Value Investing

Financials have clearly driven this rally. And it makes sense - this rally is being built on a bailout designed to help banks.

When the world's most successful investor tells you he wants to buy back significant amounts of his company's stock, investors should listen up.

Talk about a relief rally. The S&P 500 put in its biggest move since 1974 after Europe announced several concrete steps to end the Greek debt crisis and protect the Euro-banks.

One thing that seems to be missing is the timetable for Greek default. It would be good to know exactly when the Euro-banks have to book the losses.

Earnings season has been a success so far, with roughly 70% of the S&P 500 companies that have reported so far beating expectations.

The Bank of Ireland is about to have a new majority shareholder. Ireland's government is expected to raise its stake in the Bank of Ireland from 36% to something constituting a majority.

The Irish government is also expected to raise its stake in Allied Irish Bank to, potentially, 99%.

If this sounds like Ireland is taking a page from the U.S. bank bailout strategy you're right. When you're facing the potential of a run on the banking system, the government is essentially the last entity that can to step in and provide a backstop.

AIG (NYSE:AIG) agreed to convert preferred shares given to the U.S. Treasury in exchange for bailout money into common stock that can be sold on the open market. The Treasury owns $49 billion in AIG preferred stock. The exchange will leave the Treasury with 1.66 billion shares of AIG common stock.

For the Treasury to recoup its bailout money, it must be able to sell the AIG stock at an average price of approximately $29 a share.

Today you can buy a 10-year Treasury bond and get a 3.11% yield - but wouldn't you rather own shares in a company that pays a better yield, and has the potential to increase in share price?

I usually try to find companies that benefit directly from higher commodity prices, but in this case, I've found a company that could benefit despite higher commodity prices...

This company pays a 3.4% dividend - and better yet it has the ability to raise or lower prices at will. That's because it takes one of the cheapest commodities on the planet (corn) and turns it into an easily consumable good - with a price markup in the triple digits. Whether you believe we're headed into deflation or inflation, pricing control is hugely important.

More on this pricing control in a minute...

Most people buy Treasuries precisely because they want safety.

If you're worried about safety, I'd make the argument that buying shares of

I have to hand it TradeMaster Daily Stock Alerts' Jason Cimpl. Yesterday, his morning alert to his traders was titled "The Biggest Story You Didn't Read Yesterday".

And I'll admit, I missed this story. But Jason, ever on the lookout for events that can lead to solid profits for his readers, was all over it.

Of course the biggest story yesterday, which was the failed auction in China, received no coverage from the U.S. media. China's finance ministry could not come up with enough bids in yesterday's $4 billion 1-year auction. Over the past year there has been much debate as to whether or not China's yuan is undervalued. Speculators have slowly priced in a currency adjustment, but yesterday's auction could indicate that the adjustment will happen this year.

The PBC has gradually raised reserve requirements on Chinese banks for the past year and it is widely expected that the bank will raise interest rates for the first time in three years this quarter. In that environment banks favor long-term debt, which typically have higher yields, but the notion that a 1-year auction did not receive enough bids is bizarre.

I don't have a problem with investors who are bearish on the stock market and the U.S. economy. After all, official unemployment is near 10%. U6 unemployment, which includes those who are underemployed or have simply given up looking for work, is significantly higher.

The housing market is likely to only gradually improve over the next couple of years. There's record government debt here in the U.S. and in many other countries.

But the bears need to take another look before they add high stock valuations to the laundry list of downside catalysts. Because the numbers say stocks are as cheap as they've been since 1990.

Sure, it's easy to look at the 79% move by the S&P 500 and think stocks must be expensive.

But so far, 1st Quarter earnings have beaten estimates by an average of 22%, according to Bloomberg. 80% of reporting companies have beaten expectations.

Analysts have raised forward earnings estimates for S&P 500 companies by 9.3% in April. The index has responded with a 3% move in April.