U.S. stocks yesterday (Monday) staged their biggest rally since the Great Depression – with the Dow Jones Industrial Average soaring an all-time record 936 points – on a Federal Reserve-led push to flood the ailing global financial system with dollars and on a U.S. government plan to buy stakes in banks.

The rally was sparked by commitments from the major financial nations to cooperate in getting the credit markets functioning again, and by news that U.S. officials were putting the finishing touches on Washington’s version of a rescue plan under which the U.S. Treasury Department will invest an estimated $125 billion in nine major U.S. banks, and another $125 billion in smaller financial institutions, Bloomberg News reported early this morning (Tuesday).

The White House announced that U.S. President George W. Bush would meet at 7:30 a.m. EDT today with members of his financial markets working group. He’ll make a statement about the plan at 8:05 a.m. U.S. Treasury Secretary Henry M. “Hank” Paulson Jr., U.S. Federal Reserve Chief Ben S. Bernanke and Federal Deposit Insurance Corp. Chair Sheila C. Bair will discuss the plan during an 8:30 a.m. news conference, MarketWatch.com and Bloomberg both reported.

“These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis,” President Bush told reporters yesterday following a meeting with Italy Prime Minister Silvio Berlusconi at the White House.

After an eight-day losing streak – the worst for the Standard & Poor’s 500 Index since 1996 – those dramatic worldwide developments were enough to spawn a rally of historic proportions in U.S. shares. The S&P 500 rebounded from its worst week in 75 years with an 11.6% advance, jumping 104.13 points to close at 1,003.35. The Dow zoomed 936.42 points, or 11%, to close at 9,387.61 – eviscerating the previous record of 499 points, set in March 2000, and posting its best percentage gain since 1933.

The Nasdaq Composite Index climbed 194.74, or 12%, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.

Last week’s 18% declines pushed both the S&P 500 and Dow down more than 40% from their peaks last October.

The S&P 500 ended the trading day Friday at 17 times reported earnings of its companies, the cheapest valuation in more than a year. Yesterday’s really boosted the Price/Earnings ratio to 19.2. The S&P 500 is still down 32% this year, positioning it for its worst yearly loss since 1937.

“The worst of the immediate danger is past,” Bruce McCain, chief investment strategist at Key Private Bank (KEY) in Cleveland, which manages $30 billion, told Bloomberg, the well-known financial news service.“It’s always easier when you’ve got markets going up and you’re not having to talk clients back in off the ledge.”

Kevin Divney, chief investment officer at Putnam Investments in Boston, told Bloomberg Television that “the real catalyst is the levels of valuation.”

But not everyone was quite so sanguine. Money Morning Investment Director Keith Fitz-Gerald cautioned that one strong day in the markets – even a record one – doesn’t necessarily mean there’s a full-fledged rebound in store.

“The real economic growth rates in the financial sector are unclear,” Fitz-Gerald said in an interview. “To say that it’s an accounting nightmare is an insult to the Hollywood honchos who actually make their living transforming nightmares into movies. Fiction writers could not concocted a better horror story than the one that’s rocked world financial markets since last November. Despite all the mergers and acquisitions, and the emergency bailouts, that we’ve seen to date, Wall Street hasn’t even begun to address the underlying business prospects – on anything more than a superficial level – of the lion’s share of the companies that are being bailed out.” [For Fitz-Gerald’s full take on yesterday’s market action – including some insights on how he believes investors should navigate the uncertainty – check out his special market commentary that appears elsewhere in today’s issue.]

All 10 industries in the S&P 500 added more than 7%. Monday’s worldwide rally – which ranged from Tokyo to New York – sent the MSCI World Index up 9.5 %, the biggest gain since the gauge was created in 1970, MarketWatch reported.

The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.

Details of a Bailout/“Rescue” Plan

On Sunday, the major European Union nations committed more than $2.3 trillion to safeguard their banks and financial system, according to The Associated Press.  Global efforts to rescue the international banking system gathered force yesterday, with Europe leading the way to provide money to shore up its financial sector and calm traders, and the U.S. hinting it’s on board with its own rescue plan, MarketWatch reported. [For details of the sweeping European rescue plan, check out this related report elsewhere in today’s issue of Money Morning.]

U.S. bankers were summoned to the Treasury Department yesterday, as the U.S. government prepared additional measures to stabilize markets, reported the U.S. shortwave broadcasting service, The Voice of America.

Over the weekend, Treasury Secretary Paulson had called the heads of the five biggest U.S. banks to come to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, Morgan Stanley (MS) CEO John J. Mack, Citigroup Inc. (C) CEO Vikram Pandit, JPMorgan Chase & Co. (JPM) CEO Jamie Dimon and Bank of America Corp. (BAC) CEO Kenneth D. Lewis were all asked to attend, according to The AP.

The CEOs had been in Washington this past weekend to meet with international finance officials at the annual meetings of the International Monetary Fund (IMF) and World Bank. This group of U.S. banking sector leaders met with Paulson and Fed Chairman Bernanke for about three hours yesterday, several news sources have said.

When asked for precise details about the plan that’s to be unveiled early today, U.S. Treasury officials remained mum. Indeed, sources would only say that it would include a “series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets.”

However, after the CEO meetings, some details began to leak out. Industry insiders speculated late yesterday that the Federal Reserve and Treasury Department had outlined a plan to inject as much as $250 billion of the $700 billion rescue plan into top U.S. banks.

In addition, to jumpstart “Interbank” lending, the FDIC would actually insure new senior preferred debt for three years.

The Treasury Department would take the equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago. 

“We’re talking about making investments in these banks in a way that doesn’t necessarily punish existing shareholders,” Charles Bobrinskoy, vice chairman of Ariel Investments LLC, which manages $13 billion, said on Bloomberg TV. “Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.”

Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) and insurer American International Group Inc. (AIG) resulted in near-total losses for the firms’ shareholders.

The collapse of New York-based Lehman Brothers Holdings Inc. (LEHMQ) on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.

Direct investments of this magnitude represent a new approach for Treasury Secretary Paulson, who initially advocated a bailout targeted at illiquid mortgage-related assets. When the markets didn’t respond positively to earlier plans, the Treasury Department shifted gears – in a big way.

“They’ve decided they need to do something drastic and this is drastic,” Gerard S. Cassidy, a bank analyst at RBC Capital Markets (RY) in Portland, Maine, told Bloomberg.

The proposed cash injections in exchange for preferred shares are said to be destined for Citigroup, Goldman Sachs, Wells Fargo & Co. (WFC), JP Morgan Chase & Co., Bank of America Corp., Merrill Lynch & Co. Inc. (MER), Morgan Stanley, State Street Corp. (STT), and Bank of New York Mellon Corp. (BK).

 “The government has gone to ‘Plan B’ and it packs a big wallop,” Frederic Dickson who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, told the financial news service.

The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.

The government will obtain its stakes with a type of security designed not to dilute the value of common shares.

None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.

The remaining $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases would be aimed at “healthy” firms.

News and Related Story Links:

• Bloomberg News:
  
  U.S. Stocks Rally Most Since 1930s on Bank Plan; Dow Gains 936.

• MarketWatch.com:
  
  Filling in the blanks on plans to rescue banks.

• Voice of America:
  Stocks Soar on Wall Street as Markets Bounce Back from Worst Rout in 20 Years.

• MarketWatch.com:
  
  U.S. stocks join global rally on government plans.

• Wikipedia:
  
  Silvio Berlusconi.

• Wikipedia:
  International Monetary Fund.

• The Associated Press:
  Bush to announce expanded bank bailout details.

• Wikipedia:
  The World Bank.

• Money Morning Special Report:
  Heads They Win, Tails You Lose: Why the Bailout Plan Will Fail U.S. Taxpayers.

• Bloomberg News:
  Treasury Said to Invest $125 Billion in U.S. Banks.

• U.S. Treasury Department Biography:
  Neel Kashkari.

The Dow Chemical Co. (DOW) yesterday (Thursday) announced its plans to buy rival Rohm and Haas Co. (ROH) in an $18.8 billion deal, $3 billion of which will come from Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B).

News of the Dow buyout sent Rohm and Haas shares soaring over 60% by midday in New York.

“The transaction delivers on the promises we have made to our shareholders about transforming our earnings profile to one of high-growth and less cyclicality,” Dow Chief Executive Officer Andrew Liveris told a conference call regarding the Rohm and Haas offer, Reuters reported.

Some analysts felt the $78 per share bid – a 74% premium to Wednesday’s closing price of $44.83 – for Rohm and Haas shares was too steep a price for Dow to pay.

BB&T Capital Markets (BBT) downgraded Dow shares to “hold” from “buy” after the announcement.

“We’ve been negative on Rohm & Haas’s fundamentals for some time now, as its largest feedstock, propylene, has been on a tear and its major end market, coatings, has been under pressure,” said BB&T analyst Frank Mitsch in a note, MarketWatch reported.

But Dow management defended the deal as the company looks to expand its chemical-product line and diversify away from commodities.

“While it’s hard to put a price on a company’s culture and people, this premium recognizes the fact that Rohm and Haas is a highly-coveted asset in terms of both of these critical attributes, as well as the quality and reputation of its businesses, brands, products, and technologies,” Dow Chief Financial Officer Geoffrey Merszei explained via conference call.

Investors should take comfort in Berkshire Hathaway’s $3 billion endorsement of the deal. Studies have shown that following Warren Buffett’s investment track record can lead to profits. Another $1 billion in equity to back the deal is coming from sovereign wealth fund Kuwait Investment Authority.

Dow has struggled lately as soaring oil costs have eaten away at the chemical company’s margins, spurring double-digit price increases in both June and July. Just over 30% of Rohm and Haas revenues come from materials used to make electronic components, a nice complement to Dow’s current line-up, which is heavy on petroleum-based products.

“This deal uses up much of Dow’s firepower,” Martin Evans, an analyst at Cazenove in London, said in a report, Bloomberg News reported. “The premium is high — as is often the case when chemical assets are acquired — and is a necessary part of their transformation away from commodity exposures.”

News and Related Story Links:

• MarketWatch:
  Dow Chemical to buy Rohm & Haas for $15 billion

• Bloomberg News:
  Dow Chemical to Buy Rohm & Haas for $18.8 Billion

• Reuters:
  Dow Chemical to buy Rohm and Haas for $18.8 billion

High oil prices, a steep drop in consumer confidence, declining home values and a weak dollar conspired to drive the Dow Jones Industrial Average to its lowest point in two years, and made for the benchmark index’s worst June since the Great Depression.

After falling more than 300 points last Thursday and extending losses on Friday, the Dow lost 4.2% in the week ended closing at 11,346.51 – its lowest level since September 2006. All totaled, the Dow plunged 9.5% in June – its worst mid-year performance since the 18% drop in the 1930s.

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Down 20% from its Oct. 9 high of 14,165, the Dow officially entered into a bear market. 

"With oil prices bursting through the $140 threshold and seemingly unstoppable, economists are busily debating whether it’s all going to end in fire (inflation), or ice (deep recession)," said Doug Porter, senior economist at BMO Capital Markets.

"Equity markets aren’t so concerned about the fineries of the debate, but are instead much more focused on the ‘it’s all going to end’ portion of the discussion," he wrote in a note seen by Dow Jones newswire.

All 30 companies listed in the Dow Jones index suffered losses last month, as investors headed for the hills.

The Standard & Poor’s 500 index didn’t fair much better. It fell 8.4% in June, as just two of the index’s 10 industries rose this year. Energy producers gained 6.3% and a group of mining and chemical companies added 0.5%. Earnings at S&P 500 companies dropped 18% on average in the first quarter, Bloomberg News reported.

Unemployment hit 5.5% in May – a 0.5% increase from April and the largest monthly increase in 23 years. Meanwhile, the Conference Board said its overall monthly index tumbled to 50.4 this month (its lowest point since hitting 47.3 in February 1992) as home values continued to plummet and foreclosures rose to record highs.

Another factor was the unrelenting price of oil, which hit another record high above $143 a barrel yesterday (Monday), racked nearly every major market index, foreign and domestic.

Foreign Markets Feel the Pain

China’s benchmark CSI 300 Index fell 0.9% yesterday to close at 2,791.82. The index lost 23% of its value in June, its worst monthly performance since the measure was introduced in April 2005. Fourteen stocks fell for every 13 that rose, with six of 10 industry groups declining, Bloomberg reported.

The CSI 300 has declined 48% this year, the most among benchmark indexes in the world’s 20 biggest equity markets.

Japan’s Nikkei 225 average shed 62.98 points to 13,481.38 yesterday, falling for an eighth straight day, its longest losing streak since last November. The benchmark fell 11.9% in the first half of this year, the worst since 1995 when it lost 26%, according to Reuters.

Britain’s FTSE 100 index climbed 1.7 % yesterday but still slipped 7% in June and 13% in the first six months of the year.

News and Related Story Links:

• Bloomberg:
  U.S. Stocks Tumble, Sending Dow to Worst June Since Depression

• Bloomberg:
  China Stocks Fall; Benchmark Index Completes Worst Month Ever

• Reuters:
  Nikkei down 0.5 pct, ends worst H1 since 1995

• Money Morning:
  Crude Hits Another Record High Above $140

A fresh round of weak earnings reports and tepid economic indicators fueled concerns about the U.S. economy’s health, which sent the blue-chip Dow Jones Industrial Average into a 300-point tailspin on Friday.

At midday today – thanks to an across-the-board sell-off – all three of the key U.S. stock indices had posted losses. And the downward trend continued into the close.

The Dow – the bellwether of U.S. blue chips – nosedived 315.79 points (-2.51%), to trade at 12,266.39. The tech-laden Nasdaq Composite Index also slumped, shedding 60.09 points (-2.58%), to reach 2,271.48. And the broader Standard & Poor’s 500 Index dropped 37.05 points (-2.71%), to trade at 1,330.63.

Every single sector was down – and by more than 1% -although several key sectors suffered even steeper declines: The basic materials sector slipped 3.21%, the energy sector skidded 3.11%, and the financial sector dropped 3.32%.

Technology was another hard-hit sector, down 2.65% for the day, as shares of Dell Inc. (DELL) helped to pull the sector lower. Fourth quarter earnings decreased by 6% and the company warned that future results "could be adversely impacted by more conservative spending by its customers," in the near-term. Dell shares shed 97 cents to close at $19.90.

By the close, American International Group Inc. (AIG) shares were down more than 6.56% after the insurance giant posted a $5.3 billion fourth quarter loss, the largest in its 89-year history. The stock dropped $3.29 to close at $46.86.

Sprint Nextel Corp. (S) shares were down more than 12.11% on investor fears that the next quarter would bring even more subscriber losses. Sprint shares closed at $7.11, down almost 20% for the week.

"There is certainly no shortage of negative news out there," Michael Magiera, senior analyst at Manning & Napier Advisors, which manages $17 billion in Fairport, New York, said in an interview on Bloomberg Television. "It’s going to be a little while before we work through some of this."

The U.S. Commerce Department reported that consumer sentiment increased more than expected in January. However, high inflation offset the benefits of the gain.

"Today’s data on personal spending showed a fairly good gain of 0.4%, but the gain was eaten up fully by higher prices," Tony Crescenzi, of Miller Tabak & Co., told MarketWatch.

Worries about the U.S. economy and Thursday’s losses spilled over into the overseas markets. Japan’s Nikkei Index dropped 2% – with a 322.49-point decline – to reach 13,603.02. Hong Kong’s blue-chip Hang Seng Index climbed 107.85 points to close at 24,591.69.

In Europe, the major indices all traded in the red with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX posting losses.

News and Related Story Links:

• Bloomberg:
  U.S. Stocks Decline on Economic Concern; AIG, Sprint Retreat

• MarketWatch:
  U.S. stocks slump; Dow slides more than 200 points

• MarketWatch:
  Dell leads broad tech decline at market close

• Reuters:
  Stock Market News & Quotes

In the first changes to the 111-year old blue-chip stock index since April 2004, Bank of America Corp. (BAC) and Chevron Corp. (CVX) will replace Altria Group Inc. (MO) and Honeywell International Inc. (HON) in the Dow Jones Industrial Average.

"While people follow the S&P 500 to get a broad feel for the market, the Dow Jones is still the average people recognize," Keith Wirtz, chief investment officer of Cincinnati-based Fifth Third Asset told Bloomberg. "[The changes are] an alignment of the average to reflect where earnings are emanating from in corporate America."

Bank of America is the largest U.S. bank based on market value, while Chevron is the nation’s fourth-largest fuel producer. Their addition to the oldest U.S. stock market index reflects the growing important of the finance and energy sectors in the U.S. economy.

"I’m glad oil’s back in there," Neil Hennessy, president and portfolio manager at Novato, Calif.-based Hennessy Advisors Inc., told Bloomberg. "That’s very representative of what’s happening not only in the U.S. but globally."

Chevron, which has been included in the Dow twice before, joins rival Exxon Mobil Corp. (XOM) as the only two oil and gas firms in the 30-component Dow.
Bank of America joins fellow financial sector firms: American Express & Co. (AXP), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM).

"The catalyst for these changes is the restructuring in progress at Altria, which will result in a much smaller and more narrowly focused company," Marcus Brauchli, managing editor of The Wall Street Journal, told Forbes.

Altria divested its Kraft Foods subsidiary in March of last year and also has plans to sell its international tobacco holdings.

"As usual when we make any change we review all the stocks," Brauchli said. "In doing so, we saw that the financials industry was under-represented – notwithstanding the current turbulence – and that the oil and gas industry’s growing importance to the world economy called for another representative to join Exxon Mobil Corp."

The changes will be effective at the opening bell on Feb. 19.

News and Related Story Links:

• Bloomberg:
  Bank of America, Chevron to Join Dow Industrials

• Forbes:
  Dow Jones adds Bank of America, Chevron to DJIA, removes Altria, Honeywell

• Money Morning:
  The Dow Recession Rebound Strategy: Why You Never Want to Be on the Sidelines

Miss the recession, miss the rebound.

If there’s one set of statistics that underscore why market timing is such a risky undertaking, it could well be this: As much as markets decline during recessions, if you jump out at the bottom, you run the risk of getting left behind when the economy rebounds and stocks do, too. And the opportunity loss on those missed profits can be substantial.

Consider this: January’s stock performance is often viewed as an early look at the market performance to come. But that’s not foolproof. According to Thomson Financial, the five worst January swoons since 1926 led to an average gain of 12.3% over the following 12 months and 26% over the next 24 months.

According to what we’ll call the "Dow Recession Rebound Strategy," the gains coming out of an economic downturn can be even more dramatic than the rubber-band snapbacks from a lackluster January.

For instance, during the Great Depression – the downturn that lasted from August 1929 to March 1933, the Dow Jones Industrial Average plunged 84.2%. But one year later, the blue-chip bellwether soared 81.07%.

Much more recently, the weight of Watergate and unrelated economic problems pushed the Dow down 19.04% from Nov. 1973 to March 1975. But a year later – thanks to the relief rally from the economic rebound and the U.S. withrdawal from Vietnam – the Dow soared 30.11%, for a relative gain of nearly 50%. [For a full analysis of Dow performance during U.S. recessions, and after, please see chart that follows this article].

How Now the Dow?

It goes by many names – the Dow Jones, DJIA, Dow30, or just "The Dow" – but no matter what you call it, the Dow Jones Industrial Average is the oldest and most well-known U.S. stock index. For years, investors have been using the Dow to gauge the health of the U.S. markets. 

At inception, the index created by The Wall Street Journal editor and founder, Charles Dow, contained just 12 stocks. But the DJIA has grown in the past 100 years and is now made up of 30 U.S. blue-chip stocks, some of America’s most well-known names. [For a complete listing of the Dow's 30 components, please see the chart that follows this story.] 

To account for the various stock splits over the years, the Dow is no longer a simple average of the prices of its compontent stocks. Instead, the sum of the component prices is divided by a divisor that is adjusted whenever one of the component stocks has a stock split or stock dividend, to generate the value of the index.

Year to date, this bellweather index is down 1,082.69 points, a 8.16% decline as of Friday’s 12,182.13 close, and that performance has created market uncertainty that has many experts forecasting a recession. But in contrast to the old adage, "What goes up, must come down," where the Dow’s concerned a better maxium might be "What goes down, will come up."

As the U.S. economy has ebbed and flowed, the Dow has taken investors on a bumpy ride. But the wild fluctuations that have given investors a white-knuckled ride throughout the years are the reason that stocks offer such potential for long-term gains.

"Investors should be grateful for bear markets, because without them stocks would offer bond-like returns," Larry Swedroe, a financial advisor with St. Louis-based Buckingham Asset Management, told Fortune.

In fact, the Dow is remarkably resislient. On Sept. 17, 2001, the first day of trading after the 9/11 attacks, the Dow suffered its largest historical one-day point drop. The Dow fell 684.81 points, a 7.1% decline. By the end of that week, the Dow had fallen 1,369.70 points, or 14.3%. But the index recovered and managed to close the year above 10,000.

So while we’re not yet in bear territory [the Dow is not down 20% from its Oct. 11 intra-day high], a steady stream of troubling economic indicators makes it likely we’re going to keep heading that way. But stay calm. Just remember that bear markets can present unique opportunities to savvy investors.

The Dow has recovered quite well after every U.S. recession and if don’t stay invested, you’re bound to miss the upswing when it comes – and it will come. You want to be there when it does.

What to Do, When the Dow is Down

Money Morning Investment Director Keith Fitz-Gerald has five tips to help you not only stay afloat, but even profit during a volatile market.

• Plan your exit strategy. "One reason so many investors are getting clobbered is that they’re holding on too long," said Fitz-Gerald. Trailing stops in your portfolio can help you protect your principal and your profits during good markets; and they’re an absolute necessity in a bear market.

• Focus on income. "By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do," said Fitz-Gerald. And it’s important to remember that dividend-paying stocks tend to be more stable than their non-dividend paying brethren – particularly during rocky stock markets.

• Build in safety. "Allocate up to 50% of your assets in our favorite balanced fund, the Vanguard Wellington (VWELX)," said Fitz-Gerald. Since 1929, the Vanguard fund has captured 80% or more of the market’s upward moves [including many of the years where there were market gains of 20% or better], even with a "safety-first" balanced blend that’s about 60% stocks and 40% bonds. This asset mix maintains your ability to gain in bull markets, while minimizing your risk during more-bearish trading sessions.

• Look to exports. "A beaten-down greenback means that U.S. companies – particularly those with strong export businesses – are trading for bargain prices," said Fitz-Gerald. With any of these companies – be it sin stocks, gaming firms, or defense contractors – stick with firms that have lower debt, steady sales growth, and that are posting strong earnings. The best plays will be firms with global operations.

• Hedge your bets. "Professional investors hedge with options, futures and other types of derivatives", said Fitz-Gerald. "But you can achieve this far more easily." Take advantage of a specialized exchange-traded funds (ETFs) such as the Rydex Inverse S&P 500 Strategy Inverse Fund (RYURX), which is designed to rise in value by 1% for every 1% the S&P 500 falls.

When it comes to bear market strategies, there’s a final – but important – thought to consider. When the markets get rough, don’t give into the temptation to cash out and just play it safe. Studies show that investors who stay in the game and pursue profits using strategies like the ones we’ve just outlined tend to capture the biggest returns over time.

"It’s best to buy when there’s blood in the streets," Fitz-Gerald said. "Even if it’s your own."

News and Related Story Links:

• Fortune:
  Recession? Where to put your money now

• Money Morning:
  Five Survival Strategies That Will Allow You to Profit Even in a Recession

Manic trading sessions like the one Wednesday – the Dow Jones Industrial Average endured a wild 625-point swing on its way to a 299-point gain – can be very tough on an investor’s psyche.

You don’t know which way the market will move next. And you don’t know where to put your money.

But here’s a secret: There are moves you can make now that will allow you to profit no matter which way the Dow swings. And there’s a bonus: This strategy will not only boost your profits, it will also reduce your risk.

Here at Money Morning, we’ve identified 12 investments that – as a group – should help you profit in up markets and down. We’ve dubbed them the "Dow-Beating Dozen." The strategy is simple to deploy.

Let me explain …

G-Force Investing

With the wild week U.S. stocks have endured, American investors are probably feeling more like bungee-jumpers.

With U.S. markets closed for the Martin Luther King holiday on Monday, overseas stock markets plunged.  That made for a very tense opening Tuesday. Even after a surprise rate cut by the U.S. Federal Reserve – a three-quarter-point reduction that was the biggest interest-rate action in nearly 25 years – the Dow plunged nearly 465 points in early trading.

After investors had a chance to analyze the rate cut and its implications, they pared the loss substantially. Even so, the Dow ended the day at 11,634.82, down 128.11 points, or 1.06%. At that point, the 30-stock blue-chip bellwether was 16.2% from the record levels it achieved last year.

That set the stage for Wednesday.

After dropping more than 325 points during the morning trading hours, the 30-stock Dow Jones reversed course and posted a gain of nearly 300 points for the day – a swing of more than 625 points.

During that gut-wrenching journey, the Dow traded as low as 11,644.81. The DJIA ended the day at 12,270.17, up 298.98 points.

The U.S. financial sector led the charge, posting its biggest gain in five years. Bank of America Corp. (BAC) and JPMorgan Chase & Co., (JPM) – the biggest U.S. lenders by market value – rallied after Bear Stearns Cos. (BSC) advised buying shares of large banks. Those are all important points.

Bank of America added $3.18, or 8.5%, to close at $40.57, its largest gain in eight years. Dow components JPMorgan – up almost 12% for the day – and Citigroup Inc. (C) (up 8%) both helped to boost the average higher.

Both the broader Standard & Poor’s 500 Index and the tech-heavy Nasdaq Composite Index were also down in early trading, only to recover and end the day well into positive territory. The S&P 500 ended the day higher by 28.10 points (2.14%), to close at 1,338.60. The Nasdaq climbed 24.14 (1.05%) to close at 2,316.41.

Yesterday (Thursday) was tame by comparison. After dropping a fairly tepid 28 points by noon, the Dow headed north again. It gained 108.44 points, or 0.88%, to close at 12,378.61.

A Dozen Ways to Beat the Dow

The Dow Jones index is now down only 12.8% from its record trading high of 14,198.10, set Oct. 11. Its record high close was 14,164.53, set Oct. 9.

That was the news.

But here’s the story.

Investors can position a portfolio to profit no matter which way the Dow moves. Let’s take a look at the 12 key profit plays to make now.

• Fly Inverted: Whether you’re playing in Vegas or trying to outwit the Dow [some more rueful investors might argue that they're one and the same these days], it pays to hedge your bets. And that goes for both stocks and bonds. To address this need, bolster your portfolio with a few "inverse" funds. We’ve chosen two. The Rydex Inverse S&P 500 Strategy Investments Fund (RYURX) appreciates as the Standard & 500 Index drops [the S&P and the Dow typically move in tandem, so we're covered, here]. Not only can specialized investments such as this one protect your portfolio from some of the damage inflicted by falling stock markets, they can add to your upside without forcing you to first dismantle your portfolio. On the bond/income side, consider the Rydex Inverse Government Long Bond Strategy C Fund (RYJCX), a fund designed to move inversely to Treasury bonds; up to this point, it has been a terrible investment as T-bond yields have trended steadily downward and prices upward. But it may be ready to come into its own. Remember: The crisis in the U.S. financial markets caused by resurgent inflation is likely to hit the Treasury market first, so this Rydex "inverse" fund should correspondingly benefit. 

• Add Balance: While this may sound like advice that the late Pat "Wax On/Wax Off" Morita might’ve offered to The Karate Kid, this is also some sage wisdom for investors who are trying to beat the Dow. In all market climates – but especially in the midst of the maelstrom we’ve experienced of late – it’s always shrewd to make sure that a good slice of your money is in investments that offer both safety and balance. We call those our "Base Builder" investments, and one of our favorites is the Vanguard Wellington Fund (VWELX). Since 1929, this fund has captured 80% or more of the market’s upward moves [including many of the years where there were market gains of 20% or better], even with its "safety-first" focus and a balanced blend of investments that’s about 60% stocks and 40% bonds. This asset mix maintains your ability to gain in bull markets, while minimizing your risk during the Dow’s more-bearish trading sessions.

• Dig Those Dividends: Make no mistake – dividends matter. Probably more now than ever. Thanks to the late 1990s Internet boom and the surge of wealth created by the emergence of China and other newly capitalist economies in Asia, investors have become so intoxicated with the concept of capital gains that they’ve forgotten the persistent power that dividends provide. Well get this: Since 1926, dividends have accounted for 35% of the total return that investors have reaped from stocks. Put another way, says Bernstein Global Wealth Management, "a dollar invested in 1926 in U.S. large-cap stocks would have grown to nearly $2,300 today. But take out the dividends [and the effect of compounding on those reinvested dividends], and that same dollar would be worth a little less than $88." Ouch. Clearly, if you want to trounce the Dow, dividends are a crucial component of any strategy you employ. The PowerShares International Dividend Achievers (PID), or the Alpine Dynamic Dividend (ADVDX) funds are two logical choices to fill the bill. The income they kick off is reinvested over time; during down markets, that builds your asset base, positioning you for a rebound. And when the Dow Jones finally gets up a head of steam and chugs north as U.S. markets recover, the compounding effect will guarantee that you end up well ahead of the pack. Plus, the exposure to international markets helps diminish the risk associated with a U.S. Federal Reserve that seems to be employing a policy of benign neglect when it comes to the U.S. greenback.

• Go for the Gold: You don’t have to be one of the perennially bullish gold bugs to see that the yellow metal is only going to go higher. Demand from newly minted consumers in China and India have added to the potential customer base, which shifts demand for gold into a higher gear. Then there’s the inflation-stoking effect created by the sinking U.S. dollar. Add in the fact that oil prices are set to move higher, too [trust us, the recent retrenchment is but a brief respite ... oil prices could easily double before the year is done], and there’s only one conclusion to reach: As part of our Dow-beating elixir, you have to buy gold. In our view, the StreetTRACKS Gold Trust (GLD) is about the most efficient way of getting a pure gold play that you’ll find. So bizarre is the world that we live in that gold – at a price below $900 an ounce – is beginning to look cheap. Remember: Back in 1980, during the country’s last major bout of inflation, gold achieved a peak that in today’s money would be equivalent to about $2,200 an ounce.

• Grab the "Global Titans:" Dividends, income, balance and hedging are all great, and are crucial elements of the financial foundation we’ve constructed for you, but if we really want to beat the Dow, we need to mix in some growth. But it has to be safe and sensible growth. The companies we call the "Global Titans" are the first piece of that growth strategy. These companies may well be headquartered in the good old U.S. of A., but they derive a hefty portion of their sales from overseas. That imbues them with the "perfect storm" of safety and profits: There’s the safety provided by the stricter regulatory rules imposed on U.S.-based firms; and there’s the profit-stoking growth provided by markets abroad that continue to advance, even as the U.S. economy winds down. We look for companies with great long-term prospects, and put a premium on firms that pay dividends. Among the firms we count as key ingredients of our Dow-beating elixir: Yum! Brands Inc. (YUM), PepsiCo Inc. (PEP); MGM Mirage (MGM); and McDonald’s Corp. (MCD). [If you want to make this portfolio a "Baker's Dozen" of Dow-beaters, we'll give you one more Global Titan, this one with even more long-term potential: The Boeing Co. (BA), which will benefit immensely from the growth in China, Vietnam and other key markets in Asia. To see what we mean, click here to check out our free research report]. 

• Jump on Japan: Although inflationists were pressuring it to do so, the Bank of Japan did not cut interest rates on Tuesday. Japan’s stock market has fallen about 16% this year, and that makes no sense, given that the country is incredibly liquid, and that its domestic businesses are enjoying a robust economic recovery. As part of the second element of our growth formula for eclipsing the Dow’s performance for the rest of this year, invest in Japan. Go for the SPDR Russell/Nomura fund (JSC), which invests in smaller, Japan-based companies that have little or no exposure to global exports.

• Ride the Rocket: It’s always worth investing a small piece of your portfolio in somewhat-speculative – but well-thought-out – investments. They may be "special-situation" turnaround plays, or stocks or funds connected with emerging economies such as China, India or Latin America. We call these our "Rocket Rider" plays, and the name fits: They can really soar, but the ride can be incredibly rough. Unfortunately, too many investors focus the majority of their investments on this high-risk category, instead of properly employing it as a small addendum. There are plenty of rockets that are ready to be ridden, and there are even a few that won’t explode along the way. But if we were to pick one, it would be Citigroup Inc. (C). The shares of the banking giant are already well off their highs. And there may even be a bit more downside here. But that’s why it’s the consummate Contrarian stock pick. On the positive side of the investment ledger, Citigroup has already attracted major capital infusions from such knowledgeable outside investors as Prince Alwaleed bin Talal, who fueled Citi’s turnaround in the early 1990s, and sovereign wealth funds from Singapore, Kuwait and Abu Dhabi [the Abu Dhabi Investment Authority, or ADIA, is the United Arab Emirate's state-controlled investment fund].

Make these Dow-crushing moves now. And the next time Dow breaks, your portfolio won’t fall.

Research and Related Reading:

• Money Morning Investment Research Report:
  Four Ways to Profit as You Keep the Bear at Bay

• Money Morning Investment Research Report:
  Three Ways to Profit in the Face of Surging Inflation

•  Money Morning Investment Research Report:
  Three Ways to Profit From the Next Phase of the Subprime Mortgage Mess

• Money Morning News:
  Fed Fans Optimism and Fears With Surprise Rate Cut

• Money Morning News:
  World Indices Nosedive – U.S. Markets Could Follow

• MarketWatch.com:
  Climbing when stocks slide: Inverse Funds Roar as Market Bears Rumble, But Beware of Their Sharp Bite

• The Associated Press/The Honolulu Star-Bulletin:
  Markets Turn Down as Credit Anxiety Persists

• Money Morning Investment Research Report:
  China’s Growth Will Clear $340 Billion Worth of Airliner Sales for Takeoff Over the Next 20 Years

It was another wild day on Wall Street.

The Dow Jones Industrial Average followed up Tuesday’s manic trading with an equally surprising rebound yesterday (Wednesday).

After dropping more than 325 points in morning trading, the 30-stock market bellwether reversed course and posted a gain of nearly 300 points for the day – a swing of more than 625 points.

During its journey, the Dow traded as low as 11,644.81. It ended the day at 12,270.17, up 298.98 points.

The U.S. financial sector led the charge with its biggest advance in five years. The Bank of America Corp. (BAC) and JPMorgan Chase & Co., (JPM) – the biggest U.S. lenders by market value – rallied after Bear Stearns Cos. (BSC) advised buying shares of large banks.

Bank of America added $3.18, or 8.5%, to close at $40.57, its largest gain in eight years. Dow components JPMorgan [up almost 12% for the day] and Citigroup Inc. (C) (up 8%) helped to boost the average higher.

This sector reversal of fortune was aided by the announcement that New York State insurance regulators met with U.S. banks to discuss raising new capital for bond insurers. 

Talks in New York with the unnamed banks are part of Insurance Superintendent Eric Dinallo’s effort to stabilize the bond guarantors and to bolster the market’s financial condition, agency spokesman Andrew Mais said in an interview with Bloomberg News.

Both the broader S&P 500 Index and the tech-heavy NASDAQ Composite Index were also down in early trading, only to recover and post gains for the day. The S&P was up 28.10 (2.14%) to close at 1,338.60, while the NASDAQ climbed 24.14 (1.05%) to close at 2,316.41.

News and Related Story Links:

• Bloomberg:
  U.S. Stocks Rise, Erasing Decline, as Financial Companies Gain

• MarketWatch:
  U.S. stocks erase loses, Dow closes 299 points higher

For an investment analysis of the U.S. economy – as well as investment plays that will profit no matter which way the market moves – please click here. The report is free of charge.

U.S. stocks plunged yesterday (Thursday) – with the Dow Jones Industrial Average plummeting more than 300 points to reach a 10-month low – as yet another round of downbeat economic reports fueled investor fears.

Key among yesterday’s reports:

• The U.S. Commerce Department said that building permits, housing starts and housing completions plunged in December.
• U.S. Federal Reserve Chairman Ben S. Bernanke urged Congress to enact a temporary economic stimulus plan to help the United States dodge a recession.
• And the Federal Reserve Bank of Philadelphia said that its index of manufacturing activity in that region for January skidded downward to its lowest point since October 2001 – which was just after the 9/11 terrorist attacks on New York and Washington.

U.S. stocks fell for the third straight day. The blue-chip Dow careened downward 306.95 points – or 2.46% – to close at 12,159.21. The broader Standard & Poor’s 500 Index slipped 39.95 points, or 2.95%, to close at 1,333.25.

And the tech-laden NASDAQ Composite Index dropped 47.69 points, or 1.99%, to close at 2,346.90.

"The huge slowdown in manufacturing activity does not bode well for an economy trying to stay afloat," Joel L. Naroff, chief economist for Naroff Economic Research in Holland, Penna., told Money Morning. "This report was ugly."

Art Hogan, chief market strategist at Jeffries & Co., was equally downcast, telling news service MarketWatch.comthat "when reminded about how bad things are, the market remembers it should go down.  And it is going to take more than just [some] monetary policy to clean up the mess we’ve made with this economy."

Bad News for Builders

Building permits issued in the month fell to 1,068,000, an 8.1% drop from November’s revised estimate and a 34.4% drop from the number of permits – 1,628,000 – issued in December 2006.

The number of housing starts in December decreased to 1,006,000, 14% below November’s revised estimate of 1,173,000 and 38.2% below the number of starts in December 2006. Most strikingly, the figure is the lowest since May 1991. 

Housing completions also dropped to an estimated 1,302,000, a 7.7% decline from November’s revised estimate and 31% lower than completions in December 2006.

On top of that, the National Association of Home Builders’ Housing Market Index – a gauge of builders’ sentiment – sits one point higher than its historic low of 18 registered in December, The Wall Street Journal reported.

"The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one," MFR Inc. chief U.S. economist Joshua Shapiro told The Journal in reaction to the NAHB report. "Hence, it is hardly surprising that builder sentiment remains as low as it has ever been."

The housing figures were released the same week the Department of Labor reported that inflation in 2007 rose at the sharpest rate [4.1%] in 17 years and Citigroup Inc. (C) and Merrill Lynch & Co. Inc. (MER) both reported steep quarterly losses and billions in write-downs, fanning economic concerns across the country.

Bernanke Urges for Fiscal Stimulus

That was the context surrounding Fed chair Bernanke’s testimony before the House Budget Committee in Washington, where he said fiscal stimulus would be temporarily beneficial for the economy, but warned it could backfire if not properly timed or planned. 

He said the economic outlook for 2008 "has worsened" and "the downside risks to growth have become more pronounced," Bloomberg News reported. On top of that, banks have tightened their lending practices, and even though that’s strengthening the quality of credit available, it’s also adding an additional strain to short-term growth.   

Bernanke said a financial stimulus package should be "implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," CNNMoney reported.

The Fed chief didn’t mention or recommend specific measures. Any package that comes of his testimony is expected to include tax rebates, which is one step further than President Bush’s rate freeze for afflicted subprime borrowers.

Most analysts predict that the Fed will lower the key interest rate by 50 basis points at the next Federal Open Market Committee (FOMC) meeting slated for Jan. 29 and 30. Interest rate futures are currently pricing in a 90% probability of a half-point rate cut.

Manufacturing Slumping

 The Philly Fed manufacturing index contracted so sharply in January, according to yesterday’s report, that many economists now say that a recession may be fait accompli.

The Philly Fed diffusion index fell from a negative 1.6 in December to a negative 20.9 in January – the worst showing since October 2001. An aggregate reading below zero means that most of the manufacturing firms in the Philadelphia region that were surveyed are reporting worsening business conditions.

Analysts had actually expected the index to remain in negative territory, but to improve slightly – reaching a negative 1.0. But that didn’t happen.

"In other words, this was a rout," said Naroff, the Pennsylvania economist. "Looking forward, pessimism seems to reign as the expectations index hit its lowest point since 2001 as well."

Tony Crescenzi, chief bond market strategist for Miller Tabak & Co., wrote in a research report that it’s been rare for the Philly survey to present this weak a reading without the U.S. economy actually being in a recession.

Earlier Thursday, the U.S. Labor Department reported first-time jobless claims declined last week, although it also noted that the continuing claims continued their recent upward trend to reach their highest level in more than two years.

Miller Tabak’s Crescenzi wrote that investors can expect to see still more "rally killers" – economic reports on manufacturing, jobs and other important elements of the financial system that are providing downbeat signals.

Money Morning Managing Editor Jennifer Yousfi contributed to this report.

News and Related Story Links:

• Department of Commerce:
  New Residential Construction in December 2007

• Wall Street Journal: 
  Housing Starts Plunge 14%, Marking Lowest Level Since 1991

• Bloomberg:
  Bernanke Says Fiscal Stimulus ‘Could Be Helpful’

• CNNMoney:
  Bernanke: Juice the economy ‘quickly’

• MarketWatch.com:
  U.S. stocks turn negative as Fed chairman speaks

• MarketWatch.com:
  Philly manufacturing activity plummets in January

• Money Morning:
  Bush Announces Rate Freeze for Subprime Borrowers

The worldwide credit crunch isn’t over after all.

Just days after U.S. stocks soared to record highs – and Wall Street upgraded the embattled homebuilding sector – worldwide groups are issuing warnings that there’s likely more pain to come. Investors even bid up the shares of Citigroup Inc. and UBS AG earlier this week – even though the two banking giants on Monday said they would write be writing down $9.3 billion in bad debts between them.

But we said that all this optimism – bordering on euphoria – was premature. And, unfortunately for key economies worldwide, we were correct. [For our free investment analysis, "Avoid the 'Resurgent' Homebuilding Sector and Go Global For Profits," please click here.]

Now the key is to find a way to profit, while also avoiding the growing risks complacent investors face from an insidiously expanding international credit crisis.

Let me explain.

Housing and Mortgage Crisis Not Over Yet

When the Dow Jones Industrial Average soared to its all-time record close of 14,087.55 on Monday, it was because investors thought the worst of the subprime mortgage mess and housing slump were behind us, and because the lousy earnings reports at Citigroup and UBS [Generally regarded as the most-conservatively run bank in Europe] allowed investors to define the scope of the credit problems financial institutions faced.

Unfortunately, investors were wrong on all counts.

Just since Monday, additional reports have pointed to a continued slide in the U.S. housing market, which will translate into still more defaults, and still more job losses in the "real" economy. That’s going to impact the ultimate key to U.S. economic growth – consumer spending. Depending on what other mini ‘boomlets’ are under way in the economy, at any given time, consumer spending provides 60% to 75% of the fuel for the economy.

Lately, housing has fueled some of that spending. Rising home prices that translated into growing "equity" enabled many consumers to treat their houses like an

ATM machine, extracting cash for big-ticket purposes, further fueling growth. Or, even worse, consumers have regarded their homes as their retirement "savings," meaning they could spend all of their paychecks today, thus also artificially boosting consumer spending.

That’s changing here in the U.S. market already. And it’s going to get worse.

Over the next few months, more than 2 million homeowners with subprime adjustable rate mortgages, or ARMs, are looking at resets – and at much-higher interest rates – a reality that’s likely to deepen and lengthen an already-dismal housing downturn.

More than $50 billion in ARM loans will reset this month alone, a record for a single month, says Economy.com, an econometric firm based in West Chester, Pa.

Even the near-term numbers don’t look that good: On Tuesday of this week, the National Association of Realtors reported that that the pending home sales index fell 6.5% in August after dropping a revised 10.7% in July. The index – a forward-looking gauge of home sales – is at its lowest point since it was created in 2001. [For our full report on this story, please click here].

And when it comes to housing and mortgages, the U.S market is not the only problem area. Mark our words – you heard it here, first – all this negative analysis will soon be true in the United Kingdom, too, where a white-hot housing market looks like an "I Love Lucy" rerun of what happened here in the U.S. market.

Just yesterday in the United Kingdom, in fact, a survey by that nation’s biggest lender said that prices fell 0.6% in September, dragging down the annual rate of price inflation from 11.4% in August, to 10.7% in September.

And that research by Halifax, the No. 1 U.K. mortgage lender, agrees with other market surveys, including reports from rival lender Nationwide, and one from the Royal Institution of Chartered Surveyors, BBC News reported yesterday.

Earlier in the month, the Bank of England said that the number of new mortgage approvals plunged 9% in August from the same month in 2006.

"Evidence is mounting that the housing market is now cooling markedly in the face of financial market turmoil, and the increasing affordability pressure on house buyers," said Howard Archer of Global Insight. "Mortgage rates are rising further as a consequence of the liquidity crunch pushing up money market rates, while the Northern Rock [British banking] crisis may hit confidence and increase consumers’ wariness about buying a house."

In late September, the Organization of Economic Cooperation Development (OECD) – which represents the world’s 33 most-advanced industrial nations – warned that the United Kingdom might need to cut interest rates to keep economic growth from declining sharply. The reason: The global credit crunch and that country’s domestic housing slump were the two key culprits cited.

Nor is Britain the only other problem area besides the United States.

In Australia, the credit crisis is affecting non-bank lenders so much that financial advisors and debt-recovery specialists are urging home borrowers to consider refinancing their mortgages with major banks. Non-banking financial-service firms have raised their rates to avoid the credit crisis fallout, the Australia Herald Sun reported in its edition today (Friday).

Other Problems Abound

Housing isn’t the only problem facing investors. Here in the United States, the dollar has weakened to near-historic lows against other major currencies, and the expectation of additional interest-rate reductions by central bank policymakers will likely lead to an even weaker dollar. That’s great for exporters – such as Boeing Co. (BA), the No. 1 U.S. exporter – but is highly inflationary for consumers, and for companies that depend on raw materials, sub-assemblies or ingredients sourced from, and purchased from abroad.

The U.S. jobs report due out today is expected to pave the way for another interest-rate reduction by U.S. Federal Reserve policymakers [For our report on the expectations for today's U.S. payroll report, please click here.]

All these issues rule out most banks and financial institutions in the United States and other key financial markets. Definitely avoid the homebuilding sector, even though Citigroup’s equity-research unit upgraded many of the shares earlier this week.

Then there’s China, perhaps the world’s most alluring profit opportunity for the long haul. But stock prices have been on a near-vertical ascent of late, meaning the chances of a near-term correction are fairly substantial. Look to buy in after a dip makes valuations more reasonable.

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The Plays to Make Now

There are four ways to beat the credit crunch and profit from the still-positive global growth trends that remain in place. Our strategy calls for you to:

1. Invest in agricultural commodities.
2. Invest in gold.
3. Invest in Japanese small-cap stocks, which are domestically focused and which therefore will benefit from that country’s highly liquid economy.
4. Benefit from Asian growth, and from the promising Korean economy, with a strong telecommunications play from that country.

No matter what the mortgage market looks like, how many cars General Motors Corp. (GM) sells or doesn’t sell, or what the price of a gallon of gasoline is at the pump, people will always need to eat. Indeed, as wages rise in such places as China, India, Latin America and emerging Eastern Europe, people will be able to afford more and better food. And that bodes well for agricultural commodities.

And a great way to play commodities is via an exchange traded fund, or ETF. One that we like is the Deutsche Bank’s PowerShares Agriculture Fund (DBA) is intended to reflect the performance of four commodities in the agriculture sector – soybeans (31.13%), wheat (28.87%), corn (23.43%) and sugar (16.58%). These include some of the key commodity plays that investment guru Jim Rogers advocates as great long-term investments. And we agree. [To see what famed author and investor Jim Rogers has to say about wheat - and other agricultural commodities - please click here.]

Commodities are also a good play when financial markets are unpredictable and when inflation is expected to remain in the picture. And the best of those commodities are precious metals, such as gold.

If you think the central banks will continue to print money to solve the credit crunch – they already are, and will continue to do so – you really need an inflation hedge, which means the StreetTracks Gold ETF (GLD). Gold is currently trading in the range of $740 an ounce, and some analysts, including our own Director of Global Investing Research, Martin Hutchinson, think that a price of $1,000 an ounce is indeed likely in the next 6 months

Despite our near-term concerns about China, Asia is still a highly promising market. [In fact, if you aren't yet a Money Morning subscriber, sign up now and receive - free of charge - our 6,000-word research report, "The Three Best Investments in Asia Today," by clicking here.]

Two of our four plays benefit from Asia’s rapid growth, but in very different ways.

First, invest in the streetTracks SmallCap Japan ETF (JSC). It focuses on smaller Japanese firms, which are more-domestically focused. That means the companies will benefit from Japan’s highly liquid economy, and are also somewhat insulated from the worldwide credit foolishness we’re trying to help you avoid.

Second, invest in SK Telecom (SKM), Korea’s largest cell-phone company, which has international operations in China, Vietnam and the United States, although the U.S. market is only a small part of its operations. With 18 million subscribers, this $15 billion growth company has a 52% share of the South Korean wireless phone market.

With these four picks, you’ll be able to boast how you beat the global credit crunch, and profited some hefty profits in the process. And these days, how many investors can truthfully say that?

Money Morning staffers Martin Hutchinson and Mike Caggeso contributed to this report.

Related News and Story Links:

• Money Morning Investment Analysis:
  Avoid the ‘Resurgent’ Homebuilding Sector and Go Global for Profits.

• Money Morning News Analysis:
  Citigroup and UBS Brace For Losses, but Dow Jones Sets Record Above 14,000.

• Australia Herald Sun Newspaper:
  Pressure building on non-bank lenders.

• The Economist:
  Bad News Bulls.

• Forbes.com:
  The Luck of the Buck.

• The Economist:
  To Infinity and Beyond: Contrary to Popular Belief, Stocks do not Always Go Up.

• The Economist:
  Rush Hour: In China, Share Prices Have Taken on a Life of Their Own.

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