volatility genie is out of the bottle and it will take some time to put it back…”   

It doesn’t really matter who said it or what they were commenting on. I initially dismissed it as one of those clichéd comments that just takes up space and doesn’t really add anything meaningful to the discussion.   

I mean, “volatility genie”? Come on.   

Like every human being with a pulse and half a brain, I’m a huge fan of the first two Godfather movies. There are so many relevant quotes and situations from these movies that speak to just about every aspect of life.

Perhaps the best and most quoted line is Michael Corleone’s explanation of how his father Vito, the Godfather, was able to help with Johnny Fontane’s career. To refresh your memory, Johnny Fontane was a Frank Sinatra archetype locked into a contract with a band leader. Johnny asked Vito to help him get out of the contract.

Long story short, the band leader released Johnny only after Vito “made him an offer he couldn’t refuse.”

The offer, of course, was that Vito’s henchman Luca Brasi would kill the bandleader if he didn’t release Johnny from the contract.

Now, the gold company I’m going to talk about today has never threatened to kill someone - as far as I know. But they’re known for making offers that while not impossible to refuse, are quite difficult at least.

I received some great emails from readers yesterday – notably a message from Mark I. who suggested buying puts as a way to profit from the tendency for the United States Natural Gas Fund (NYSE: UNG) to do nothing but lose money.

(For those readers unfamiliar with options, a put is a type of option that, to put it simply, goes up in value as the underlying asset decreases in value.)

It’s hard to argue with a strategy that could have yielded greater than 100% percent gains, month after month for the past year. I’m not exaggerating either. Options prices can surge by multiples as they approach the strike price.

Take a look at this table showing put prices for July expiration on UNG.

On Monday, when it was apparent that we were in for a big day as futures went limit up in pre-market, I said I wanted to see a candlestick pattern called “three white soldiers.”  

Three white soldiers basically means three pretty good sized up days in a row. This pattern is considered very bullish, especially after a period of consolidation. And the reason it’s bullish is fairly easy to deduce. 

A period of consolidation for a stock means that not much is changing. The buyers and sellers are pretty much in agreement as to what it’s worth. And so the price doesn’t change much. 

I hesitate to write about gold in today’s article. If you’ve been a reader of Resource Prospector for more than a few days, you’re probably already sick of hearing about it. And if you haven’t built a position in it, you probably feel like it’s too late to start now.

And with gold near its all time nominal highs (it still has a way to go for inflation adjusted highs) you’d think I’d be cheering. But I’m reluctant to tell you to buy things when they’re at any high. That’s not the way to build a position in any investment. So before I go on to talk about gold and why I think it’s so neat, let me recommend waiting for a dip before you pull the trigger. A dip could be a minor hesitation in gold’s price, or it could be a major decline - but basically, the idea is to try to buy the asset for less than what it was going for yesterday.

Don’t get me wrong, I’m still super bullish on gold. What’s not to like about it? It’s the perfect way to protect your nest-egg from irresponsible politicians and central bankers. So long as the Federal Reserve is backstopping the EU, and the EU tries to fix its currency problems by blaming speculators and telling Greece to raise their sales tax to 23%... Well, you get the idea.

Apparently, the going rate for a 404 point rally on the Dow Industrials is $1 trillion. Any takers? Going once… 

After stocks lost $1 trillion during that surreal 2 minute stretch last Wednesday, it’s nice to get that market-cap back. But there is still work to do. 

Yesterday’s rally took the S&P 500 within range to challenge resistance at 1,165. It will be important for the S&P 500 to move above this level today.

As Germany voted to approve bailout money for Greece, German Left Party lawmaker Gesine Loetzsch was quoted as saying "Speculators are Taliban in pinstripes, and people in our country must be protected from these Taliban…”  

It’s scary to me that any political leader could voice such an inflammatory and downright naïve opinion.   

If a hitter in baseball can’t hit the high fastball, then that’s exactly what he will see until he makes an adjustment. When Yahoo! failed to take advantage of its early-mover status on the Internet to implement a viable paid advertising model, it opened the door to Google.   

Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)  

We’ve been tackling some pretty heavy issues in Daily Profit this week. And while I’m not one of the doom and gloomers who believe that stimulus policies and sovereign debt issues are about to bring about a stock market crash and economic depression, I’m adamant that we keep a firm grip on the all of the catalysts that are driving the stock market and the global economy.   

Stimulus policies in the U.S. were designed to help prop up asset values long enough for demand to return. If the plan succeeds, then employment will improve, lending will pick up as the housing market works off inventory, and the toxic assets that exist on the balance sheets (both banks’ and the Fed’s) can regain some value.   

If the plan fails, then we see another fire-sale of assets in what amounts to a huge margin call.   

I hope this 6^th of May is finding you in good spirits, and that you’re not experiencing the downside of tequila over-enjoyment. Nothing against Mexican independence, but a foreign national holiday, partly concocted for American consumption by shrewd liquor companies, is not a good enough excuse for me to tie one on in the middle of the week.

And this time of year in Vermont, it’s just too nice out to want to risk ruining the next day with a tequila and sugar borne hangover. (By the way, if you know of a good hangover cure, please send it to me at editorial@resourceprospector.com)

Too much of a good thing is almost always no fun. Likewise, a bumper crop of sugar from Brazil and India is causing some severe consequences for prices.

The average American uses 156 pounds of sugar every year. At current price levels of about 15 cents a pound, that comes to only $23 and change.

Investors were too busy watching stocks get pounded yesterday to notice a bit of good news. Factory orders rose 1.3%. That was more than twice what economists were expecting.   

That prompted Pierpont Securities chief economist Stephen Stanley to say “Manufacturing is unambiguously the strongest part of the economy…” He’s not kidding.   

 Weed out the 67% decline in domestic aircraft orders and you get a 3.1% jump in factory orders. That’s the biggest gain since 2005.

Yesterday, commodities, and stocks – and every conceivable asset class you could shake a stick at – all took a dive.  

I heard one talking head on CNBC shell out this wonderful advice: “sell half of all your positions right now!”  

I won’t un-dignify the gentleman by revealing his name – but any long term investors should run far, far away from any advice that tells you to liquidate half of your investments.  That’s just irresponsible.

At the same time, it’s hard to remove personal bias and emotion from the equation when everything is in the red for the day.  It’s exactly this kind of situation when you should take a deep breath, and look at the fundamentals behind all of your holdings.  If the fundamental reasons for owning gold stocks, oil stocks or other securities remain the same – then you should look at any dip as a buying opportunity.

I know enough about wine to get by. I can tell a chardonnay from a merlot – and I’m additionally blessed with a palate just picky enough to enjoy good wine and still tolerate cheap wine. That’s a narrow window of taste…

I’m very interested in somewhat unusual wine-food pairings. What’s your favorite red wine for fish, or white for beef? What kind of wine is best for spicy Mexican food? Send your favorite pairings to editorial@resourceprospector.com.

I’ve also planted my own grape vines for the express purpose of making wine, though I never had a successful harvest. Being a vintner even on a small scale is something of a full-time job. The plants are quite fickle.

Before you can even put root-stock in the ground, you have to first dig deep to loosen the soil.

I learned this tip from my now well-worn copy of “From Vines to Wines: The Complete Guide to Growing Grapes and Making Your Own Wine.”

Has anyone else noticed that volatility has picked up in the stock market?   
 

It started on April 23, when the S&P 500 closed at 1,217. On that day in Daily Profit, I mused how investors were looking past the Icelandic volcano and the SEC charges against Goldman Sachs and simply buying stocks.   

I also discussed the possibility of a trend change that day. And I think it may be prudent to revisit that discussion today... 

Will this be the Greek bailout plan that sticks? We’ve seen enough stops and starts that I can’t blame anyone for being a little skeptical. Or even a lot skeptical.   

But this time, Germany Chancellor Angela Merkel is doing a victory dance as Greece was forced to accept some pretty strict austerity measures to get its budget deficit below the 3% the EU mandates by 2014.   

Greece was originally asking for $55-$69 billion in aid. The final package comes in at $146 billion. That’s a big difference, but it makes sense. Greece needs some cushion to assure investors that it will be able to pay its debt.   

You might have noticed something strange going on in the markets recently – especially with how stocks relate to commodities like gold. And you’re not alone. It’s easy to see that gold and stocks shouldn’t make gains in tandem. It’s hard to imagine people being bullish on the economy at the same time they’re bullish on gold. That’s because gold is usually seen as a safe harbor, protecting against calamity in the markets and world currency.

So what’s going on?

Yesterday I was talking with a well-respected gold analyst with many years of experience in the field – who spoke to me under condition of anonymity. He’s been as successful as anyone I know when it comes to finding profitable gold stocks.

He complained yesterday that gold stocks weren’t performing as well as he’d like.

And he’s right – so far this year gold has returned about 16%, while larger gold companies like Royal Gold (Nasdaq: RGLD) have been somewhat disappointing. RGLD has only returned about 6% this year.

Check out this chart showing gold prices (dotted line) vs. RGLD (solid line). 

We know that gold stocks tend to lag gold price fluctuations, and we can see how RGLD always seems to tentatively follow gold prices upward, and then quickly retreat when there's even a hint of trace-back in gold. 

It was two weeks ago that I likened the ongoing Greek debt saga to a slasher flick bad guy that keeps rising from apparent death. The Greek story is truly one that will not die.  

It should be clear by now that none of the parties involved are playing it straight. Greece has made several misleading statements about the size of its debt and its plans to pay it off. Germany has reneged on its promise of support several times.   

Even the aid talks with the IMF seem to be taking far too long. In fact, this Greek aid process is taking so long that investors are starting to speculate that Portugal will not be able to get aid quickly if it needs it.   

In a recent survey by the National Association of Business Economics, 70% of economists said they believe the U.S. economy will grow by more than 2%. Just three months ago, only 61% of surveyed economists had such bullish expectations.   

And it gets better. 24% of surveyed economists believe 3% growth is coming, up from just 14% January.   

The details of the survey also show that employment is improving in the hardest-hit sectors: real estate, finance and manufacturing. And salaries are also on the rise.   

I hope you had a great weekend. I got out and played 18 holes of golf; always a humbling experience. The game of golf is a great metaphor for investing. Sometimes you can do everything right given the information you have, and things can go against you in a truly astounding way.

I keep my left arm straight, head down, follow through and just as often as not, I’m peeking into someone’s yard or digging through brambles for a $2 plastic ball. (By the way if anyone has a foolproof method for curing a truly debilitating slice, please email me at editorial@resourceprospector.com.)

Likewise, sometimes you can do everything right in the markets and still lose. As prudent investors, we seek to buy companies with low price-to-earnings ratios in sectors with growth potential, with little debt and competent CEOs, a history of raising their dividend, etc. etc.

And all those best laid plans can go against us for any reason or no reason. Bad news in the broad market has made mutton of even the best companies.

If the stock market has you scratching your head, don’t worry. You’re not alone. 

I’ve been half-jokingly calling the stock market “bulletproof” for the last couple of weeks. And it’s because stock prices just keep marching higher. It’s like there’s no bad news that could possibly bring it down.   

Last week, we had a volcano eruption that grounded European flights and cost those airlines at least $2 billion. Then Goldman Sachs was accused of fraud by the SEC, which makes a financial reform bill that could affect the entire banking industry’s profits, and the net result for stock was a one-day decline.   

“It was the last wish of the Icelandic economy that its ashes be spread over Europe.”   

I wish I could take credit for that gem.   

Flights are grounded once again in Europe as more ash from Iceland’s unpronounceable volcano drifts over the continent.  

Europe is providing a major downer for the stock market these days. It’s not the grounded flights, however. It’s debt problems with Greece (again), and potentially Spain, Italy, Portugal and Ireland. 

What does money cost? According to the Wall Street Journal, each new $100 bill set to be introduced into circulation on February 10, 2011 will cost the Treasury 11.8 cents to produce. Complete with holograms, security fibers, bells, whistles, kazoos and probably a computer chip or two, poor old Ben Franklin is starting to look a little perturbed with all of the baubles encroaching his paper real estate.

So it costs about 12 cents for the Treasury to make $100, but what does it cost to buy it? That’s what the interest rate is: the cost of money. Interest payments you make on money loaned to you is the price you pay for borrowing. Nothing’s free, especially not money.

When the price of money gets higher, it signals a weakness in the forward purchasing power of the underlying currency. The best way to protect yourself from a weakening currency is to buy commodities. More on that in a second…

Marketplace interest rate increases at banks, for mortgages, as well as for corporate bonds always follow rises in Treasury bond rates.

If long term bond rates rise, it means that folks who lend money to our government are demanding higher returns on their principle.

Morgan Stanley (NYSE:MS), McDonald’s (NYSE:MCD), Boeing NYSE:BA), United Technologies (NYSE:UTX), Apple (Nasdaq:AAPL) – all beat earnings expectations in the latest round of quarterly reports.   

Yes, earnings estimates appear to have been too low. But at the same time, the economy is surprisingly strong. I’m not sure there’s much reason to think analysts should have seen these numbers coming.   

Apple was the star of the bunch. It reported $3.33 a share in earnings, when analysts were looking for a measly $2.45. That’s a humongous beat by Apple. And the stock is moving 6% higher this morning. 

Yesterday, investors have spoke loud and clear. And they said “If it comes down to Goldman Sachs (NYSE:GS) vs, SEC, I’m betting on Goldman.”   

And why not? Goldman is all-powerful. It’s #2 on my “never short” list, after Apple and before Google.   

Goldman has proved its ability to stay ahead of the curve. It survived numerous lawsuits and a $110 million settlement with the New York Attorney General for IPO fraud during the Internet bubble.  

Most recently, the accusations that inflated price projections and a huge oil trading desk at Goldman were behind crude oil’s run to all-time highs didn’t have any effect on the company. 

Why should this little matter with the SEC over taking advantage of the housing bubble be any different? 

I’m sure by now you’ve heard that Goldman Sachs (NYSE:GS) has been indicted for fraud. Goldman is accused of creating securities that were designed to fail, so it and its hedge fund cronies could make billions in profits.   

Case in point: Abacus 2007-AC1. “Abacus” was a 23-part series of “synthetic collateralized debt obligations” that Goldman Sachs constructed and sold to supposedly sophisticated investors.   

According to Bloomberg, a “synthetic collateralized debt obligations” was a mixture of “…credit- default swaps (CDO), used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities.”

You might have heard the news on Friday about Goldman Sachs’ recent trouble with the SEC. The SEC is suing Goldman for defrauding investors of collateralized debt obligations (CDOs). The fraud comes in because Goldman (allegedly) did not disclose to CDO investors that Paulson & Co. helped put together these investments while at the same time betting against them.

That’s kind of like a car dealership selling you a car that was assembled by a mechanic who also happens to be betting the drive train will fail.

It seems that Paulson’s foresight in betting against mortgage backed securities issued by Goldman Sachs has his fund under scrutiny from the SEC as well.

This scrutiny is making some people nervous about owning the same gold securities as Paulson & Co – which is having a downward effect on all gold securities, not least of which is gold itself.

I said I would be using the banks as my “canaries in the coalmine” for earnings season. Financials tend to lead the stock market, both on the upside and the downside. 

Of the big banks to report so far, we’ve heard from JP Morgan (NYSE:JPM) and Bank of America (NYSE:BAC). And their results have been remarkably similar.   

Both banks posted better-than-expected profits based on strong trading results. And both banks continue to be hampered by impaired assets and non-performing loans. 

Today, I start by offering my condolences. It’s tax day, never a pleasant time of the year.  

Yesterday, I noted that the recent rally lacked enthusiasm. Low volume and small daily gains were the hallmarks. Did all that change yesterday after Intel (Nasdaq:INTC) posted blowout numbers?  

Maybe. Volume posted its best totals since February. And the S&P 500 made its biggest gain since March 5. 

Yesterday I gave a somewhat tongue in cheek treatment to the question of whether Alcoa (NYSE:AA) had beaten analysts’ earnings expectations or not.   

Intel (Nasdaq:INTC) left no room for doubt. The chip-maker crushed estimates by $0.05 a share, beat on revenues and profit margins and guided higher for the second quarter.   

What’s next for Intel? Fixing the housing problem? 

There are some investors who think the significance of aluminum company Alcoa’s earnings is overblown. There are stocks that provide a better measure of consumer spending habits, or otherwise give more insight into the economy’s health.  

But because Alcoa is always the first major company to report, it’s numbers are still treated like an omen for the 499 companies on the S&P 500.  

So, if you ignore one-time charges, Alcoa (NYSE:AA) reported $0.10 a share 1^st Quarter profit yesterday afternoon. I would swear I read on Yahoo! Finance that analysts were expecting $0.11 a share. That would mean Alcoa missed estimates.

Finally. Greece has been offered a lump-sum loan by the European Union. It’s been obvious for weeks that this needed to happen. Now that it has, at least we can look forward to not reading about this saga every day.   

A month ago, this Greek bailout might have been a significant catalyst for the stock market. Now, after the seemingly endless back and forth, there’s not much impact beyond a rally for Greek banks and bonds.   

From a trading perspective, the Greece news is being overshadowed be earnings season… 

How many times will we see the headlines say that an aid package for Greece is ready to go into effect? Talk about dysfunction, the way the EU and Greece has handled this situation, it’s no wonder that investors are demanding extremely high premiums to handle Greek debt.   

It’s pretty clear that Greece needs a lump sum loan from either the EU or the IMF. I don’t care which. But please, just get it done so we can stop all the drama.   

The Wall Street Journal is reporting that banks have been pulling a fast one on investors for the last year...  

The stock market rally that started on February 5^th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   

Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   

This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   

And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.   

Oil is holding above $86 a barrel. And yet analysts still cling to the notion that oil should be driven by the U.S. economy.   

Here’s a quote from a report from Frankfurt’s Commerzbank:  We think that the oil price increase is only of temporary nature, since it is driven by liquidity rather than by fundamental factors…The recent increase in correlation between oil prices and equity markets, which has now reached unprecedentedly high levels underscores our view.   

I’m not sure how Commerzbank comes to the conclusion that oil prices are somehow not connected to fundamentals, but, instead, are connected to the stock market. But this stance is highly suspect. 

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam? 

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people. 

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.

I can imagine that a few people were waiting for President Obama to follow up his declaration that he was opening up the East Coast shelf for oil drilling with a hearty “April Fools!” but he didn’t.  

It’s for real.   

The decision to open up the East Coast shelf is sure to anger some people. Former Florida governor Jeb Bush was adamantly opposed to drilling off of Florida’s coast, even when his brother George pondered the idea. He felt that oil drilling might spoil Florida’s beaches and impact tourism.   

I don’t know how current governor Charlie Crist feels about offshore drilling, but there will be plenty of vocal opposition. Imagine the irony as both environmentalists and conservative politicians lambaste Obama for this decision to open up oil drilling! 

They say March comes in like a lion and goes out like a lamb. We’ll see about that. March started with a strong rally that’s added +50 points, or 4.4% to the S&P 500. That’s as good a monthly performance as you’ll find. Perhaps too good…   

Stocks have come so far, some are now wondering, what’s left? And after today’s ADP Employer Services employment report showed that private companies cut payrolls by 23,000 in March. That’s a far cry from the gain of 40,000 economists were expecting from this report. And it raises the fear that Friday’s release of the Labor Department’s Nonfarm Payroll report will come in far short of the expected 190,000 jobs growth.  

Of course, the government’s report will include census workers, so it’s likely to better than the ADP report. But still, the market is left waiting for jobs growth. 

When you have a trend that continually manifests itself over a period of many years, in many different markets, you can make low-risk investments when that trend is outside of its normal range. There are about as many mean-reversion trends as there are commodities, and I’ll examine many of them as they become relevant, but for now, I’m going to focus on one of the easiest to understand and potentially most profitable.

I’m talking about the gold-silver ratio. The modern mean (ever since the 1870s when the U.S. government de-monetized silver and went to the gold standard) has been a ratio of 55.

So, in modern history, it’s taken 55 ounces of silver to buy one ounce of gold. Before that, the ratio was much lower – in the 16 range. That’s much closer to the ratio of silver to gold in the earth’s crust – and as I’ll discuss in a minute, it could revert to that ratio again.

This morning, I find myself wondering how long investors can continue to support cash raising activities. That’s probably not the best way to pose the question. Perhaps after I set the stage, the question will make more sense. 

Yesterday, Greece started selling 7-year bonds to raise cash to cover its debt issues. The yield was to be 6%. But then, Greece got greedy and tried to drop some 12-year notes on the market.  

Now, Greece was warned not to try and add supply to its offering because the market wasn’t ready for it. So I don’t know what Greece was thinking when it decided to ignore this advice and float the 12-year notes. But Greece will pay the price. Nobody wanted the 12-year notes. Investors only bought about half of what was offered. That drove the yield on the 7-year notes to 6.3%. 

Friday was a repeat of Thursday. Stocks made a nice move higher in the morning and then lost in the afternoon. This type of intra-day reversal often opens the door to the sellers to take stocks significantly lower. But that didn’t happen.   

Instead, we just saw the S&P 500 test the 1,165 support/resistance point two more times. This action suggests the rally still has some upside potential, even though it’s moved in practically a straight line since early February.   

Now that all parties appear to have agreed upon an aid package for Greece, it will start raising the $71 billion it needs to get through the year. Greece is selling 7-year notes at 6% interest.

Stocks were following the game plan nicely yesterday. The dollar was down against the euro, and stocks and commodities were rallying nicely.  

It all fell apart when European Central Bank president Jean-Claude Trichet called the inclusion of the IMF in the Greek bailout plan “very bad.”   

I see his point – this was a great opportunity for Europe to come together and handle the Greek debt matter in-house. Of course, we know Germany was resisting. And in the end, Germany got its way. 

The S&P 500 moved back down for retest of 1,165 support/resistance point yesterday. That important level held, but it’s interesting to see what lead to the retest.   

Basically, yesterday’s decline was the result of currency values. The U.S. dollar rose against the euro as more signs of dissension in the European Union add uncertainty to the future of the euro.  

The root cause of the dissension, the ongoing debt issues in Greece and now in Portugal, is somewhat irrelevant. Greece will get the bailout loans it needs. And whether they come cheaply from the IMF or a bit more expensive from the EU central bank, they will come.   

The overriding issue is that Germany is demanding IMF involvement. Other European countries see this as an internal matter for the EU to solve. From that perspective, we can see the Greek debt solution as a chance for the EU to demonstrate its cohesion.  

And Germany is throwing a monkey wrench into the whole thing. 

That was quite a show Maguire Properties (NYSE:MPG) put on yesterday after it reported 4^th quarter earnings. It opened down, around $2.50 a share, and then marched steadily higher for the rest of the day to close at $3.54.   

Maguire’s cash reserves are rising after it walked away from a few underwater properties and sold a couple others. Investors seem to be saying the stock is on more solid ground now – volume was monstrous.  

While I’d love for Daily Profit readers to have participated in yesterday’s gains, I stand by my recommendation to take your profits on the stock before earnings. Earnings are a big uncertainty. Maguire could just as easily have dropped yesterday. There’s always risk when investing, and perhaps more so with a stock like Maguire. It would have been irresponsible of me not to have you take profits before earnings. 

Yesterday morning was the bears’ big chance. Futures were down, resistance at S&P 500 1,165 had held and there was a steady stream of seemingly negative news. Greece was still a question mark, trade relations between the U.S. and China was getting tense, and the controversial health care bill had just passed. There was enough uncertainty in the air to drive the S&P 500 to an early test of support at 1,150.   

That was the moment. 1,150. And the sellers couldn’t take it lower. In fact, the bulls took control and pushed the S&P 500 back above 1,165. As I wrote last week, there is very little resistance between 1,165 and 1,200. I think the odds are good that we see S&P 500 1,200 in the near future.   

Now, I want to switch gears and discuss the Nasdaq a little, because it’s been outperforming the other major indices by a wide margin. The S&P 500 is up 2.8% for the year. The Nasdaq, on the other hand, is up 4.3%. 

The financial media is jumping to the conclusion that recent weakness for stock prices is related to the ongoing Greek bailout saga. But considering that Greece would prefer to have the IMF involved in its bailout plans because emergency loans would be cheaper, I’d suggest we need to look elsewhere for the real cause of the recent mini-sell-off.  

The Indian rate hike is certainly a more likely candidate. Not because India’s economy is driving the global economy, but because this move is another sign that central banks around the world are ending their stimulus policies.   

India’s move comes a full month ahead of the next scheduled central bank meeting. The timing suggests that perhaps inflation is becoming problematic. And it also raises the possibility that India will hike rates again when it meets next month.   

Today is March options expiration, so don’t expect a lot of action. Options expiration days (the third Friday of the month) tend to be pretty dull.  

Still, it’s been a pretty good week for stocks. The S&P 500 moved up through two important resistance points – 1,150 and 1,165. 1,165 is a post-crisis high. And if you check a chart, you have to go back to late-2005 to find the next resistance point at 1,200. (The S&P 500 attempted to find support at 1,200 during the crash in 2008, but I don’t see that as particularly significant – investors were literally grasping at straws then.)  

Ironically, individual investors aren’t on board. Total inflows into diversified equity funds for U.S. stocks were negative in February. Bond funds and foreign funds showed gains.  

Also, ETFs had a positive inflow of $5 billion. That suggests that investors may be taking matters into their own hands and opting for a lower cost investment vehicle. 

The S&P 500 is trying to push past a key resistance point at 1165. The Consumer Price Index was unchanged for February. The lack of pricing pressure supports the Fed’s monetary stance. As the Nomura Securities chief economist David Resler told Bloomberg, “Inflation is certainly no imminent threat to the U.S. economy…We see the Fed on hold through this year.”   

Resler’s expectation for interest rates is a bit of a departure. Most economists think rates will rise later in the year. But any interest rate hikes will be dependent on jobs growth. Unemployment claims fell by 5,000 last week. That’s an improvement, but we still need to see payrolls increases. We won’t get that number for a couple of weeks.   

The dollar is stronger against the euro today as the bailout plan for Greece takes another turn. An agreement seemed to have been made a couple days ago. Greece was even taken of credit watch by ratings agencies. 

Senate Banking Chairman Christopher Dodd is all set to put his latest banking regulation bill up for a vote. The bill would put an end to proprietary trading, lend transparency to hedge fund trading and derivatives, and give the Federal Reserve the power break up companies if they pose a “grave threat” to the economy.  

Dodd’s proposal would also create a nine-member “Financial Stability Oversight Council” of regulators, led by the Treasury Secretary. According to Bloomberg, “…the council can make recommendations to the Fed to impose “strict” rules for capital, leverage, liquidity and risk management to make it difficult for firms to grow so big and complex that they endanger the financial system. It could require the Fed to regulate non-bank financial firms that threaten financial stability, ensuring that “the next AIG would be regulated” by the Fed…”   

It’s clear what Dodd is trying to accomplish here. He’s trying to make it so that financial firms can’t engage in trading activities that could ultimately destabilize the entire economy. I’m not sure these proposals, as I understand them, accomplish the objective. 

The AP is reporting that China has trimmed its holdings of U.S. Treasury’s by $5.8 billion in January. I’m sure members of the doom and gloom economic faction will point to this as solid evidence that the U.S. is losing its ability to fund spending and is inching ever closer to default.   

In my opinion, this line of thinking is completely unrealistic.   

China still holds $889 billion in T-bills. It’s clearly not “dumping” American debt. And as I discussed last week, there is evidence that China is moving to more direct investments in the U.S.  

China’s state-run investment company, the China Investment Corporation (CIC), is already involved in a buyout offer for shopping mall owner General Growth Properties (NYSE:GGP) through Brookfield Asset Management (NYSE:BAM). 

For the past year, the fate of commercial real estate in the U.S. has been a popular talking point for economic bears. Something like $1.4 trillion in commercial real estate loans comes due in the next 3 years.   

Given that a good portion of these properties are underwater, and the fact that banks are still reluctant to lend, the concern that many of these loans won’t get refinancing seems valid.   

Already, we have seen companies simply walk away from properties that are losing money, turning the keys over to the banks that hold the mortgages. Maguire Properties (NYSE:MPG) has done it. And we’ve seen BlackRock (NYSE:BLK) and Tishman Speyer Properties abandon Manhattan’s Stuyvesant Tower when the value fell from $5.4 billion to $2 billion.   

For shareholders, these moves make sense because it’s better than throwing good money after bad. For Maguire, it was a matter of life or death for the company.  

Still, it’s a concern because someone has to step up and buy the impaired real estate from the banks. Otherwise, bank balance sheets are saddled with even more toxic assets, capital bases fall, lending dries up and the whole financial crisis gets repeated again.  

Interestingly, it may be the Chinese who help the U.S. out of this commercial real estate problem. 

I got this letter in my inbox yesterday:   

Good morning Ian,   

I followed your instruction and bought MPG at 1.50 per share, today, it goes crazy. Thanks a lot.    

I really like to read your articles.   

Sue   

I first discovered Maguire back in September, 2009. As part of my daily routine, I check in on the stocks that are moving the most every day. You can find this information on Yahoo! Finance by clicking on this link:  http://finance.yahoo.com/gainers?e=us.  

This list simply shows the stocks that are putting in the biggest moves of the day. It’s almost always dominated by small cap stocks. You’ll also usually see a few regional banks that are up 15% on 3,000 shares traded. I’m always curious why these big moves happen to small banks on ridiculously light volume, but I digress… 

It’s hard to believe that just a year ago, the Dow Industrials were trading around 6,500. It’s easy to look back and see this as an obvious buying opportunity, but it sure didn’t feel that way at the time.  

Of course, I was recommending stocks in SmallCapInvestor PRO, because valuations were incredibly low. But I was mitigating the risk by taking profits quickly.  

For instance, we took profits on SXC Health Solutions (Nasdaq:SXCI) in April with a 19% gain. That stock has gone on to post some fantastic gains. Conversely, we made a quick 33% on Arena Pharmaceuticals (Nasdaq:ARNA) between March 3 and March 11, 2009. That stock is now much lower than our exit price.  

In light of the anniversary of the market lows, the AP ran a great article over the weekend that included a bunch of interesting stock market stats. I’d like to share a few...

This morning’s payroll data came in better than expected. After economists warned that February snowstorms may have depressed payrolls by as much as 100,000, the 36,000 job losses reported for last month sounds like good news. Well played, sirs, well played.  

This must be a first. Citigroup (NYSE:C) CEO Vikram Pandit abandoned the attitude of entitlement that has characterized so many bailed out banks and simply said “Citi owes a debt of gratitude to American taxpayers…We look forward to helping them realize value on that investment.”     

Let’s not forget, too, that it was Pandit who volunteered to work for a $1 salary while Citi dug itself out of the hole. Meanwhile, other bank CEOs were fighting to keep their multi-million dollar compensation packages coming. 

It seems like Pandit is the only one who realizes he’d be out of a job were it not for government bailouts.

Payroll processing firm ADP reports that private employers cut jobs by 20,000 in February. That reading is in line with expectations. It also is more evidence that the rate of job losses is slowing, or stabilizing.    

That’s an important first step for getting actual job growth and putting the economy on a clear path to recovery. But there’s a long way to go before fewer job cuts turns into actual net hiring.  

In early February, stocks looked as though they were breaking down. We had just gotten through the Dubai debt problem. China was raising reserve requirements for banks to slow the rate of lending. And then the news about Greece’s debt problems broke.  The S&P 500 had dropped from January highs at 1,150 to as low as 1,044. That’s a 9% move, and if you recall it was enough to get investors a little nervous. In fact, some were even saying that the global economic rebound was done before it was even a year old.

It was about that time that I started including TradeMaster Daily Stock Alerts' Jason Cimpl in our daily conversation here at Daily Profit.

Somebody knows what do about the U.S. dollar rally we've seen lately.

A recent regulatory filing with the SEC on February 16 shows that George Soros' Soros Fund Management has doubled its holdings in the SPDR Gold Trust (NYSE:GLD). Soros is now the 4th biggest investor in GLD. John Paulson's hedge fund, Paulson & Co. owns the most GLD, with 31.5 million shares.

I discussed Soros gold investment in a recent Daily Profit. Soros believes gold is likely to become a "bubble asset." Low interest rates and concerns about the global economic recovery would be the driving catalysts. But as we know, bubbles occur when buying begets buying.

Gold is currently trading around $1,095 an ounce. Price estimates from Goldman Sachs and HSBC call for gold prices to rise to the $1,235 to $1,300 range. But I think Soros' position suggests he thinks it could rise even higher than that.

And that's the thing about bubbles. Once they start, it's hard to say how high prices can run.

Now, as you know, I'm usually a fundamental investor. I like to buy reasonably valued companies that are taking advantage of important economic or consumer related trends. At the same time, I believe gold should be part of any portfolio, especially now.

As you can see from this U.S. Dollar Index chart, the dollar has put in an impressive rally. Much of the reason for this has to do with weakness in the euro due to debt problems with Greece. (We can include potential problems with Spain, Ireland and Portugal as well.)

At some point in the not too distant future, the U.S. dollar will weaken. And that's going to send gold, and other commodities higher. Potentially much higher. Gold alone could easily move 20% higher. And that will mean significant price movement for gold mining stocks.

There is an article at Slate.com making the rounds in the financial press. Warren Buffett's partner at Berkshire Hathaway, Charlie Munger, penned a parable about America's rise and fall, called "Basically, It's Over."

The article details how a young, fiscally responsible country called Basicland got caught up in the "casino" of speculation, ignored its export economy, and essentially went bankrupt.

While perhaps a bit simplistic, Munger's piece is intended as a warning about rising government debt and an over-reliance on risky financial speculation. This speculation is intended to make up for the lack of manufacturing as a major component of GDP.

Some of the statistics he throws out are a bit scary. He says "The winnings of the casinos (investment banks) eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos."

I haven't verified those numbers, but they certainly suggest an economy that's out of balance.

As I read Munger's article, I thought immediately of yesterday's story about how Goldman Sachs and other investment banks may knowingly used mortgage-backed securities and CDOs to set-up AIG.

I'm sure we all believe it is any company's right to take advantage of another company's weakness. At the same time, however, it seems to me that at some point, a company must ask itself "at what cost?"

In the case of the housing bubble, investment banks knew the mortgage-backed securities they were selling were junk. Not only did they set AIG up for a fall, these casinos, as Munger calls them, essentially cannibalized America to make a buck.

Munger's answer? Listen to Paul Volcker. Keep banking separate from investing. And "…produce and sell items that foreigner's [are] willing to buy."

Let's hope that our elected officials are not so ensnared in the casinos' tentacles that they can make the changes that America needs.

An influential German business confidence survey showed a surprise drop in the country, the first in 10 months. A cold winter has apparently hurt retail sales in Germany.

That's pressuring the euro, and providing strength for the U.S. dollar. It's been pretty well documented that the euro does not tend to rally alongside the dollar. And that's what we saw yesterday.

One positive note from yesterday - Maguire Properties rallied off of support at $1.50. Volume was strong and the stock broke above its 50-day moving average. You may recall yesterday, I said the stock needed to rally, and soon. Now, it needs to keep rising.

Also yesterday, TradeMaster Daily Stock Alerts' Jason Cimpl told us he expects consolidation for the stock market this week. (Consolidation occurs when prices don't move much as investors adjust to a new price level.)

Yesterday, the S&P 500 traded in a tight 7-point range. And it won't be surprising if it holds to a similar tight range today. We might anticipate the negative news from Germany to be offset by an improved reading of the Case-Shiller home price index.

It's pretty hard to ignore the big news this morning – the Fed hiked the discount rate by a quarter point to 0.75%. Now, this is different from an interest rate hike (known as the federal funds rate). The discount rate is the amount of interest the Fed charges banks for direct loans.

The move is designed to make it more expensive for banks to borrow from the Fed, thereby encouraging them to borrow from private sources.

Now, the Fed said in its last meeting that this move was coming. And I'm actually glad to see the Fed make a "surprise" move. By that I mean the markets got very accustomed to the Greenspan policy of only moving rates during policy meetings. That gives the market time to adjust ahead of the meeting. Some argue that strategy decreases the effect of the move.

With this surprise move, Bernanke has taken the market by surprise and forced it to adjust on the fly. That's actually a good thing. I think it's important for the Fed to show that it's proactive.

What's more, the Fed is also showing that it is intent on removing the emergency liquidity measures it took in the wake of the financial crisis. This is an important step toward addressing fears that cheap money will spark inflation.

The biggest takeaway from this move is that the Fed is showing confidence in the economy. The Fed clearly believes the economy is strong enough to start walking on its own, without the crutch of cheap money.

Of course, the Fed has also reiterated that real interest rates, or the fed funds rate, will stay low for an "extended period of time." And most still consider that to mean there will be no interest rate hikes until early 2011. And we can look at today's Consumer Price Index (CPI) to see why.

Prices at the consumer level rose just 0.2% for the 5th month in a row. Take out food and energy, and consumer prices actually fell for the first time since 1982.

The reason is pretty clear: unemployment. With less demand, companies can't raise prices. So clearly, the Fed can't raise rates until the employment picture improves.

Bespoke Investment Group is reporting that 10% of U.S. corporations are raising earnings expectations, compared to 4.1% that are lowering them. That's the largest gap on record, and suggests that analysts still have earnings projections that are too low.

It's hard to blame the analysts for being cautious. While the economy has improved, uncertainty about unemployment is an issue. It's easy to imagine that consumer demand could drop. Still, let's not ignore what corporations are saying. After all, they are the ones in direct communication with their customers. I can't help but be a little optimistic that there is more upside for the stock market.

Don't ignore the consolidation news from the commercial real estate sector this morning. Mall owner Simon Properties (NYSE: SPG) is offering $10 billion for its rival, General Growth Properties (NYSE: GGP).

Several investors and economists believe commercial real estate will be the next shoe to drop. And within that sector, shopping malls are probably the most beaten down group. That Simon Properties is considering a buyout means that it sees opportunity. And it is moves like these that often mark a bottom for an industry or sector.

I've recommended a commercial real estate stock that may have some terrific upside. Maguire Properties (NYSE: MPG) is back to its support level at $1.50. If you didn't catch it there last time, you might want to give it a look.

It's no surprise to me Europe is experiencing weaker than expected growth. In fact, in Wyatt Investment Research 2010 Economic Predictions and Investment Outlook, I wrote that it was likely that Europe enters recession again. And when we read that Euro-zone GDP growth for the 4th quarter actually declined 2.1%, and sequential growth was just 0.1%, it appears that recession is more than just a possibility for Europe.

The contrast between the 4th quarter in the U.S. and Europe is about as stark as it gets. And it's clear to me that the main difference is government stimulus. For instance, French car-maker Renault expects car sales in Europe to fall 10%. Car sales in the U.S. have been pretty good, and the cash for clunkers program helped. There should also be no doubt that government support for the housing market has helped.

There is also an interesting parallel between countries like Greece or Ireland and states like California and Nevada. No doubt, if California was a country and not a state, it would be on the list of countries with sovereign debt problems.

Fortunately, California's problems are somewhat masked by the overall relative strength of the U.S. economy, but that won't last. Debt issues in certain states have the potential to become a real drag on growth.

My Washington DC office has been vacant all week. It's amazing to me that record snowfalls have turned my DC staff into shut-ins (and closed the government for the third day) while life goes on at its normal pace here in Vermont.

The snowstorm that's crippled the mid-Atlantic region will certainly have an impact on 1st quarter GDP. I would expect that 1st quarter retail numbers will be pretty bad. But there could be some good numbers for restaurants coming. The rally in the dollar over the last few weeks has lowered food costs. And I also think that once we see a thaw on the Eastern seaboard, people will shake off their cabin fever with a night out. I know I would...

I'm really on the fence with this one: did the Obama administration purposefully wait to attack the unemployment situation? Or is it just dumb luck?

I ask because it's clear to me that now is the time to strike. If stimulus money had been used at this time last year to help the unemployment situation it wouldn't have worked. Corporations were still in the process of cutting costs to meet lower demand. And at the time, demand itself was a moving target.

Now that the economy has stabilized, demand is returning and corporate earnings are on the upswing. So corporations are starting to hire again. New jobless claims are down again, as are continuing claims. The unemployment rate has dropped, and on-line employment ads are increasing.

The Conference Board, a non-profit global business organization, reported that online job demand is rapidly rising. According to the Conference Board, the total job vacancies advertised online today is over four million, or the same level as November 2008.

Seems to me, the added perk of government incentives, like a payroll tax holiday or tax credits for new hires, could give companies the final push needed to add employees.

I expect the recent volatility is on readers' minds, so let's get right to TradeMaster's Jason Cimpl and his outlook:

The bulls did not capitalize on Friday's bullish close yesterday. Stocks were up strongly in the morning with most indices up more than half a percent. Those gains held into the afternoon and it seemed as though we were going to see a nice pop into the close. Then around three, the market started to turn red and indices sold off hard in the last hour of the day. But it is not over for the bulls.

Despite the weak afternoon, the SPX managed to close above 1065 support. Resistance was formidable at 1071, which is the price we will be watching for a break out today in a short squeeze.

Short interest picked up substantially. We closed down most of our shorts already (including one with a sweet 15% profit . Basically, the market is oversold and any pop up will be fast. We held onto most of our longs anticipating a move higher, possibly back up to 1120, but we will be selling into any rally.

It's important to remember that the vast majority of stock trading volume comes from institutional investors like mutual funds, hedge funds, and even sovereign investment funds.

As Jason notes, stocks rolled over yesterday afternoon. That's consistent with institutional trading, which tends to take place during the first and last hour of the trading day.

It's also important to remember that institutional selling isn't necessarily an indication of economic or earnings data. Part of the reason stock prices hit such lows last March was that banks and other investors had to raise cash at all costs. And that can mean selling assets, regardless of one's outlook.

A similar situation may be happening right now. Greece (especially) and other European countries have debt problems. No doubt some of the selling activity we've seen lately is related to this. Investors are hopeful that a solution for Greece's debt problems is on the horizon. That's helping today's upside bias. That hope is also boosting the euro against the U.S. dollar which is good for stocks and commodities.

Also, don't dismiss the government's new-found focus on employment. We've already started to see what may be a trend change for employment. Jobs are the missing link to the economic recovery. Good news on this front will certainly help stocks move higher.

Yesterday’s decline reversed the rally we enjoyed to start the week. The S&P 500 is now below support at 1071. Is that a death knell? No. But it’s not good, either.

Mounting debt problems in Greece, Spain and Portugal are spooking investors. Oil prices are lower as investors worry the global recovery isn’t gaining momentum.

The Labor Department reported that companies cut 20,000 in January. New unemployment claims also rose. But somehow, the unemployment rate fell to 9.7%. I’m not going to call that a “damn lie”, but statistics don’t always tell the whole truth.

We’ve noted frequently in Daily Profit that we can expect to see some pretty wild swings in the data as the housing market and unemployment rate bottom. One month’s positive data gets revised lower, and then the next month’s negative data gets revised higher.

There’s no doubt the economy is improving, but is it happening fast enough? And perhaps more importantly, where will the base-line be?

An unemployment rate around 4%-5% used to be the norm. We’re certainly looking at a higher base for unemployment over the next few years. GDP growth will be lower. Investors will probably support lower P/E ratios and levels for the major indices.

That’s not a disaster, but it does mean you’ll need to be focused on value and not afraid to take profits when you have them.

Wow. Two strong rallies to kick off February. It's great to see some buying interest after January's sell-off. But I would caution that 2010 will be more volatile than the final 9 months of 2009, when stocks were on a one-way trip higher.

You could argue that stocks are overvalued based on index P/E levels. The trailing P/E for the S&P 500 is 21. At the same time, companies are once again beating earnings estimates. Business is better than analysts expected.

The forward P/E for the S&P 500 is 14. That's based on analysts' expectations of 2010 earnings. If analysts are once again low-balling the numbers, then the S&P 500 may actually be cheap. But if unemployment continues to weaken, or if banks don't loosen up lending, or if the housing market doesn't improve, then perhaps stocks are expensive.