Crude Hits New Record Above $95 a Barrel

Crude-oil futures hit a new record high in after-hours trading on Wednesday, surging as high as $95.28 a barrel on the New York Mercantile Exchange after the Federal Reserve cut interest rates and the Energy Department reported a much higher-than-expected drop in crude supplies.

Crude oil for December delivery was last up $4.84, or over 5%, at $95.22 a barrel on Nymex. Earlier, crude settled at $94.53 a barrel in the regular trading session.

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Sweet REITs

Equity Real Estate Investment Trusts (REITs) are down 8% in 2007. Among the biggest losers are health-care REITs, down 10.5%. Fears of Medicare and Medicaid cutbacks have driven such REITs from favor.

The risk may be overstated, though. Cuts in Medicare and Medicaid are rare, because seniors are a powerful voting bloc. Moreover, many health-care REITs are moving away from hospitals and nursing homes into assisted living facilities and medical office buildings, which are much less reliant on government funding.

Health-care REITs may be considered defensive plays because demand for such properties has little to do with strength or weakness in the overall economy. And besides that, health-care REITs have payouts around 6% (better than for other REITs).

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Calling All Geeks!

On October 8th, Intel unveiled CoolSW, a Web site that allows visitors to nominate and vote on promising software startups.

The site, modeled on news aggregator Digg, represents an admission by the chipmaker that even with 90,000 employees scattered across the globe, it can't keep tabs on all the emerging technologies out there.

No word yet on how Intel - or its venture capital arm - plan to capitalize on the info garnered.

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The Bulls Stampede In China

Mainland investors are taking irrational exuberance to new heights. On October 15, the Shanghai Stock Index blasted through the 6,000-point mark and closed at 6337 on October 17, up a dizzying 125% since the beginning of the year.

The broader CSI 300 index of top Shanghai and Shenzhen-listed companies is up 185%. Meanwhile, a Beijing official has confirmed that state-owned China Citic Group is seeking to take an unspecified stake in Bear Stearns.

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YAHOO Comes to Life

Co-founder-turned-CEO Jerry Yang either has the gift of gab, or the numbers simply did the trick. In an October 16 earnings call he outlined a multiyear plan to reverse yahoo's declining fortunes.

Yahoo! will innovate around its home page, mail service, search site, and other popular properties from which users start surfing. And then there were the third-quarter results: profits down 4.6%, but revenues up 12%.

The stock jumped around 8% on October 17. And Intel earnings also shone, leaping 43% for the quarter.

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Insourcing Piracy

The dwindling list of "Made in USA" goods just got a dubious addition: fakes.

A federal crackdown on counterfeit imports appears to be driving more of the business stateside. U.S. seizures were up 67% last year in value terms.

To evade authorities, makers of knockoffs have come up with a new division of labor: They're importing unbranded apparel and other gear from Chinese factories and sewing on the logos in small U.S. sweatshops.

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What Really Happened at Bear Stearns?

The two bankrupt Bear Stearns hedge funds were doomed to fail once the market for subprime mortgages cracked, according to a Business Week analysis of confidential financial reports.

The funds depended on loans that could be called quickly, and they carried too little cash and too many oddball securities to have any staying power. One used an unusual arrangement with Barclays to boost its leverage, a side deal that may well have put the other fund in jeopardy.

Auditors red-flagged the fact that the reported values of more than 60% of net assets were just estimates by Bear managers. The funds were marketed as "high grade" but failed their market test.

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Income Insights

Yields on junk bonds are relatively low now and prices are likely to fall further because of spillover from the troubled mortgage market.

For income, investors are better off with high-yield vehicles linked to the stock market or to energy prices. For stock-oriented exposure, convertible bonds and preferreds that can switch into common stock are the best choices.

For energy-related income, Canadian oil and gas trusts are appealing. And if oil prices stay anywhere near current levels, those oil and gas trusts are likely to continue to pay hefty dividends.

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Concern About LIBOR

The latest sign that credit turmoil is far from over: Major banks have hoisted the rate on their short-term loans to each other, known as the London Interbank Offered Rate, or LIBOR.

The banks are hoarding money in case they have to make big loans to strapped customers with lines of credit. On top of that, they are worried that the borrowing banks might not pay them back.

During September, the 30-day dollar LIBOR rate shot up to its highest spread over the federal funds rate since December 31, 1999.

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How High Can Google Go?

On October 8th, the search king's stock roared past 600 to score a record 609.62. One reason was a plan Google announced that day to distribute videos along with text ads from its YouTube unit to other Web sites.

Investors also appeared to like an October 4th report from Interactive Advertising Bureau and Pricewaterhouse-Coopers that said Google-dominated search advertising revenues grew 29% in the year's first half.

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COMMENTARY

Social Security payments will show their smallest rise in four years - an increase of 2.3 percent. Yet, reports Moneynews, consumer inflation rose at the fastest pace in four years - at an annual rate of 3.6 percent.

A true inflation rate is probably about 7 percent, several times higher than the fake figure now dished up to us by our government. At that level, the Fed funds rate of 4.75 percent would be a shocking negative 2.25 percent. As such, it would reflect the true dimensions of the economic problems now facing us.

We're in the beginnings of a global readjustment that will end the dollar's dominance as the 'gold standard' currency for the world's economies. The dollar is likely entering a long, slow decline - followed by a crash - according to a recent Merrill Lynch note to clients.

So when you hear the term 'gold bug,' chances are you think of a survivalist doom-and-gloomer type who is incessantly warning of financial disaster. Well, think again because as events unfold, the term might as well be a synonym for "pretty smart investor."

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This Is Amazing!

At our meeting last evening I had occasion to comment about WiMax, the new wireless service that SprintNextel will soon launch in Chicago. And today, lo and behold, an AP article appeared with the following news:

"The broadband technology WiMax has been added to a global standard for mobile devices, boosting its chances of becoming the preferred system for the next generation of high-speed wireless Internet access.

The decision Friday by the U.N. telecommunications agency means that airwaves designated for other technologies can now be used for networks based on WiMax. That's likely to spur development of the wireless technology, attract new investors and eventually drive down hardware costs.

Early promoters of WiMax - including Intel Corp., Samsung, Motorola, Inc. and Nokia Corp. - stand to gain the most from Friday's decision.

Chip maker Intel's investment arm poured more than $1 billion last year into building WiMax networks around the world and other WiMax-related investments.

Intel is rolling out chips next year for laptops, cell phones and mobile Internet devices that feature both WiMax and Wi-Fi capabilities on the same piece of silicon. Integrating the two technologies extends the range and bandwidth available to those devices.

WiMax could become as ubiquitous as mobile phones and conventional broadband. The real kick comes between two and five years from now when consumers will start seeing the first mobile phone-style devices using WiMax come on the market."

NOTE: you can find aditional information by going to:

WiMax Forum: http://www.wimaxforum.org

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THE BIG LIE!

Relax.

Inflation is a thing of the past. It hasn't been a problem since the 1970s.

Three words: Don't believe it.


Despite pronouncements from "experts" as well as government numbers manipulators that tell us inflation has been permanently whipped, the real numbers indicate that the Consumer Price Index is being spun for political purposes. No, in fact, the CPI is pure fiction!

How else can you describe an inflation-measuring index that fails to include the full prices of food, energy and homes - and contains hidden deceptions that enable politicians in our government to say that the $2,000 laptop you just purchased really cost you only $1,000, despite the $2,000 charge on your credit card statement?

As an investor, you MUST know how your income stacks up against real price increases - and make adjustments when inflation erodes the buying power of your income. Because all these rising costs play a critical role in your investing plan!

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Something To Think About

"Mankind have a great aversion to intellectual labor; but even supposing knowledge to be easily obtainable, more people would be content to be ignorant than would take even a little trouble to acquire it."

-Samuel Johnson


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Finding Affordable Annuities

As Baby Boomers head toward what could be long retirements, often without traditional pensions, variable annuities (VAs) might be able to provide attractive levels of lifelong cash flow if they come with friendly fee structures.

According to Morningstar, the VAs with the lowest fees for mortality, administration, and distribution are Fidelity's Personal Retirement contract (0.25%) and Vanguard's contract, issued by Peoples Benefit Life (0.3%). Those numbers are before expenses for the underlying investment accounts, though.

If you include average fund expenses, Vanguard's VA probably is less expensive than Fidelity's. Using a weighted average expense ratio, the Vanguard VA's total cost is 0.66%, followed by TIAA-CREF's Lifetime Select contract (0.84%) and Fidelity's contract (0.95%).

There is also an independent insurer, Jefferson National Life's Monument Advisor, that charges all buyers a flat insurance fee of $240 per year - which is an extremely low percentage on a large contract.

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Wal-Mart Receives Approval

The world's No. 1 retailer tried to win a bank charter in the U.S. and got shot down. But the Mexican Banking & Securities Commission on October 2nd said "Si," thus clearing the way for branches to open in November.

The bank, called Banco Wal-Mart, will start small, with branches in a dozen or so of the 964 company stores and restaurants in some 130 Mexico cities.

The government hopes Wal-Mart's entry will help extend banking services to the 80% of Mexicans who lack them and also bring down fees charged by big Mexican banks.

NOTE: This also might make Wal-Mart de Mexico (OTC: WMMVF) an interesting addition to any portfolio.

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Is Ben Up To The Job?

This is the question posed by Steve Forbes, Editor-In-Chief of Forbes magazine in the October 15, 2007 edition out today. Here are his comments:

It was fitting and proper for Ben Bernanke to whack interest rates and pump in additional money to prevent the financial system's seizing up. After all, when a patient has a critical heart condition, you first perform open heart surgery or put in stents and then go about getting the patient to cut back on the smoking, drinking and excess eating. First things first.

Now Bernanke must make clear to the markets that during the next 12 to 18 months the Fed will begin to soak up the excess money it created in 2004-05. Otherwise, we'll be facing a debilitating currency crisis. A government that looks as if it won't protect the integrity of its currency will generate panic -- the kind of panic we experienced in 1987. That October we suffered the worst one-day stock market crash in history. Just imagine the Dow losing more than 3,000 points in one session today.

This is why Bernanke must overcome his lifelong prejudice against gold. The yellow metal is the best indicator of money disturbances. If he could bring himself to declare that the Fed will mop up money during the next year to bring down the gold price to under $500 and keep it there -- say in the range of $440 to $460 an ounce -- he would ignite a strong market rally that would make his post-interest-rate-cut rally look very pale indeed. Unless he does, the Fed chairman risks another kind of disaster: a fearful, headlong flight from the dollar -- as well as the concomitant risk of a rout of stocks and bonds.

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ETFs: The Road To China

Burton Malkiel, author of A Random Walk Down Wall Street and a Princeton University economist, sees China as a great investment opportunity. He says investors are getting a bargain for "the most undervalued currency in the world."

Malkiel suggests exchange-traded funds that focus on Chinese companies trading in Hong Kong and New York. He also recommends ETFs holding shares of companies in countries that are China's major trading partners. Malkiel's strategy is to combine the SPDR S&P China ETF with the Vanguard Pacific ETF.

You can read more about his thinking in the new book, From Wall Street to the Great Wall: How Investors Can Profit From China's Booming Economy which comes out this December, published by W.W. Norton.

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The New "Kid" On The Block

Just when you thought you understood the booming exchange-traded fund business, along comes the industry's latest offering - the excahnge-traded note (ETN).

Trying to figure out what makes ETNs different might prompt a bit of head-scratching but intrepid investors could find it worth the effort. For starters, like ETFs, the ETNs trade on an exchange with returns based on the performance of an index.

But technically speaking, an ETN is a kind of debt issued by a financial institution, similar to a corporate bond. The issuer promises to pay you the index's return, less fees. That's not the case with ETFs - an important distinction that leads to what's called "tracking error" and can amount to less money in your pocket.

Because of their structure, ETNs are also particularly well suited to investing in assets such as commodities and currencies. What's more, currency and commodity ETNs could be even more tax efficient than ETFs. Because dividends are lumped in with the returns, investors owe capital gains tax only when they sell the shares - a big advantage, since income from those assets is taxed at higher ordinary-income rates than when held in an ETF, mutual fund or individually.

The biggest ETN on the market currently is, Barclay's iPath/Dow Jones-AIG Commodity fund (DJP). The $1.9 billion security tracks a broad index of commodities futures. Barclays/iPath has also rolled out three ETNs to play the British pound, yen or euro.

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In BARRON'S This Week

The latest (October 8th) edition of Barron's is out and if you are invested in mutual funds, then you will be interested in the Lipper Mutual Fund Quarterly apprearing in this issue.

This is a special report on Third-Quarter Performance and it is perhaps the most comprehensive coverage of mutual funds available to serious investors.

Of interest is the fact that among U.S. Stock Funds, Large Cap Growth had the highest return in the third quarter of 6.19%.

Among Sector Funds, Natural Resources had the greatest return for the Quarter at 7.22%.

And among World Equity Funds, the China Region was way out in front with a Third Quarter return of 28.87%.

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Mutual Fund Investors Alert

The cash levels at some mutual funds have soared to as high as 35%. That is because some fund managers have had a difficult time finding bargains in the stock market this year.

Cash positions of 20% or more can hurt performance, although the cash does provide opportunities to snap-up bargains should they appear.

As a self-defense, a mutual fund investor should review his/her funds' latest portfolio reports, and if any has a large cash position (above 20%) but you want to remain fully invested, it would make sense to switch into another fund that has a more reasonable cash balance in its portfolio.

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COMMENTARY

Like it or not, the lingering impact of the credit crunch correction is far from over. So while Wall Street is rejoicing in the recent Fed rate cut, Main Street USA still feels the pain of frozen credit markets and a much tighter lending environment.

So far, The Fed's 50-basis point rate cut on September 18 has failed to lower mortgage rates and boost demand. Average 30-year fixed rate mortgage rates ended last week at 6.42 percent, compared with an average 6.3 percent the prior week, according to Bloomberg.

Now, in the wake of the housing bust, American homeowners face a deepening bear market in residential real estate. And as more adjustable rate loans reset higher in coming months, that will put even more downward pressure on home prices - with no bottom in sight just yet.

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Getting Reasonable Returns

One lower-risk way to invest in growth stocks is to follow a discipline known as GARP: growth at a reasonable price. You buy growth stocks - companies expected to post above average increases in both sales and profits. However, you take a value-stock approach, looking for situations where the trading price is low, relative to earnings and cash flow.

One factor in GARP investing is the so-called PEG (price/earnings growth) ratio. If a company is increasing earnings per share around 15% a year and it trades at about 15 times expected earnings, this generates a PEG ratio of 1, which may appeal to GARP investors.

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