When more than $14 billion in merger-and-acquisition deals were announced in a single day last week, U.S. stock prices zoomed as investors embraced a suddenly more-bullish outlook.

As last Monday demonstrated, any increase in dealmaking activity tends to move markets higher: With the chance of windfall profits from a surprise buyout, investors tend to bid up shares of companies that might be buyout candidates. It was the explosion of M&A deals two years ago that helped propel the Dow Jones Industrial Average to its Oct. 12, 2007 record high of 14,093.08.

Last week’s flurry of deals was just the beginning: It’s the opening scene of a three-act financial drama that will take years to climax. For U.S. investors, however, the Second Act is the key: It’s where deep-pocketed foreign suitors step in and start snapping up marquee U.S. companies, prime real estate and household brand names. It’s where attentive investors can recoup some of the losses they’ve incurred in recent years with some windfall takeover profits.

And it’s where America goes on sale.

Paying the Tab

Make no mistake. This had to happen.

With U.S. budget deficits on the upswing, the dollar poised for a protracted tailspin and overseas investors searching for ways to diversify away from increasingly risky U.S. financial assets, don’t be at all surprised when foreign investors accelerate their purchases of U.S. assets.

The U.S. government has committed itself to more than $11.6 trillion in new programs, many of which will lead to increased – and choking – levels of U.S. debt.

The federal budget deficit for 2009 will reach a record $1.6 trillion, more than three times 2008’s record deficit of $455 billion, the White House Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) said recently.

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It will get worse. From 2010 to 2019, the CBO says the deficit will balloon to $7.14 trillion, while the White House projects a shortfall of $9 trillion picture for the same period.

The U.S. economy can cover that shortfall in one of two ways: By issuing debt or by selling assets. Those “assets” will include U.S. companies. And the willing suitors will include China, Singapore, Japan and Russia:

Four to Watch

• China: With $2.3 trillion in reserves and some of the top government-controlled investment funds on earth, China will obviously be a major suitor of U.S. companies and real estate. The country wants to diversify away from such dollar-denominated financial assets as U.S. Treasury bonds. As the U.S. dollar continues to skid, those financial assets will erode in value. Shifting into non-financial assets is one solution. And it’s already happening. Government-controlled “sovereign wealth funds” (SWFs) will be major buyers. China Investment Corp., the Red Dragon’s $200 billion sovereign fund, plans to apportion $2 billion across three buyout funds – including one managed by Goldman Sachs Group Inc. (NYSE: GS) and another that’s operated by Oaktree Capital Management LP. All three of the CIC funds specialize in distressed-asset investing in such areas as U.S. real estate and infrastructure.
• Japan: This Asian giant is taking $100 billion from its underperforming $1.5 trillion national pension fund to create a government-controlled investment fund (sovereign wealth fund). Thirty percent will be devoted to emerging-market investment plays. But the rest will be deployed into such long-term investments as natural resources, energy and food production. And that’s not all: Japanese investment bank, Nomura Securities (NYSE ADR: NMR) this week announced that it would be doubling its U.S. staff – no doubt in part to reap a windfall in fees by advising suitors and targets as the buyout frenzy escalates.
• Singapore: The country’s sovereign wealth fund (SWF) – the Government of Singapore Investment Corp. (GIC) – shrewdly timed its stock market moves, exiting many of its positions before the global financial crisis reached its apex. It’s restored many of those positions, and now will be looking to deploy some of its remaining cash in bargain-basement stocks.
• Russia: Russia has its own sovereign wealth fund, but one of its private investors is making a splash in the U.S. market. Russia’s richest man, Mikhail Prokhorov, is buying 80% of the National Basketball Association New Jersey Nets and a 45% stake in the team’s new arena. Prokhorov will be the first non-North American to control a major U.S. sports franchise (in a separate move that further underscores our premise, a Chinese investor is buying a minority stake in the Cleveland Cavaliers, the basketball team that features NBA superstar LeBron James).

Not the 1980s Buyout Frenzy

Although this surge in U.S. takeovers will involve a slew of overseas players, it’s no surprise that China will be the dominant player. But don’t expect a repeat of what happened with Japan in the U.S. market back during the 1980s. Japan’s success as an exporter – coupled with a strong tariff policy that protected its home market from imports – pumped up the yen and led to a massive buildup of cash in both Japan’s corporate coffers and among its consumers. That spawned an era of easy credit, and that fueled a frenzy of stock-and-real estate speculation unrivaled since the U.S. Great Depression.

Almost overnight, Americans found themselves talking about the invincible “Japanese superman,” an unstoppable juggernaut who never made mistakes. The newly wealthy Japanese were viewed with fear. Japanese cars filled American roadways and parking lots (even at the “Big Three” automakers, General Motors Corp., Ford Motor Co. (NYSE: F) and Chrysler Group LLC). Japanese cars filled American roadways, and Japanese-owned companies treated the U.S. market like it was a private rummage sale. Suddenly, Universal studios, Columbia Records, Rockefeller Center and the Pebble Beach golf course (with its lonely cypress tree) all had new – overseas – owners.

Fortune magazine carried a piece entitled, “Where Will Japan Strike Next?” U.S. lawmakers sounded the alarm. And so did the late author, Michael Crichton, whose alarmist book, “Rising Sun,” was made into an equally alarmist – but no less fun to watch – feature film that starred Sean Connery and Wesley Snipes.

At the height of the hullabaloo, Japan boosters regularly claimed that the land beneath the Imperial Palace in Tokyo dwarfed the value of the entire state of California – an argument that could be substantiated mathematically with actual market values. After all, inn 1989 back in Japan’s Ginza district, prime office space was going for $139,000 a square foot.

A reversal was inevitable. On Dec. 29, 1989, the Nikkei 225 Index topped out at 38,957.44, before closing at 38,915.87. By the following September, it had nearly been halved – and there was still much more bloodletting to go (despite several subsequent rallies up over the 20,000 threshold, the Nikkei ultimately bottomed at 7,830 in April 2003. [Editor's Note: The global financial crisis sent the Nikkei to new lows: The benchmark Japan index bottomed at 7,173.10 in early March of this year. It closed early today (Wednesday) at 9,799.60.]

The fallout from that early 1990s meltdown basically undid every advance that Japan had made. By early 2004, houses in top Japanese cities were selling at one-tenth their peak value, and commercial real estate was selling for less than 1/100th of its peak-market value. Although one could easily argue that the peak values weren’t real to start with, all told, an estimated $20 trillion in stock market and real-estate wealth had been vaporized.

U.S. investors ended up buying back all the marquee properties that Japan had taken over.

A Different Path

When it comes to the Asia market, no one is closer or knows it better than Money Morning Investment Director Keith Fitz-Gerald, who lives part of each year in Japan and who just returned from one of his investment-research forays to Mainland China. And Fitz-Gerald notes that risk-diversification is only one catalyst for China’s increased interest in the U.S. market. The companies China is looking at say a lot about its overall strategy. Indeed, China is looking at companies in four situations:

• Brand Barons: During his recent visit to China, insiders told Fitz-Gerald that China’s leading players are quietly reviewing the world’s Top 100 brands, looking to see which ones might be for sale – and more importantly, which of those brands would provide a new owner with intimate insights on managing and marketing a global brand.

• Connection Kings: Several years ago, China plunked down $3 billion for a stake in The Blackstone Group LP (NYSE: BX), the U.S. private-equity powerhouse, after which the China Development Bank anted up $3.03 billion for a piece of Barclays PLC (NYSE ADR: BCS), the old-line, European banking legend. Many so-called “experts” say that China overpaid. That’s irrelevant, Money Morning’s Fitz-Gerald says. With these moves, China acquired unprecedented access to the global financial markets, some of the best investment-banking expertise in the world, and lined up a steady flow of opportunities for its $2.3 trillion in foreign reserves, says Fitz-Gerald, who also is the editor of The New China Trader global investing service.

• Weakened Rivals: China is scouring the globe for companies that are market stalwarts, despite having fallen on tough times. These companies may well qualify as the “distressed assets” that the Goldman- managed fund will ferret out. But their marriage with their China-based counterparts will create a much-stronger whole.

• Enabling Industries: China is focusing on the development of infrastructure, energy, communications, transportation and water. Investors would do well to look for buyout candidates in these sectors.

As these buyouts accelerate, they could ignite controversies akin to those spawned by the wave of Japanese takeovers in the late 1980s and early 1990s. The shrewdest investors will avoid this trap, focusing instead on the windfall profits they can make – as well as the benefits these suitors could create in an economy that continues to struggle.

Fitz-Gerald also advised investors to consider the long-term implications – and the reality that, over time, everything reverses. The Second Act of this takeover drama may be where China, Japan, Singapore and others buy up U.S. assets. But this drama is a long-term performance. And in Act Three, those properties may well come back into U.S. hands.

For instance, despite all the controversy that Japan caused with its wave of takeovers of marquee properties, it no longer owns any of those. It eventually sold each of them back to U.S. investors.

Only after that occurs – no matter how many decades it takes – will the curtain finally come down, and the final story be written, on this exciting and potentially profitable global investing drama.

News and Related Story Links:

• BusinessWeek:
  Foreign investors love U.S. real estate.
• Fortune:
• For the N.B.A., the world gets smaller.
• Reuters:
  CIC invests $2 billion in Goldman fund, others: sources.
• The Straits Times:
  GIC timed market moves well: Analysts.
• Thomson-Reuters:
  Nigeria Leans on Western Firms With China Oil Talks.
• MarketWatch.com:
  China sovereign fund tips positive returns in 2009.
• Money Morning Special Report:
  How to Find the Best Potential Profit Plays in the Resurgent M&A and IPO Markets.
• PDXForeclosureList.com:
  Distressed assets: profiting from mistakes of others.
• Money Morning News Analysis:
  Gold Aims to Retest Record Highs After Breaking Through the $1,000 Mark.
• Money Morning News:
  Flurry of Mergers and Acquisitions Drives Stock Market Rally.
• Money Morning News Analysis:
  ABN AMRO Deal Points to Next Ways to Profit From China.
• ChannelNewsAsia.com:
  Japan’s sovereign wealth fund could focus on emerging economies.
• The Financial Times:
  Nomura to double headcount in the U.S.
• The Wall Street Journal:
  Weak Dollar Pushes Gold to New Levels.
• Money Morning Special Report:
  Trusted Brand Names Will Point the Way to the Top IPO and M&A Profit Plays.
• Money Morning Special Report:
  The Three Ways China May Deal With Growing U.S. Debt

When the “Great Crash” came in 1929, it came in October. So, too, did the infamous “Crash of ‘87.” And last year, during a tortuous October that led to even lower lows in the months to come, the Standard & Poor’s 500 Index lost 19% of its value in just 30 days.

Investors can be excused if the word “October” is one that strikes fear into their hearts.

The trouble is, it’s actually September that deals investors the toughest monthly hands.

That’s September – as in the month that starts today (Tuesday).

After a rally that’s seen U.S. stocks surge 53% from their March lows (including 3.5% in August, alone), “investors are wondering if September will live up to its reputation as the month in which the S&P 500 posts its worst price performance and frequency of decline,” Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research (NYSE: MHP), told MarketWatch.com yesterday (Monday).

Since 1929, September is actually the worst-performing months for stocks, with the S&P 500 suffering an average decline of 1.3% (compared to an average monthly advance of 0.5%), Stovall said.

The Dow Jones Industrial Average – the index that’s more closely followed by retail investors – tells a similar story. In fact, if you look at the Dow over the last 100, 50 and 20 years, September is the only month in which the average monthly performance has been negative, the Bespoke Investment Group concluded in a recent research report.

Over the past 100 years, the Dow has suffered an average decline of 0.96% in September, with a positive month 42% of the time. The average loss widened to 1.23% for the last 50 years and to 1.49% for the past 20.

Fall, in general, hasn’t been kind to investors: Of the 15 largest point declines in the Dow, six have come in October, four in September and two in November (See accompanying graphic).

Given that, investors “may have a reason to fear a setback in September,” Stovall told the news service. “We don’t know whether concerns over the upcoming [third-quarter] earnings reporting season will trigger this anticipated digestion of gains, or if further nervousness emanating from the Chinese stock market over the prospects of a slower-than-expected growth in GDP will cause U.S. equities to trim some of its recent advances, but September is as good a month as any in which to suffer a setback.

Stovall says that Standard & Poor’s investment committee believes that stocks are “are due for a period of consolidation” – Wall Street parlance for a potentially painful drop – before resuming their advance.

Not all Septembers are the same, however, Bespoke Investment’s recent shows. And this one could be particularly rocky.

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When the Dow has a positive August, it does well in September more often than not. But when three specific market criteria are met, history shows that it’s best for investors to fasten their seatbelts, since they’re usually in for a rough September, Bespoke researchers found.

And – unfortunately – all three of those criteria have been met this year. Those three conditions are:

• The Dow is in positive territory year-to-date (+719.89 points, or 8.2%).
• The Dow is in positive territory during the past three months (+995.95 points, or 11.72%).
• The Dow is in positive territory in August (+324.67 points, or 3.54%).

Of the 17 times in the past when the Dow has boasted a positive return in all three of those time periods, the index has averaged a 1.73% decline for September, with positive returns for the month just three times. And those three months were each about 20 years apart.

Mark Arbeter, S&P’s chief technical strategist, told MarketWatch that the S&P could fall all the way down to 940 – an 8% decline from the close yesterday (Monday) – before continuing its advance to a fresh recovery high.

Indeed, S&P’s Stovall said that “while past performance is no guarantee of future results, history hints that September certainly has the reputation.”

Not everyone is so bearish, however.

Michael Darda, MKM Partners’ chief economist, this week told Barron’s that the stock market’s strong performance “perhaps [is] telling us that the idea of a painfully slow U.S. and global economic recovery is just plain wrong.”

And even if there is a pullback, it could be both shallow and temporary – because of the huge cache of cash on the sidelines. While it’s true that a record $327 billion in cash has flowed out of money-market mutual funds since March 11, that still leaves $3.58 trillion – down from the high of $3.92 trillion, but equal to 34% of the U.S. stock market’s total capitalization, Mizuho Securities Co. Ltd. Chief Investment Strategist Carmine Grigoli told Barron’s.

In 2002, when the last bull-market run began, money market cash equaled 29% of the stock market’s total capitalization. And it’s nearly double the 19% ratio that was present at the 2007 stock market peak, Grigoli told the closely watched Dow Jones (Nasdaq: NWSA) investment weekly.

And back then, the U.S. central bank wasn’t holding the benchmark Fed Funds rate at a historic low of roughly 0%.

Because cash earns almost nothing today, “as financial conditions improve and fear subsides, sideline cash is drawn into higher-risk instruments such as bonds and stocks,” Grigoli told Barron’s. That’s why we’re in “the early stages of a liquidity-driven bull market that could take stock prices substantially higher.”

After we navigate September, that is.

[Editor's Note: The global economic recovery will create an estimated $300 trillion worth of global-investing-profit opportunities. To find out how to capitalize and profit, you just need to know where to look.

And for that, you need a guide. As part of a new report, Money Morning Investment Director Keith Fitz-Gerald details "the $300 trillion global recovery that nobody's talking about" - as well as the six "lifetime" profit plays this powerful global money wave will open up to those who understand what's really playing out on the global investing stage right now. To read this report, please click here.]

News and Related Story Links:

• MarketWatch.com:
  Investors brace for a rough fall.
• Bespoke Investment Group:
  Official Web Site.
• Barron’s:
  Not All September Songs Are Sad.

Three of the financial institutions that were key catalysts to the global financial crisis – and that owe the federal government billions of dollars as a direct result of those problems – have seen their shares triple in price so far this month.

That could signal that a big rebound in bank-sector earnings is just around the corner. Or it could be merely a speculative “short squeeze” that all but confirms that these stocks are basically worthless.

Shares of busted insurer American International Group Inc. (NYSE: AIG) have soared from $13.14 to $50.23, as of Friday’s close, a gain of 282.3% so far this month. Shares of mortgage giants Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) posted similar gains, MarketWatch.com reported. Fannie’s shares advanced from 58 cents to $2.04, an increase of 251.7%. Freddie’s shares zoomed from 62 cents to $2.40 each, a gain of 287.1%.

AIG actually gained for a ninth straight day Friday, reaching a 10-month high, as short-shelling speculators got squeezed and were forced to buy back the shares they’d sold short, traders told MarketWatch. AIG has 21% of its “float” – shares available to the public sold short, the sixth-highest proportion in the Standard & Poor’s 500 Index, according to Bloomberg News.

But the gains might also sign that the banking sector is poised for a major profit rebound, according to some new analyst research.

"Dating back to 1995, bank-sector outperformance has typically preceded [earnings-per-share] growth outperformance by one to two quarters," Stifel Nicolaus & Co. (NYSE: SN) analysts wrote in a market-research note last week. “With sector earnings growth expected to exceed that of the general market in mid-2010, we question whether we will see another leg down in this rally before year-end. On the other hand, perhaps we should question the current growth expectations for the sector?”

Trading in financial-services stocks has dominated the stock-market volume this month. So-called “day traders” have gravitated to once-questionable financial stocks and helped fuel those stunning gains – and huge volumes.

Citigroup Inc. (NYSE: C), for instance, has seen daily trading volume topping 1 billion shares this week. The stock closed above $5.05 on Thursday and $5.23 on Friday. That represents a 439% gain from its 52-week low of 97 cents a share.

Financial stocks have led the market’s slingshot higher from the early March lows. Trading has been fierce in beaten-down shares of some companies that participated in the bailout, such as AIG, Citi and Bank of America Corp. (NYSE: BAC).

The New York-based AIG is trying to sell assets to repay government loans after accepting $182.5 billion in U.S. bailout money. AIG recently reported a profit for its second quarter – after having posted six straight quarters in the red. It engineered a so-called “reverse stock split,” in which AIG gave investors one new share for every 20 they turned in. The company did this to avoid a delisting action. That enhanced the short squeeze, since there were fewer shares available to for short-sellers to repurchase and “cover” their bets.

Despite the torrid run that AIG’s shares have been on, the insurance company’s bonds still trade at levels indicating the company’s shares may be worthless, Peter Boockvar, an equity strategist at Miller Tabak & Co., told Bloomberg.

“The value of the company is still the same,” Boockvar said. “AIG bonds tell you that the equity is possibly worth nothing and that they may not be able to pay back the government.”

AIG’s $3.24 billion of 8.25% bonds due in 2018 are quoted at 79 cents on the dollar, to yield 12.2%, Bloomberg reported. The insurer’s $4 billion of 8.175% percent bonds due in 2058 are quoted at 49.5 cents on the dollar to yield 16.7% Bloomberg said.

The Financial Select Sector SPDR Fund (NYSE: XLF), an ETF tracking the financial stocks in the Standard & Poor’s 500 Index, has rallied nearly 30% over the past three months and handily outpaced the market.

Market Matters

While the past few months have been anything but dull for the markets (euphoric may be more appropriate), investors enjoyed a few slow days of peace and quiet.

Another stimulus program came to a close as “Cash for Clunkers” ended with a last-minute flurry of activity.  Analysts claimed that more than 700,000 cars were bought over the past month and August auto sales should rise on a year-over-year basis for the first time since mid-2007.

While dealerships enjoyed a nice rebound in activity (even if just temporarily), banks continued to experience challenges as the Federal Deposit Insurance Corp. (FDIC) reported that 416 institutions were on its “problem” list at the end of the second quarter, up from 305 on March 31, and also conceded that its insurance-fund reserves were dwindling.

Goldman Sachs Group Inc. (NYSE: GS) was in the news again as controversy has continued to surround the investment giant since the AIG bailout and Lehman Brothers Holdings Inc. (OTC: LEHMQ) failures.  Regulators are investigating its weekly “trading huddles,” where its analysts allegedly gave short-term stock tips to select clients and traders, though most other customers were not privy to such insight.

Dell Corp. (Nasdaq: DELL) posted lower quarterly profits, though
the result still beat Street expectations and management projected stronger performance in 2010 when businesses get back in technology buying mode.  Intel Corp. (Nasdaq: INTC) boosted its revenue projections for the next few months, another sign that chip demand is increasing and the business climate continues to improve. 

The Dow Jones Industrial Average roared to eight straight days of higher closes, before hitting a stumbling block on Friday (though no one may have noticed as volume was so light) and the days of triple-digit moves ended (for a week at least).

The other indexes traded relatively flat during the week and even the positive news from Intel did little to generate any investor enthusiasm in the tech-heavy Nasdaq Composite Index. Fixed income fared better than most would have expected, considering another $109 billion in government debt hit the street.

Oil surged to a 10-month high before a larger-than-expected inventory report indicated that crude demand remained weak despite expectations of an economic recovery just around the corner.  In fact, natural gas plunged to a seven-year low.

Economically Speaking

In perhaps the biggest news of the week, U.S. Federal Reserve Chairman Ben S. Bernanke will manage to avoid becoming a part of the so-called “jobless recovery” when he was nominated for another term as central bank chair by U.S. President Barack Obama.

While Bernanke certainly has his critics among grandstanding politicos from both sides of the aisle, few Fed watchers expect Congress to hold up his confirmation.  For now, continuity seems to be the best thing. 

The economic data of the week was relatively favorable with signs of renewed strength in both housing and manufacturing.  New home sales jumped for the fourth consecutive month and the S&P Case-Shiller Index even depicted higher home prices last quarter for the first time since 2006.  Durable good orders surged in July on increased demand within the transportation sector as both General Motors Co. (OTC: MTLQQ) and Chrysler Group LLC put bankruptcy in their rearview mirrors and boosted production, while other companies also benefited from the “Cash for Clunkers” program.

When second-quarter gross domestic product (GDP) was announced as a decline of 1%, many analysts expected a downward revision (perhaps significant) in the months that followed.  Well, the initial revision again showed a 1% decline, a negative showing, but one that many economists believe will be the last contraction in overall activity for a while.

The U.S. consumer remains one big wildcard for the strength of the economy moving forward.  Though the Conference Board reported a better-than-expected increase in its August consumer confidence report, the Reuters/U of Michigan sentiment index offered a contrasting view as it fell to its lowest level in four months.  Personal spending in July got a nice boost from the increase auto sales (“Cash for Clunkers” strikes again), though the income component of the release was unchanged and concerns about the labor picture continued to hinder consumer activity. 

Weekly Economic Calendar

News and Related Story Links:

• MarketWatch.com:
  Speculation in financial stocks dominates trading.
• Bloomberg News:
  AIG Climbs for a Ninth Day, Burning Short Sellers.
• Money Morning:
  Government Incentives Boost July Durable Goods Orders
• Money Morning:
  “Cash For Clunkers” Gets a Reprieve
• Money Morning:
  With Reappointment in the Bag, Fed Chairman Ben Bernanke Turns to Face Troublesome New Challenges
• Money Morning:
  Foreign Bondholders – and not the U.S. Mortgage Market – Drove the Fannie/Freddie Bailout

Even as investors get more and more bullish about the outlook for the U.S. economy, the economy’s underlying foundation continues to erode.

In a report to be released this week, the Obama administration will boost its 10-year projection for the federal budget deficit to about $9 trillion – an increase of roughly $2 trillion, or 29%, from its prior projection, Fox News reported over the weekend, citing a source from the Office of Management and Budget (OMB).

The new cumulative deficit projection – for 2010-2019 – replaces the administration’s previous estimate of $7.108 trillion. Changes in budget projections – whether they result in a surplus or a deficit – are often refined as economic conditions change. This new projection was necessary because the recession has gone on for so long, causing federal tax receipts to plunge – and because the economic rebound will be prolonged and weak, resulting in lower forecasts for future federal revenue.

Although most of the news media focuses on the Obama administration’s $787 billion stimulus measure, the fact is that the federal government was pushing forward with nearly $12 trillion in rebound-related financing commitments, Money Morning reported this spring.

The administration earlier this year predicted that unemployment would peak at about 9% without the financial-jump-starting initiatives and 8% with them. But U.S. joblessness zoomed skyward anyway, and stood at 9.4% last month, although many economists now say that a double-digit unemployment rate – one of 10% or more – is easily possible.

The nation’s debt now stands at $11.7 trillion. In the scheme of things, that’s more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.

Back in June, the non-partisan Congressional Budget Office (CBO) predicted that the federal deficit would reach $1.825 trillion this year. The CBO and the Obama administration will tomorrow (Tuesday) separately release new budget-deficit predictions. Last Wednesday, a senior White House official, speaking on the condition of anonymity, told The Associated Press that the administration estimate would reach $1.58 trillion – or triple last year’s deficit.

The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, although revenue will reach only $2.074 trillion, the unnamed senior official told The AP.

“Whether it’s $1.6 trillion or $1.8 trillion, it’s pretty bad,” said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition, told Fox News. “I hope no one tries to spin that as good news.”

Total U.S. debt has soared to $11.7 trillion (the budget deficit is the “shortfall” in the annual deficit, while the debt is cumulative), having balloned to that level as a result of the multiple annual deficits that have become the norm, it seems.

Market Matters

Just who is the world’s great economic superpower these days?  At times, it seems, “as China goes, so go the world equity markets.”  Early in the week, the Shanghai Composite Index (SSE) suffered its largest percentage decline since late 2008, with the index plunging more than 20% for the month on concerns about the sustainability of China’s recovery.

The global markets watched as the Japan, Europe, and the U.S. indexes followed the SSE downward.  By mid-week, however, all eyes were back on the domestic market as another sell-off in China was overshadowed by signs of growing U.S. economic strength and reports of enhanced energy demand.

The global bailout plans moved into a new stage as the Swiss government relinquished its control over banking giant UBS AG (NYSE: UBS) by selling off its investment for a $1.13 billion profit, or a 30% annualized return.  While the U.S. government has yet to reap similar benefits, several major banks have paid off their Troubled Asset Relief Program (TARP) loans and the CEO for one of the poster children for financial distress, American International Group Inc. (NYSE: AIG), announced that his firm should be able to pay back the government and may even be able to “do something for shareholders as well.”

While many auto dealers complained about the rebate process on the “Cash for Clunkers” program, General Motors Corp. stepped forward and will begin providing advances to participants who continue to wait for the government to move through its traditional red-tape.

The healthcare debate (and political infighting) raged on (complete with widespread town hall civil disobedience).  Rumors that the government would remove its public-health-plan option sent related health-care stocks soaring early in the week, though the jury remains out as to how this will really play after U.S. President Barack Obama guaranteed approval of an overhaul and then bashed congressional Republicans for their efforts in blocking any plan whatsoever.

On the earnings front, the housing sector received mixed signals as Home Depot Inc. (NYSE: HD) bested expectations, while rival Lowe Companies Inc. (NYSE: LOW) fell short and reduced its outlook. Cost-cutting was widespread among retailers as The TJX Cos. Inc. (NYSE: TJX), The Gap Inc. (NYSE: GPS), and even Target Corp. (NYSE: TGT) benefited from increased margins, though sales remained lackluster at best.

Hewlett-Packard Co. (NYSE: HPQ) struggled in its PC and printer-business segments, though management expects a healthy rebound in its fiscal fourth quarter.

Fixed income benefited from some early “flight-to-quality” trades and a report that showed strong foreign demand for U.S. Treasuries in June (despite ongoing rumors to the contrary).  Stocks fell sharply in sympathy with the China sell-off, though buyers reemerged in a big way on positive signs from the earnings and economic reports.

Likewise, oil prices shook off some early week negativity and surged to 2009 highs, as a surprising plunge in inventory levels revealed growing demand – perhaps to coincide with the beginning of a global economic rebound?  On that note, U.S. Federal Reserve Chairman Ben S. Bernanke’s comments about the prospects for recovery (though slow at first) were extremely well-received as investors seemed to all but forget about following Shanghai and the U.S. markets assumed the leadership role once again.  The major domestic indexes shrugged off the weak start and pushed to new highs for the year.

Economically Speaking

In addition to the Home Depot and Lowe’s earnings reports, housing news was prevalent during the week and the results were somewhat confusing.  The National Association of Home Builders reported that its Housing Market Index climbed for the second month in a row and reached its highest level in over a year.  Likewise, applications for mortgages increased for the third straight month on declining interest rates.

However, foreclosure rates remain on the rise and, according to the Mortgage Bankers Association, 13.2% of mortgages are delinquent or worse (in foreclosure); in fact, subprime mortgages are no longer the only area of concern as the unsettled labor picture has prompted homeowners with strong credit to fall behind on their prime mortgages as well.

Though housing starts fell in July, the decline was entirely attributable to apartment activity and construction of single-family homes actually rose for the fifth straight month.  Additionally, existing home sales in July surged by more than 7% as buyers took advantage of the misfortunes of others (in foreclosure), though prices continue to fall because of transactions related to these distressed properties.

In non-housing news, separate regional reports from the New York and Philadelphia Feds boosted the outlook for the domestic manufacturing sector and the overall economy.  Wholesale inflation remained benign as the producer price index (PPI) fell by a wider-than-expected 0.9% in July and prices have plummeted over the past 12 months by the largest percentage (6.8%) since records have been kept, dating back to 1947.

Be forewarned: Oil just hit a 2009-high.

U.S. Federal Reserve policymakers met for their annual conference and Fed Chair Bernanke shared a favorable assessment about the recovery process from “the most severe financial crisis since the Great Depression.”  Of course, Bernanke tempered some of his remarks and reiterated that, while the recession seems to be coming to an end, the rebound would likely be slow, with unemployment remaining a concern.

Bernanke also spoke of the need for financial regulatory reform in order to ensure the current financial debacle isn’t repeated.  The Fed also extended its Term Asset-Backed Securities Loan Facility (TALF) lending program in order to help stem the potential “challenges” that remain among commercial mortgage-backed securities.

Weekly Economic Calendar

News and Related Story Links:

• FoxNews.com:
  Obama Administration to Increase 10-Year Deficit Estimate to $9 Trillion.
• National Association of Home Builders:Official Web Site.
• Investopedia:Housing Market Index.
• Mortgage Bankers Association:
  Official Web Site.
• Money Morning Special News Category:
  Jobless Recovery.
• Office of Management and Budget:
  Official Web Site.
• The Concord Coalition:Official Web Site.

What’s the name of the world’s best-selling beer?

Hint: It’s not Budweiser. And it’s not Bud Light.

It’s called Snow Beer, and I’ll wager that most U.S. investors haven’t even heard of it before.

If they haven’t, it’s not a surprise. You see, Snow Beer is only sold in China, where the greed-bottled brew is a ubiquitous denizen of any retailer that carries beer. According to beer-market-researcher Plato Logic Ltd., more than 6.1 billion kiloliters of Snow Beer was sold in 2008, up 19.1% from the year before – easily outselling such former worldwide leaders as Bud Light and Budweiser.

What may be a surprise is the fact that China is now the largest beer market in the world, having surpassed the United States way back in 2001.

“To many investors, China is an old, worn-out ‘been there/done that’ investing story,” says Money Morning Investment Director Keith Fitz-Gerald. “And some folks are downright scared of it. They got burned jumping into the “China Rush” back when China was the hot, next-big thing – and they jumped out for good. What those skeptical investors don’t realize is that they only experienced the first chapter of the China story.”

Says Fitz-Gerald: “Ironically, the worldwide financial crisis marks the beginning of the second chapter of China’s rise to economic dominance, as well as its emergence as a global economic superpower.”

Welcome to the new game of post-financial-crisis global investing, where the rules have changed completely, and where there are $300 trillion in profit opportunities – if you know where to look.

Global Investing Web Summit

In fact, these new profit plays are the focus of a free-of-charge Money Morning Web summit that Fitz-Gerald will host on Thursday afternoon. The 4 p.m. event – “The $300 Trillion ‘Recovery’ That No One’s Talking About” – is planned as a half-hour streaming video session in which Fitz-Gerald will address the changing rules of global investing, as well as a number of potential investment ideas that investors might wish to study more closely.

But the greatest benefit for investors who take the time to watch and listen to the free Web summit might be a perspective on globalization that they won’t be able to get anywhere else. Fitz-Gerald, a former professional trade advisor, is a well-known expert on global market trends who actually lives in Asia for part of each year. He heads an investing trip to Mainland China every year and in each of the past two years has actually written a multi-installment investment travelogue for Money Morning readers.

It’s that time actually spent on the ground in China – and the high-level contacts that he’s nurtured as a result – that’s enabled Fitz-Gerald to provide Money Morning readers with unique and independently conceived insights on China that just aren’t freely available.

Let’s take a look at some of the new rules of the global investing game that the Web summit will address – as they relate to China.

The Market Investors Can’t Afford to Ignore

Far too many investors view China as a near-term investing bubble. In doing so, they miss the real point: China is probably the single-biggest profit opportunity of this generation – if not of our lifetimes. But it’s a long-term opportunity, and one that admittedly will experience some ups and downs – and even some major bumps – along the way.

But any near-term risks are dwarfed by the long-term growth potential China poses. For one thing, China is using the global financial crisis as an opportunity to transform itself – both from an internal and external standpoint.

There’s plenty of long-term growth potential from an internal standpoint alone.

China’s leaders understand that they can no longer afford to allow their economy to function as an export-only machine – whose fortunes rise or fall depending upon the health of such trading partners as the United States. So they’re transforming the economy into one where there’s actual domestic demand from China’s consumers.

That creates a massive opportunity. China’s emerging middle class is already a major economic force. Estimates of its size right now range from 100 million to 247 million, although one prediction says it could reach 600 million by 2015. For some perspective, consider this: The entire U.S. population is about 300 million.

Right now, about 35% of China’s economic activity is consumer driven. But households there save 35% of their wages. In the United States, by contrast, consumer spending drives 70% of the economy and the household savings rate is in the low single digits most of the time.

Consider this: As China’s economy evolves into more of a domestic/consumer-driven market, there’s plenty of fuel to keep driving an economy that – even now, tempered a bit by the global malaise – will advance at about an 8% clip through the rest of this year. And that’s considered a conservative estimate.

That bullish outlook is one reason that China’s stock market has outperformed its U.S. counterpart in recent years [See accompanying graphic for additional insights]

Just think what will happen as China’s worker wages continue to advance, even as that country’s consumers save less and spend more, meaning that a greater percentage of China’s overall economic growth will be consumer driven.

Even as China makes that shift internally, however, that country will continue to become a bigger and bigger force in the global economy.

As we noted above, the global downturn is viewed inside China as a major expansion opportunity.

China’s companies are capitalizing on the weakness being experienced by the United States and Europe, and are working to grab market share away from their wheezing Western rivals.

And with U.S. stock prices still well below their record highs, expect to see cash-rich foreign firms – including those from China – buying market share, needed technologies or winning products by purchasing companies outright. The next round of U.S. takeovers will be made by foreign companies.

China has the financial firepower to make this happen: It’s foreign reserves are an all-time-world record of $2.1 trillion, meaning it will be able to help its companies finance deals that are deemed strategic in nature.

“The global blue chips of the future may well be companies whose names you have trouble pronouncing, with corporate headquarters in cities that are on the other side of the world,” Money Morning’s Fitz-Gerald says.

But don’t let that deter you. When it comes to profitable investing, the name of the game is ferreting out the most-promising profit plays – no matter where they are – while also managing risk.

And in the new global reality, one of the biggest risks is the risk of getting left behind – by failing to capitalize on the next round of global trends.

“Emerging” Profit Plays

Although his Thursday Web summit will focus a great deal on China, it won’t ignore the other developing investment opportunities that investors need to know about.

Take the emerging markets of Asia, Eastern Europe and Latin America, for example.

According to a 2008 report by the University of Pennsylvania’s Wharton Business School, the World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. Muhtar Kent, chief executive officer of The Coca-Cola Co. (NYSE: KO) since July 2008, says this opportunity is the equivalent of adding a city the size of New York to the world every three months.

In 2000, developing countries such as Brazil, India, China and others were home to 56% of the global middle class. By 2030, that figure is expected to reach 93%. China and India alone will account for two-thirds of the expansion – with China contributing 52% of the increase and India 12%, the World Bank said.

Among the biggest winners will be the multinational companies that are able to conceive, develop and market products and services that are “tailor-made for the burgeoning ranks of first-time consumers,” Wharton faculty and analysts found.

It goes without saying that the other winners will be the investors who find those companies while they are still undiscovered gems – and who then stick with them, understanding, as they do, the magnitude of the profit opportunity that stands before them.

One early example is Snow Beer, which is a partnered product – the result of a collaboration between China Resource Enterprise Ltd., and London-based SABMiller PLC (OTC ADR: SBMRY).

And there will be plenty more to come.

[Editor's Note: The global economic recovery will create an estimated $300 trillion worth of global-investing-profit opportunities. To find out how to capitalize and profit, you just need to know where to look.

And for that, you need a guide. In a free Money Morning Webinar this week, Investment Director Keith Fitz-Gerald will detail the "$300 trillion global recovery that nobody's talking about" - a recovery that will create some of the most profitable investment opportunities that we'll see in our lifetime. Fitz-Gerald will outline this opportunity, as well as some specific companies global investors might want to consider. To find out more about this free Webinar, please click here.]

News and Related Story Links:

• Money Morning Web Summit:
  Special Link.
• Money Morning Special Report:
  Airbus Deal Shows Investors That China Profits Are Cleared For Takeoff.
• University of Pennsylvania’s Wharton Business School:
  The New Global Middle Class: Potentially Profitable – But Also Unpredictable.
• Money Morning “View From China:”
  Series.
• Wikinvest:
  Rise of China’s Middle Class

Investors are being flooded with economic reports, many of them contradictory in nature. From that confusing gaggle, two indicators hint at an upbeat outcome:

• The torrid stock-market rally that’s been dominating headlines in recent weeks.
• And so-called “first-time jobless claims.”

Let’s look at stock prices, first.

Is The Rally For Real?

Many of the indicators from recent reports are known as “lagging indicators,” because they are snapshots of the past. That’s true of unemployment, retail sales, gross domestic product (GDP), and most others. But the stock market is “forward-looking,” meaning it tends to factor in expectations about future corporate earnings, income growth, inflation, unemployment and economic output. The unprecedented rally in U.S. stock prices hints at much better times to come.

Well, for many, that time may be now.  Some favorable corporate reports combined with stronger than expected labor releases (see below) to keep the equity rally alive (and well) and the markets on a nice upward trend.  The week started and ended on high notes as both the Dow Jones Industrial Average traded at its highest level since November, while the Standard & Poor’s 500 Index moved to levels not seen since October. The Nasdaq Composite Index continued to lead the surge on a year-to-date basis.  All three indexes closed in positive territory for the fourth week in a row.

From its early March low of 676.53, the S&P 500 has soared more than 333 points, or 49%, closing Friday at 1,010.48. The Dow is up 43%. The tech-laden Nasdaq is up a scorching 58%.

On Thursday, during an interview on cable’s popular financial channel, CNBC, Goldman Sachs Group Inc. (NYSE: GS) celebrity market strategist Abby Joseph Cohen said the S&P 500 Index may rise as high as 1,100 this year, although she warned the move to the top could be rocky.

“We do think that’s achievable, but it doesn’t mean we get there in a straight shot,” Cohen told CNBC. Added Cohen:“Even if this is the new bull market, don’t expect it to look like a ‘V.’ Expect it to look like a series of upward steps.”

According to a forecast put together by the Goldman strategy team, the S&P 500 should trade in a range of 1,050 to 1,100 toward the end of this year. After bouncing back so strongly from its March lows, the S&P 500 is up 12% so far this year.

From Friday’s close of 1,010.48, a run to 1,100 would represent a gain of about 9%. The S&P gained 1.3% Friday.

Cohen – one of  Wall Street’s true bulls – gained widespread fame in the 1990s for calling the multi-year stock-market rally, according to a New York Times report.

“We do think the new bull market has begun,” Cohen told her interviewers. “It may prove that it began in March. Clearly many people were looking for better signs on the economy, and now we’re getting them.”

Rebounding corporate profits will be the key catalyst, according to Cohen. She said earnings of $75 a share for the S&P 500 next year are “reasonable” and that the S&P 500 at 1,050 would mean the closely watched index is trading at a Price/Earnings (P/E) ratio of 14.

A secondary – but also important – catalyst will be improvements in such key parts of the U.S. economy as jobs and business inventories. Going forward, unemployment – like the stock market – will improve in an erratic manner. The U.S. Labor Department Thursday said jobless claims dropped by 38,000 in the most-recent week, a  to a seasonally adjusted 550,000. As we’ll see in a moment, this was an important development.

“We are beginning to see improvement even in the labor market, where it appears that the job losses are slowing and there is some job creation going on,” Cohen said. “But let’s keep in mind that labor markets are unlikely to turn all at once or on a dime. We have many more months of difficult labor situation ahead even if the recession … is almost over.”

Armed with this information, where should investors be looking? Stocks will perform better than bonds, Cohen said. And within the stock market, Cohen said she favors cyclical sectors such as energy, technology and financials.

Of the two indicators we’re highlighting – the stock market and first-time jobless claims – we’ve now examined the market rebound.

So let’s turn our attention to first-time jobless claims.

These Stats “Claim” the Recesson is Ending

“For the last couple of weeks, we have been highlighting how the recent trends in initial jobless claims suggest that the recession is over or winding down,” said a research report released a week ago by Bespoke Investment Group LLC. “However, there remains a considerable amount of skepticism towards the market’s rally. Critics contend that any meaningful rally cannot occur until the economy improves. With jobless claims still at high levels, they claim we have not reached that point.”

But initial claims don’t support that contention. Since peaking in April, the four-week moving average of initial jobless claims has dropped more than 15%. That’s actually a bigger decline in jobless claims during a recession than in any of the other six economic downturns recorded since 1969.

In other words, in the other downturns, Bespoke measured the percentage decline in the four-week moving average of initial jobless claims from their peak until the recession officially ended. That hints strongly that the current recession is over – or at the very least is at or near its end, Bespoke said.

That picture only got brighter on Thursday and Friday.

On Friday the Labor Department said the nation’s unemployment rate fell to 9.4% in July from 9.5% in June, and the payroll release showed that a lower-than-anticipated 247,000 jobs were lost in July.

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Even more key was Thursday’s Labor Department announcement that said that first-time filings for state unemployment benefits declined by 38,000 the week before, reaching a seasonally adjusted 550,000. As we showed Money Morning readers last week, it’s this initial-jobless-claims statistic that’s a key indicator to watch in attempting to determine when a recession will end.

Economists surveyed by MarketWatch.com had expected initial claims to fall to around 580,000. And the four-week average of new claims dropped to 555,250 – the lowest level since January.

Compared with a year earlier, initial claims were up 22%, while continuing claims were up 89%. Compared with six months ago, initial claims have fallen 12% while continuing claims are up 33%.

In an interview on CNBC early Thursday morning, one trader looked at the first-time-jobless claims numbers and concluded: “The recession’s over.”

Market Matters     

Amid all the bailout programs (TARP, TALF, etc.), the non-alphabet one with the funny name is among the most effective. So-called “Cash for Clunkers” got new life as Congress voted an additional $2 billion in the form of rebates for individuals who trade in their gas-guzzling heavy iron for newer, energy-efficient autos.

While Republicans initially tried to resist giving any credit, the Senate offered its blessing on the program that has prompted cars to burn rubber as they zoom off U.S. car lots, and to have previously deserted showrooms now contributing to the rebirth of the domestic U.S. auto industry. 

In less-encouraging bailout news, the U.S. Treasury Department reported that the $75 billion loan modification program has been underwhelming as Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC) – among others – have been very slow to rework deals with eligible borrowers and foreclosures continue to rise. 

Earnings season moved forward and investors have continued to like what they see.  Consistent with their domestic counterparts, British banks HSBC Holdings PLC (NYSE ADR: HBC) and Barclays PLC (NYSE ADR: BCS) both posted favorable quarterly results.

Kraft Foods Inc. (NYSE: KFT) reaped the benefit of more folks dining in these days (hard to beat that mac and cheese) and even Whole Foods (NASDAQ:WFMI) bested expectations on enhanced margins from cost-cutting measures.  Cisco Systems (NASDAQ: CSCO) reported declining revenues, though management sees some nice trends in IT developing for the quarters to follow. American International Group Inc. (NYSE: AIG), the poster child for greed-induced bailouts (over $180 billion in government aid) actually posted its first profitable quarter since 2007 (new bonuses all around?), though its CEO warned about ongoing restructuring charges.  The Blackstone Group LP (NYSE: BX) experienced a favorable quarter as well, an optimistic sign for private equity.  Fannie Mae (NYSE:FNM), on the other hand, looked for more government handouts after another poor quarter.

Meanwhile Goldman Sachs Group Inc. (NYSE: GS), coming off its best quarter in its 140-year history (not bad for recessionary times), became subject of a government investigation over trading and compensation issues.  Away from financials, Caterpillar Inc. (NYSE: CAT) offered an encouraging assessment of the economy and predicted enhanced biz as the construction and mining industries move into recovery mode.  Finally, Ford Motor Co.’s (NYSE: F) sales in July climbed for the first time in 20-months as the company took advantage of its rivals’ misfortunes and also benefited from the Cash for Clunkers program. 

While some investors previously had started to stick their toes slowly back into the equity pool, others now seem more inclined to dive back in.  For months, analysts talked about the massive amount of cash on the sidelines as investors waited for the right time to undertake more risk in their portfolios.

Bonds gave back considerable ground as investors sold out of the safe-haven securities in favor of stocks.  Still, the U.S. Treasury Department announced that government borrowing needs may be reduced as the economy begins to improve (and major banks paid off TARP loans).  Want to celebrate the equity rally?  Trade in that Clunker for cash.
                       

Economically Speaking

While economists welcomed news from manufacturing, services, retail, and housing, most waited patiently for the late-week unemployment data as the best indicators of the state of the recession.

Earlier last week, the private ADP/Macroeconomic Advisers jobs report pointed to a better showing within labor, but the real proof came Friday when the unemployment rate fell to 9.4% (from 9.5%) and the payroll release showed that a lower than anticipated 247,000 jobs were lost in July.

While those 247,000 folks take no comfort in the numbers, investors, analysts, and the Obama administration collectively jumped for joy over signs that the labor picture might be stabilizing.

 The rest of the economic news was not half bad, either.  Construction spending in June jumped for the second straight month as both residential and government activity increased.  Pending home sales climbed for the fifth consecutive month in June as the housing sector appeared to have hit rock bottom (though the recovery road ahead may be slow to develop).  The manufacturing sector inched closer to expansion mode as the Institute for Supply Management Index barely remained below the levels that indicate growth.  Likewise, factory orders in June rose unexpectedly, another positive sign for the sector. 

The news from retail was a bit less positive as consumers seem to be holding off on buying all but the necessities of life until the labor situation begins to improve (and one month will not make a trend).

Same-store sales in July were the most dismal since January and hopeful prospects for a flurry of “back-to-school” purchases seem unlikely to develop.  In the aggregate (of those 30 stores that reported), sales plunged over five percent and even discounters like Costco Wholesale Corp. (NASDAQ: COST) and Target Corp. (NYSE: TGT) fell below expectations.  Some retailers even blamed the Cash for Clunkers program (see above), claiming that some of those discretionary moneys may have gone to them instead of the automakers.  Still, The Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), and The TJX Cos. Inc. (NYSE: TJX) were among those stores that experienced better-than-anticipated showings and pop-culture-retailer Hot Topic Inc. (Nasdaq: HOTT) benefited from increased sales of Michael Jackson merchandise (and maybe a few Farrah posters as well). 

As the summer winds down, back-to-school shopping should pick up and some sales-tax holidays across the country (in 13 states) may be just the incentive needed to bring more buyers to the malls.  Despite the weak retail numbers for July, many analysts are hoping for a pick-up in activity as the recent unemployment data was reported as stronger than expected and stores may benefit from some last-minute shopping.

On a related note, consumer activity stays in the limelight as Macy’s Inc. (NYSE: M), Nordstrom Inc. (NYSE: JWN), J.C. Penney Co. Inc. (NYSE: JCP), and Wal-Mart Stores Inc. (NYSE: WMT) highlight the next round of earnings reports with the latter’s announcement most compelling since it no longer participates in the same-store sales monthly surveys. 

Retail sales for July will be reported in what may otherwise be considered a relatively light week on the economic calendar (the consumer price index, or CPI, comes out, as well) as the consumer picture becomes even more clear.

Analysts were almost universally upbeat by the end of the week. But a Money Morning Analysis demonstrated that there’s still room for a double-dip recession.

So much for the dog days of summer.

Weekly Economic Calendar

[Editor’s Note: As this analysis of two key economic indicators demonstrates, the investing game is trickier than ever.

But don’t let that reality scare you way. The flip side is that the global economic recovery will create an estimated $300 trillion worth of global-investing-profit opportunities. To find out how to capitalize and profit, you just need to know where to look.

And for that, you need a guide. In a free Money Morning Webinar this week, Investment Director Keith Fitz-Gerald will detail the “$300 trillion global recovery” that will create some of the most profitable investment opportunities that we’ll see in our lifetime. Fitz-Gerald will outline this opportunity, as well as some specific companies global investors might want to consider. To find out more about this free Webinar, please click here.]

News and Related Story Links:

• Money Morning News:

  “Cash For Clunkers” Gets a Reprieve.

• Money Morning News Analysis:
  Hot Stats: The One Jobless Indicator That Hints at the End of the U.S. Recession.
• MarketWatch.com:
  Jobless claims drop 38,000 to 550,000
• Money Morning News Analysis:
  With U.S. Consumers Now Uncertain and Unemployed, is Hope for a Quick Rebound Fading Away?
• The New York Times:
  Goldman’s Cohen Says S&P May Hit 1100 This Year – CNBC

Last year – at the height of a global financial crisis that tipped stocks into a freefall – investors still added $176 billion to exchange-traded funds, the hot investment class better known as ETFs.

So far this year – as investors yanked $49 billion out of conventional mutual funds – investors poured $35 billion into ETFs, said Simfund MF, a fund-tracking database produced by a recent report by Strategic Insight.

Investors are attracted to ETFs because they combine the best features of individual stocks with those of mutual funds. As portfolios, ETFs offer the diversification of a fund. But they trade on exchanges like stocks, giving them the liquidity of that individual security.

What’s more, ETFs come in countless flavors: They are focused or theme-oriented portfolios that enable investors to participate in the latest trends or invest in the hottest markets.

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As an example, consider the global commodities shopping spree that China has been on for the past several years – a trend that Money Morning has highlighted as a long-term profit play that readers need to keep in mind.

In a column written back in April, noted ETF expert Gary A. Gordon said that investors were looking to capitalize on that trend – and were looking at ETFs as the way to do so.

“I’m not surprised by the sheer volume of questions that I get about commodity ETFs,” Gordon said. “China’s buying up everything from common use metals to rare earth metals. It follows that lots of folks wish to buy what China buys.”

While the $600 billion-plus invested in U.S. ETFs is admittedly dwarfed by the $9.3 trillion managed in non-ETF mutual funds, exchange-traded funds have been the investment industry’s hottest product since they were first introduced in 1993.

And analysts expect that trend to continue. As the afore-mentioned statistics show, ETFs have been slower to catch new investor capital this year than last – a fact analysts say is due to reductions in investor nerve and shortages of available cash, both the result of the worst U.S. recession in decades.

Although ETFs may be down, they’re certainly not out. In fact, Strategic Insight projects ETF assets will hit $1 trillion in 2011 – an increase of nearly 70% from current levels.

The longer stocks continue their current surge  — or at least remain stable – the hungrier investors will get for ETFs, a top ETF-industry executive told Reuters.
“If we do see better capital markets, we believe that the growth to the structure itself is in its very early innings,” Fran Kinniry, principal of Investment Strategy Group at The Vanguard Group Inc., which has about $60 billion in 39 ETFs, told the news service.

Loren Fox, senior research analyst at Strategic Insight Senior Research Analyst Loren Fox says that ETFs aren’t supplanting conventional mutual funds, but instead are capturing money that would have otherwise been dedicated to individual stocks.

That’s in large part due to the perception that ETFs are a “diversified alternative” to a single-stock play, enabling the investor to make a bet on a sector (banks), an asset class (gold), or an investment theme (alternative energy). At a point in time when “risk” is something to be avoided at virtually any cost, ETFs take on an added allure, said Scott Burns, an ETF analyst for Morningstar Inc. (Nasdaq: MORN) in Chicago.

“I may think banks are undervalued and want to invest in them, but I don’t know which one has a bomb in the car and which one is a goldmine,” Burns told Reuters.

Indeed, specialized ETFs have brought in the largest amount of investor capital in the year’s first seven months. The top three (and the total inflows) so far this year have been:

• Gold ($13 billion-plus).
• Natural resources ($8.8 billion).
• Government bonds (Nearly $8.8 billion).

For Money Morning readers, the ability to more easily invest in markets beyond U.S. borders may be the key advantage that ETFs offer. This capability hasn’t been lost on investors in general, says Gordon, the ETF expert.

Indeed, 12 years ago, there were only 21 ETFs that invested in foreign markets. And most of those weren’t all that exciting, focusing large-cap, developed regions or on single countries in Western Europe.

Today, there are 174 foreign ETFs trading on U.S. securities exchanges. They focus on foreign economic sectors, specific emerging economies, small-cap foreign stocks, and even foreign bonds, Gordon said.

“What’s the reason for the enormous demand for international ETFs, particularly emerging market ETFs?” Gordon asked. “For one thing, there is close-to-unanimous agreement that China, India and parts of Latin America have better economic growth prospects than developed economies. And stronger economic growth often leads to larger capital appreciation in one’s stock portfolio.”

There’s even the profit prospects emanating from the financial crisis to consider.

“I do believe that emerging countries have the increased potential to ‘decouple’ from the developed world going forward,” Gordon said. And while many overseas markets have been stung by the financial crisis, those smaller markets are alluring since they figure to be “exceptionally resilient to global stimulus.”

[Editor's Note: In a related story that appears elsewhere in today's issue of Money Morning, Contributing Editor Shah Gilani details key unfolding developments related to exchange-traded funds. To access that story directly, please click here.]

News and Related Story Links:

• ETFexpert.com:
  Real Demand Behind The Explosive Growth of International ETFs.
• Reuters:
  ETF growth slows, but bright future still forecast.
• ETF Expert Gary A. Gordon:
  Web Site Bio.
• Money Morning Special Investment Report:
  What Companies Are Profiting From China’s Commodities Crusade?

Thanks to his market insights, Money Morning’s Martin Hutchinson has made the national news again.

When economics author George Melloan penned a Wall Street Journal op-ed piece detailing the shortcomings of U.S. Federal Reserve Chairman Ben S. Bernanke’s so-called stimulus “exit strategy,” he cited an argument made by Money Morning Contributing Editor Martin Hutchinson as part of his proof.

In a story in yesterday’s (Tuesday’s) edition that carried the headline “Bernanke’s Exit Dilemma,” Melloan, The Journal’s former deputy editorial page editor, concluded that “there are very good reasons to doubt that the Fed can cope with the political problems of avoiding inflation. The technical problems don’t look very easy, either.”

Melloan knows his topic well. After all, he’s just finished a book on the topic – “The Great Money Binge: Spending Our Way to Socialism” – that’s scheduled to appear in stores in mid-November.

But in his op-ed piece, Melloan cites the thinking of Hutchinson, a former international merchant banker who’s become one of Money Morning’s most-popular columnists – and who also writes the “Bear’s Lair” column for the Prudent Bear Web site.

Back in May, Hutchinson likened the situation the Fed was getting itself into with moves that the German Weimar Republic made in the early 1920s, when it monetized 50% of the government’s expenditures – a move that sparked the ruinous hyperinflation that destroyed the German mark. As of May, the Fed had monetized 15% of federal expenditures over the preceding six months – short of the rate that destroyed the German economy, but not a negligible amount, Melloan wrote in his Journal column.

In a column of his own in yesterday’s edition of Money Morning, Hutchinson carefully explained how the Bernanke “exit strategy” has sent the U.S. economy down a one-way path toward ruinous “stagflation.” Indeed, in that story, Hutchinson even outlined an anti-stagflation investment strategy for investors – a strategy that included three profit plays that he said most investors should take the time to consider.

“With the economic challenges that are heading our way, these are key pieces of an investment strategy that virtually all U.S. investors need to consider,” Hutchinson wrote.

This is the second time in the just the past few months that a national publication has lauded Hutchinson’s predictive abilities and market analyses.
Back in the spring, when Slate magazine set out to identify the market prognosticator who called what’s right now the low-water mark of the bear market in U.S. stocks, the first nominee was super economist Nouriel Roubini.

Last year, Roubini predicted that “sometime” in 2009, the Dow Jones Industrial Average would hit 7,000. Not a bad call, given that the ultimate nadir of the Dow – reached March 5 – was 6,594.44. The projection scared a lot of folks.

But how great a “market call” really was it, given that the blue-chip index was already on its way down, that American International Group Inc. (AIG) was already in trouble, and that Lehman Brothers Holdings Inc. (LEHMQ) was already bankrupt?

True, it was a good call. But it wasn’t a truly great one. So, no, Roubini was clearly only the runner-up in the “Call the Bear Market Bottom Sweepstakes.”
The winner was Hutchinson.

Back in June 2008, Hutchinson – turning to his oft-employed measurement of U.S. money supply – said that U.S. corporate earnings had been artificially inflated, and said the Dow could fall all the way to 7,800.

While Roubini’s estimate may have been closer to the actual bottom, Hutchinson made his call and predicted a 36% decline when the Dow was well above the 12,000 level, a point in time when most folks were calling for the market to go higher, and not lower.

It’s not the first time Hutchinson made such a prescient call. And it probably won’t be the last.

In April 2008, long before an implosion in a derivative security known as a “credit default swap” caused the implosion of AIG, Hutchinson warned Money Morning readers that credit default swaps were a $50 trillion problem.

He was right. Credit default swaps were a major catalyst for the collapse of AIG and for the implosion of the U.S. financial-services sector.
And he wasn’t done.

In a Money Morning piece back in October, Hutchinson warned again that the Dow could be headed for a low around 7,800. While that would equate to a 40% nosedive, Hutchinson argued that it actually equated to a “safe landing,” since it brought stocks into fair-value territory, perhaps opening up the investment market again.

The rally we’ve since March may well be proving Hutchinson right once again.

[Editor's Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best - because he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world's financial markets, Hutchinson has used his creative insights to create a trading service for savvy investors.

The Permanent Wealth Investor assembles high-yielding dividend stocks, profit plays on gold and specially designated "Alpha-Bulldog" stocks into high-income/high-return portfolios for subscribers. Hutchinson's strategy is tailor-made for periods of market uncertainty, during which investors all too often go completely to cash - only to miss some of the biggest market returns in history when market sentiment turns positive. But it can work in virtually every market environment.

To find out about this strategy - or Hutchinson's new service, The Permanent Wealth Investor - please just click here.]

News and Related Story Links:

• The Wall Street Journal:
  Bernanke’s Exit Dilemma: Does anyone really believe the Fed will contract the money supply as the economy starts to show growth?
  
• Money Morning Market Commentary:
  With His Flawed ‘Exit Strategy,’ Bernanke Has Set the Stage for Stagflation.
• Money Morning Global Investing News:
  Money Morning Expert Makes Noise with Market Call.
  
• The Big Money (From Slate):
  Who Was Most Right About the Dow?
  
• Money Morning:
  In the Long Run, the Dow’s 40% Nosedive May Actually Turn Into a Safe Landing.
  
• Wikipedia:
  Nouriel Roubini.
  
• Money Morning Market Forecast:
  Credit Default Swaps: A $50 Trillion Problem.

The latest unemployment statistics show that the U.S. recession is winding down – or is over altogether.

If you had to read that sentence twice to make sure you read it correctly, don’t feel bad – you’re probably not alone. After all, U.S. unemployment statistics haven’t been this bad for decades, and they’re only expected to get worse.

According to the latest government statistics, the U.S. unemployment rate is 9.5% – a 26-year high – and some analysts say it could spike to 12%. And when the U.S. economy does turn around, the jobless situation may not improve all that much, or at least not all that quickly, since a so-called  “jobless recovery” is a virtual certainty.

So just how much can unemployment statistics tell us about the end of the recession, and about the possible outlook for U.S. stocks?

In a word: plenty, concludes new research by Bespoke Investment Group LLC.

“For the last couple of weeks, we have been highlighting how the recent trends in initial jobless claims suggest that the recession is over or winding down,” Bespoke wrote in a new research report. “However, there remains a considerable amount of skepticism towards the market’s rally. Critics contend that any meaningful rally cannot occur until the economy improves. With jobless claims still at high levels, they claim we have not reached that point.”

But jobless statistics say differently. Since peaking in April, the four-week moving average of initial jobless claims has dropped more than 15%. That’s actually a bigger decline in jobless claims during a recession than in any of the other six economic downturns recorded since 1969.

In other words, in the other downturns, Bespoke measured the percentage decline in initial jobless claims from their peak until the recession officially ended. That hints strongly that the current recession is over – or at the very least is at or near its end, Bespoke said.

Wither U.S. Stock Prices?

With such an upbeat outlook for the U.S. economy, investors probably can’t help but wonder what that means for U.S. stock prices.  And that’s a good question, Bespoke researchers say.

The Standard & Poor’s 500 Index yesterday (Monday) topped the 1,000 mark for the first time in nine months, the latest leg of a powerful rally that’s seen U.S. stocks zoom off their lows of early March – restoring $3.7 trillion in shareholder wealth in the process, Bloomberg News reported.

Since bottoming out at 676.53 on March 9, the S&P 500 has soared 48%, closing at 1,002.63 yesterday.

Despite the power of this rally, stocks have truly climbed a “wall of worry,” as investors continued to express concerns about the state of the economy, about the potential for, first, deflation and, more recently, inflation, and about the possibility that even after it recovers, the U.S. economy would succumb to these forces, and drop into a “double-dip  recession.”

Late last month, in fact, Harvard University economics Professor Martin Feldstein warned that the U.S. recession might not be near its end, even noting that there is a real risk the economy may experience a “double-dip” contraction.

“There is a real danger this is going to be a ‘double-dip’ [recession] and that after six months or so we’ll have some more bad news,” Feldstein, a Reagan administration advisor who is also a former head of the National Bureau of Economic Research (NBER), told Bloomberg Television. “We could slide down again in the fourth quarter.”

Although recent economic reports have been largely positive, Feldstein said that “there isn’t going to be enough to sustain a really solid recovery,” which is why he believes the U.S. economy could “flatten out” or “even be positive” in the third quarter – before contracting in the year’s final three months as the effects of stimulus spending wear off, leaving nothing to carry the economy forward.

However, it’s important to note that the stock market is forward-looking, meaning today’s prices are a largely a reflection of future expectations. With such a huge run-up from its lows of early March, has the S&P already priced in the anticipated economic rebound? Only time will tell, but even here perhaps history can be a guide, the Bespoke researchers found.

In each of the six recessions before this one, Bespoke measured how long it took for initial-jobless-claim-filings to drop 15% from their peak – as well as how the S&P 500 performed during the decline.

From there, the researchers measured the S&P 500’s performance at intervals of one month, three months, six months and a year. Here’s a summary of how stocks did during those five periods measured, showing the average return of the six prior recessions, as well as the best and worst performances for each category:

• Filings Peak to 15% Decline in Jobless Claims Filed: Average S&P return for all six prior recessions was 5.89%, with a best of 22.58% and a worst of (-8.21%). It’s worth noting that the S&P gained 16.23% this year during the time it took for initial claims to drop 15%.
• One Month From Time 15% Decline in Jobless Claims Reached: Average S&P return for six prior recessions was 1.59% (remember, this is only one month – for an “annualized return, multiply it by 12), with a high of 7.04% and a low of (-6.75%).
• Three Months: Average return was 5.55%, with a best of 16.79% and a worst of (-8.91%).
• Six Months: Average return for this period was 7.5%, with a best of 26.37%, and a worst of (-13.60).
• One Year: Average S&P 500 return for this period was 9.19%, with a best of 36.83%, and a worst of (-21.76%).

Whatever the outcome, this is one market rally that’s definitely worth watching.

News and Related Story Links:

• Money Morning News Analysis:
  Unemployment Rises, Payroll Losses Far Exceed Analysts’ Estimates.
• Money Morning:
  U.S. GDP Contraction Slows, but the Road to Recovery Will Be Rocky.
• Money Morning Mid-Year Forecast Series:
  Stormy Mid-Year Employment Outlook Leaves Investors in the Dark About the Economy’s Second-Half Prospects.
• Bespoke Investment Group:
  Official Web Site.
• Bloomberg News:
  Stocks Rise as S&P 500 Tops 1,000 for First Time in Nine Months.
• Telegraph.co.uk:
  ‘Stockmarkets climbing wall of worry.’
• Bloomberg News:
  Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.
• Investopedia:
  Double-Dip Recession.

Has the massive Obama stimulus plan put us on a collision course with virulent inflation?

It sure looks that way.

Let me explain …

When the U.S. Commerce Department on Friday said the U.S. economy contracted at a 1% annual pace in the second quarter, the report was actually seen as good news: It was a slower decline than in each of the two prior quarters, and economists had expected a contraction of 1.5%.

“This is good news,” Nariman Behravesh, an economist with IHS Global Insight Inc. (NYSE: IHS), told The San Francisco Chronicle.

But here’s the wild card: Although government spending did increase during the April-to-June quarter, only about 7.7% – $60.4 billion – of U.S. President Barack Obama’s stimulus package had actually made its way into the U.S. economy by June 30, the quarter’s official conclusion. Of that total, the largest component went to U.S. states to help defray the jump in Medicaid costs, CNNMoney.com reported.

Much of the $43 billion in stimulus tax relief – including the “Making Work Pay” tax credit for individual workers – also took effect during the second quarter, CNNMoney said.

At this point, it’s really difficult to “see how the effect of stimulus has been very large,” Edward Lazear, an economics professor at Stanford’s Graduate School of Business – who served as an advisor to former U.S. President George W. Bush – told CNN. “Very little has gone out.”
And that’s the problem.

In short, it looks like we’re already experiencing an economic rebound – without the Obama stimulus having really even kicked in … yet. In fact, the impatience over the continued U.S. malaise, the slowness of the economic turnaround and the fact that when growth does return we’re almost assured of a “jobless recovery” actually has some Washington legislators already pushing for a second stimulus.

That means the economy will be in rebound mode when nearly three-quarters of a trillion dollars in stimulus money starts to flow in. Dumping all that money into an already-growing economy won’t just serve as a simple tailwind that gives the economy a gentle push; it will be more like the head-snapping start followed by the thunderous charge down the quarter mile that we see from one of the supercharged Top Fuel Funny Cars driven by National Hot Rod Association (NHRA) star John Force. (From a standing start, Top Fuel Funny Cars cover a quarter mile in less than five seconds at speeds well in excess of 325 miles per hour).

And there’s only one outcome from that scenario – rampant inflation. In fact, U.S. consumers are probably headed for the worst bout of inflation since the 1980s. And that makes the so-called “exit strategy” of U.S. Federal Reserve Chairman Ben S. Bernanke all the more important.
To be sure, the Obama stimulus has given the economy a bit of a boost. So far:

• The states have deployed what stimulus money they have received, which helped fuel the biggest surge in state and local spending since 2007.
• Some early pieces of the stimulus – such as the $25 increase in unemployment benefits – have allowed consumers to spend more.
• And one economist – Economic Policy Institute’s Josh Bivens – said Obama stimulus money may have boosted growth by as much as three percentage points during the second quarter.

But other economists say that – given the environment – the second-quarter GDP numbers were much too strong. After all, business spending dropped 8.9% and hours worked fell 7%. Somehow that doesn’t translate into a mere 1% drop in GDP. That latter figure will most certainly be revised downward in the future.

Unless or until that happens, look for the third quarter GDP statistics to give us a better picture of the U.S. economy’s health. Complaints that the promised stimulus money isn’t getting where it needs to be have Obama’s economic team working overtime to iron out the problems that keep cropping up.

Mark Thoma, an economics professor at the University of Oregon, told CNNMoney that “the third quarter will be a critical time period for assessing the stimulus package.”

And for assessing the inflation threat – which Money Morning has repeatedly warned is a very real threat. Gold, commodities, and other hard assets will be key holdings. The same is true for dividend-paying stocks. And make sure to go global – the best growth prospects will continue to be overseas.

Market Matters

A report by the New York Attorney General’s Office claims the initial nine institutions that received Troubled Asset Relief Program (TARP) money paid out $33 billion in bonuses in 2008.  Of particular note, Citigroup Inc. (NYSE: C) and Bank of America (NYSE: BAC) rewarded a combined 900 employees (combined) with bonuses of at least $1 million, despite having received $45 billion each in government aid (and that doesn’t count the $3.6 billion Merrill Lynch & Co. Inc. employees received).  Imagine how much they would have made if the companies were actually doing well? 

While President Obama continued his road trip across America to promote health care reform, a group of conservative Democrats (Blue Dogs) came up with their version of a bill, but offered no timetable for completion.

Meanwhile, regulators pushed forward with proposed rules aimed at reducing speculation in the marketplace and focused on so-called “naked” short selling and on lpacing strict limits on commodities contracts.

In corporate news, deals were the theme of the week.  Microsoft Corp. (Nasdaq: MSFT) made amends with Yahoo! Inc. (Nasdaq: YHOO) and forged a 10-year partnership to cut into Google Inc.’s (Nasdaq: GOOG) share of the Internet search business. And International Business Machines Inc. (NYSE: IBM) is expanding its software empire with the purchase of SPSS Inc. (Nasdaq: SPSS) for $1.2 billion. 

On the earnings front, energy companies highlighted the week’s reports and the results were not pretty (though were expected).  On a positive note, Motorola Inc. (NYSE: MOT) surprised analysts by reporting an unexpected profit, while offering a promising outlook, and Deutsche Bank AG (NYSE: DB) continued the favorable trend among (previously depressed) financials by posting strong earnings on solid investment banking operations. 

Investors digested the mixed earnings news and chose to focus more on the positives.  Despite a temporary setback in China (5% index decline before encouraging comments by its central bank), the Dow Jones Industrial Average moved higher late in the week after General Electric Co. (NYSE: GE) was upgraded to a “Buy” by a major analyst, a sign of an improving climate.  The Nasdaq Composite Index even flirted with 2,000 for the first time since October 2008, and the Standard & Poor’s 500 Index edged closer to 1,000, a level not seen since last November.

The Dow ended July with its best monthly performance since October 2002.  Japanese stocks moved to their highest levels in about 10 months and European equities soared to nine-month highs.  Bond investors breathed sighs of relief as a record $115 billion Treasury auctions came to a close and foreign bankers emerged as buyers on the final day.
                       

Economically Speaking

Has Fed Chairman Bernanke suddenly become Mr. Optimist these days? Early in the week, he proclaimed that the financial debacle ultimately would produce favorable results as “not only will we will be back on track, but the economy will be stronger than it had been before this started.”  He also urged Congress to move forward with a regulatory reform package to ensure that such dire times will not be repeated.

The Fed’s Beige Book showed that the economy remained weak, though signs of stabilization and improvements in manufacturing, housing, and even labor are occurring across several regions of the country.  Some districts reported enhanced corporate hiring, particularly within the healthcare and technology sectors.

The afore-mentioned second-quarter GDP report was better than expected, giving yet another indication that the recession is drawing closer to an end.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

Still, it’s a much deeper recession than most realized: For the first time since records have been kept (1947), economic activity has declined for four consecutive quarters.  New homes sales skyrocketed in June by 11%, the fourth increase in the last six months, and home prices even climbed on a month-over-month basis for the first time since July 2006 according to the S&P Case-Shiller index.

Durable good orders fell in June, though once the volatile transportation category was removed from the statistic, orders actually increased.  Consumer confidence fell in June, as ongoing pressures on the labor markets brought continued concerns and many Americans are refraining from major purchases (now and for the foreseeable future).

On the other hand, jobless claims rose in the most recent week, though analysts pointed to discrepancies from the auto industry.   Looking at the four-week moving average as a better gauge, claims for unemployment benefits actually fell to the lowest level since January and continuous claims unexpectedly declined, as well.

Weekly Economic Calendar

[Editor's Note: If it's inflation you're worried about - and commodities you want to invest in - there's no better place to look than the Global Resource Alert trading service, which ferrets out companies poised to profit from the so-called "Secular Bull Market" in commodities.

If you're new to the commodities-investing arena, and are uncertain about the landscape - or even if you're an "old hand" at natural-resource stocks, but want some insights into the new profit plays and new players - consider hiring a guide: Money Morning Contributing Editor Peter Krauth, a recognized expert in metals, mining and energy stocks, who is also the editor of the Global Resource Alert. A former portfolio advisor, Krauth continues to work out of resource-rich Canada, which keeps him close to most of the companies he researches.

Don’t get caught up in the uncertainty caused by the competing and contradictory analyst forecasts. In such an environment, Krauth says that commodities are among the most-profitable and least-risky investments available, and notes that this may well be the most powerful bull market for commodities we'll see in our lifetimes. He makes a strong case. To read more about his strategies, and the sector plays he likes the most, please click here. ]

News and Related Story Links:

• CNNMoney.com:

  Stimulus has yet to really boost GDP.

• The Economic Times:
  US recession may be easing, but job market weak.
• The Wall Street Journal:
  Poised for a Rebound.
• Money Morning Market Analysis:
  Beware of the Obama Stimulus Trap.
• The San Francisco Chronicle:
  GDP’s small drop points to easing of recession.
• IRS.gov:
  Making Work Pay Tax Credit.
• WhiteHouse.gov:
  Barack Obama.
• WhiteHouse.gov:
  George W. Bush.
• Money Morning News Analysis:
  Four Ways to Profit if Bernanke’s ‘Exit Strategy’ Backfires.
• Money Morning Special News Category:

  Jobless Recovery.

• Wikipedia:

  John Force.