What has changed in the last two weeks is Europe.  Two weeks ago it was not expected that France was going to suddenly issue a citizen-wide veto of the austerity measures.  Now that Sarkozy has effectively lost to Hollande in French elections, France is taking a socialist step and is effectively boycotting its austerity measures.

The move in France followed an inability for the Dutch to reach a budgetary agreement, and now we have Spain back in trouble.  To add insult to injury, the new Greek politicos are just wanting to break the agreed-to austerity measures that allowed it to avoid default (as if you should be surprised there!).  Now we have Ireland even calling anti-austerity sounds with an implied return of Sinn Fein in the public.

So, back to bonds… The 10-Year Treasury Note is now yielding 1.81%.  If you go back and review the charts, the 1.80% acted as a yield floor in February of 2012 and in December of 2011.  In September and October of 2011 the floor was closer to 1.70% as an absolute low, but when that came off the 10-year note yield rose 30 basis points in just over a week. The 10-Year note was yielding 2.20% as recently as April 5, 2012 and had risen to 2.40% as recently as March 20, 2012 (after having risen 40 basis points in just 9 trading sessions).

Now we have a 30-Year Treasury “Long Bond” yield back at almost 3%.  For the “Long Bond” yields to be back at the real lows it has to drop to about 2.90% and ultimately about 2.80% as the floor in September, October, and again in December of 2012. The 30-Year yield was at 3.40% as recently as April 4, 2012.

Credit Suisse just lowered its S&P 500 target to 1,450 from 1,470 this morning and it has increased the odds that both Greece leaves the Euro and also that the Euro could dissolve entirely.

iShares Barclays 20+ Year Treasury Bond (AMEX: TLT) has risen almost $10.00 per share since March 20, 2012 and that shows just how much interest has been there from what are normally equity investors who are preferring to Buy exchange-traded Treasury debt products.  Its yield is currently about 2.85%.

Junk bonds have lost their luster again, and it was only a week or so ago that the index was hitting a new high.  SPDR Barclays Capital High Yield Bond (AMEX: JNK) recently peaked above $40.00 and it is now at $39.50.  Investors have also turned away from the high-payout MLP sector as the JPMorgan Alerian MLP Index ETN (AMEX: AMJ) product recently peaked at almost $42.00 and it is now under $38.70 despite what is a high ‘yield equivalent’ for investors.

The banking sector surged in the first quarter but it has pulled back substantially.  The Financial Select Sector SPDR (AMEX: XLF) peaked at $16.20 and it is now down at almost $14.90 for what is getting closer to a 10% correction.  The highly volatile and leveraged Direxion Daily Financial Bull 3X Shares (AMEX: FAS) peaked around $110.00 per share at the end of March and start of April and it is now challenging the $94.00 price.  Banks and financials are back out of favor, mostly due to fears about Europe dragging them down.

The real question is whether or not this is the signal of the next recession or whether this is a trade for the “Sell in May and go away!” theme that investors are more worried about.  All growth indicators from non-farm payrolls, purchasing managers, and manufacturing and services activity readings are pointing so far to what is just slower and slower growth.

In the United States, Q1-2012 GDP was up at only +2.2% as government spending was down by 3% in the quarter.  Europe is in all but a deep ‘official recession’ per most of its latest economic reports.  The growth in China and Brazil has seen a tempering throughout this year as well, with other key emerging markets like India and others in South America still seeing slower and slower growth.

The good news against the recession argument is that economists after the last earnings season still seem to be calling for positive growth in U.S. GDP in the second quarter at least as of now.  If that holds true and if the U.S. can avoid getting pulled down by Europe, then perhaps the U.S. will avoid an official recession even if this current growth is rather pathetic.  We also have an election and it is a near certainty that both Presidential candidates are likely going to say whatever they can get away with to win the election in November.

If Q2 does not show negative on the GDP front in the United States, then technically no recession can be declared until early in 2013.  That would coincide with what Ben Bernanke has warned about the financial cliff facing the United States at the end of 2012 and it is when the new tax structure takes place.

The market is definitely voicing concern here.  Is that a recession warning?  It depends upon your own outlook and upon your own interpretations.  It must also be noted that the current drop in stock prices is getting to be where stocks are getting close to ‘oversold’ on the short-term charts even if the fundamentals are of concern.

As a final reminder, stop kidding yourself about the notion of a double dip recession.  We have enjoyed close to three-years of positive economic growth.  If a recession comes again soon, it will just be ‘the next recession’ since a double dip recession has to occur with a couple or a few quarters of the prior recession.

JON C. OGG

The Institute for Supply Management has issued its reading for January non-manufacturing and the data is strong.  Very strong.  At 56.8, this is the best reading in almost a year.  Dow Jones was only calling for a reading of 53.1.

The business index was 59.5 versus 55.9 in December.  Employment showed the biggest gain to 57.4 from a prior December reading of 49.8 and prices rose only to 63.5 from 62.0 in December.  Even new order picked up to 59.4 from 54.6 in December.

The news this morning, particularly after the stellar jobs numbers, is really hurting longer-dated Treasury prices and driving yields higher.  The Fed Funds Futures are signaling a much quicker rate hike scenario than just a week ago.

The iShares Barclays 20 Year Treasury (NYSE: TLT) tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and its price is down 2.3% at $116.39. The ProShares UltraShort Lehman 20+ (NYSE: TBT), which is double inverse the price action (intraday) is up a whopping 4.6% at $19.32 on the day.

JON C. OGG

This morning is showing a 4.44% yield in the Treasury’s 30-Year long-bond.  While that yield hit 4.46% Friday and briefly appears to have challenged 4.50% earlier last week, we have to go back to the end of May to see the same yields on the CMT.

The Fed is said to be buying Treasuries out six to seven years on the curve, and this action is expected to start ahead of tomorrow’s FOMC meeting.  A headline late Friday noted about $110 billion was the indicated amount of Treasury purchase for the month ahead.  Whether that is the case or not is another matter.

ProShares UltraShort 20+ Year Treasury (NYSE: TBT) ETF is up 0.2% pre-market at $38.28 and its 52-week range is $29.77 to $51.21.  That one will see its price rise if Treasuries fall and their yields rise.  iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) is there for those who believe bond prices will rise.

JON C. OGG

Nothing illustrates the rise in yields and the drop in prices of long-dated Treasury maturities better than the highly volatile ProShares UltraShort 20+ Year Treasury (NYSE: TBT).  Keep in mind that this one has double-leverage and that it is inverse leverage.  At 10:50 its price is up another 1.2% at $37.94 but that was trading as low as under $35.00 back on November 30.  The high hit yesterday was $38.26 and that was the highest price seen since mid-November when shares hit $38.29 and $38.27.  You have to go back to the end of June to see other $38+ prices.

The ‘regular way trade’ on the 20+ year maturities that is a bet on rates falling and Treasury prices rising is the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT).  It does not have the leverage and it is not inverse.  As rates rise and bond prices fall, the TLT loses value and that can be seen with a 0.8% drop today to $93.43.

A headline from the DJ broad-tape noted that the 10-Year Treasury yield of 3.267% was the highest yield in nearly six months.  We now show a 10-Year yield of 3.25%.  This may still be extremely low on historic terms, but this rate was down all the way at 2.48% back on November 4 and was at 2.76% as recently as November 23.  Just on Monday that had come back down to 2.94% after briefly going back above that whole number of the 3.00% hurdle.

The 30-Year Long Bond yield is now 4.40%.  This also may still be extremely low on historic terms, but this rate was down all the way at 4.04% back on November 4 and under 4.00%  on November 2.  The 30-Year yield was at 4.17% as recently as November 23.  Just on Monday that had come back down to 4.25%.

The big question is a post-QE2 question.  The Fed has signaled that it wants you to own risk-based assets because it won’t pay you much interest and that real rate of return may be far less if inflation kicks in.  When you see a 75-basis point rise in the rate of the 10-Year Treasury yields, the question is whether investors will decide to lock in their equity and commodity gains and settle for the safety of the Treasuries at a new benchmark.

So far this is the second day where we have seen a rapid drop in equity index values.  The DJIA peaked above 11,440 yesterday but it closed marginally in the red at 11,359.16. The DJIA is now in the red again down almost 15 points at 11,343.99 after having been up about 20 points earlier this morning.

Another bit of food for thought… If you have not refinanced your house to capture those lowest rates ever, you better see if you can qualify for that refinance.

JON C. OGG

There is one standout.  In the interview, CNBC’s Becky Quick and Joe Kernen asked many questions but the one that stood out the most was whether or not the U.S. was in a bond bubble after QE2 has started.  You know Buffett will leave himself wiggle room, but this was about as close to an overwhelming “YES” answer as the Oracle of Omaha will give:

• “I think short-term and long-term bonds are a very poor investment at the present time.”

He might not use the word “BUBBLE” but that is close enough.  The 10-Year Treasury yield is roughly 2.83% and the 30-Year Treasury’s Long Bond yields approximately 4.27% this morning.  So far we are seeing a slight gain in the ProShares UltraShort 20+ Year Treasury (NYSE: TBT) as it is ‘double short’ the 20+ year Treasury Index.  It closed at $36.59 yesterday and is around $36.80 in early bird pre-market trading.  The iShares Barclays 20+ Year Treas Bond (NYSE: TLT) is indicated lower as well.  After a $96.14 close, it is indicated around $95.95, but it lacks the leverage and therefore lacks the volatility.

Buffett did note that he would rather be in stocks over bonds at the present time.  He also noted that the tax code should hit those making more harder.  He did note something a tad less damning on the bond bubble, and that is that the dilutive effect of QE2 won’t be huge.

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JON C. OGG

Some of the key ETFs we see having longer-term pricing issues after QE2 are some of the main go-to ETFs for traders, but some of our ETFs are inverse and leveraged as well due to the volatility that is sought by traders.  Some of the ETF and ETN products were are tracking are Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ); SPDR Gold Trust (NYSE: GLD) and the PowerShares DB Gold Double Long ETN (NYSE: DGP); CurrencyShares Swiss Franc Trust (NYSE: FXF), WisdomTree Dreyfus Chinese Yuan (NYSE: CYB), and PowerShares DB US Dollar Index Bullish (NYSE: UUP); then there is the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) and the ProShares UltraShort 20+ Year Treasury (NYSE: TBT).

Financial Stock ETF Winners, Hopefully… and Maybe Housing

Banks and financials have been under pressure due to mortgage put-back fears on mortgage fraud and foreclosure woes.  If any sector could be helped by QE2 and lower rates, it would be banks and financial stocks.  Despite that they are earning very low interest, they also have to pay almost no interest as well.  The triple-leverage funds from Direxion are perhaps the most liquid and most volatile of all in the sector.  There is the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) that move at triple the intraday moves of the Russell 1000 Financial Services Index.  The bullish shares trade close to 35 million shares a day and the bearish shares trade close to 45 million shares a day.  There is deemed a greater risk of tracking error on these due to the volatility, futures contracts, and more, but these are very volatile and very actively traded ETF products.

SPDR S&P Homebuilders (NYSE: XHB) stands to win if housing wins from QE2.  If the foreclosures can be cleared out and if the borrowing rates will stay down at historic lows, then perhaps more consumers will be able to afford houses in 2011 and 2012.  Whether they buy used homes and foreclosed homes is one thing, but many still want that new home that is all theirs and comes with no baggage.  This ETF is full of homebuilding stocks and is meant to track the S&P Homebuilders Select Industry Index, which represents the homebuilding sector inside the larger S&P TMI.

QE2… A Bet Against Currencies or the Dollar

It seems that many developed nations are trying to devalue their currency simultaneously even if the dollar is not in favor.  The only safe bet for a country that might try to hold the line is Switzerland for their Swiss Franc, and the Swiss Franc can be traded via the CurrencyShares Swiss Franc Trust (NYSE: FXF).

Another exception is potentially the Chinese Yuan depending upon how the newly elected Congress decides what tone they will use against China.  Almost all investors agree that if China were to de-peg then the Chinese Yuan would rise appreciably against the US Dollar.  China’s reserves are higher and its economic fundamentals are among the best globally.  The two direct beneficiary ETF/ETN products here that will win if China is forced to de-peg the Yuan from the Dollar are WisdomTree Dreyfus Chinese Yuan (NYSE: CYB).

If you think that US Dollar’s decline will not go on and on endlessly, then there is the PowerShares DB US Dollar Index Bullish (NYSE: UUP).  This ETN tracks the Deutsche Bank Long US Dollar Futures index, which is comprised of long futures contracts rather than being comprised of raw currencies.  This is against a basket of currencies, and it is less volatile than many other direct single currency.

We tracked the DJIA, S&P500, NASDAQ 100, Bonds, Oil, and Gold…. Most of these are being tracked via key ETF products of SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ (NASDAQ: QQQQ), United States Oil (NYSE: USO), and SPDR Gold Shares (NYSE: GLD).  In bonds, we used the ProShares UltraShort 20+ Year Treasury (NYSE: TBT) iShares Barclays 20+ Year Treas Bond (NYSE: TLT) as liquid instruments to track the long-term bond market.

You already know that stocks and commodities rose in September and then again in October.  Historically that is a great measure and the market returns were some of the best seen in years on a relative basis.  Maybe the returns were not the same as companies selling iAnything.  Still, the returns were very impressive.

What is priced in depends upon whom you ask.  As far as the elections, it is priced in that the Democrats will likely lose the majority of the House of Representatives but not the Senate.  In short, gridlock is the consensus. If the market knows this or is factoring it in, then the (highly debated) efficient market theory would indicate that the market has priced it in.

As far as QE2, there is still some debate out there over just what quantitative easing will look like.  There is also a debate over its outcome.  The FOMC has no room to cut rates on the Fed Funds.   Last week there was a TIPS inflation adjusted T-Note auction that actually has a negative yield due to the calculations.  What is likely is that the Fed will increase the government balance sheet again by buying longer-dated Treasuries and maybe by buying mortgages or other debt instruments.  For argument sake, just assume it is Treasuries.  The goal is print money and then turn around and spend it to buy down the longer-end of the maturity curve to send yields lower.

In theory, stocks should reflect this as well if it is all really known.  Nearly gone is the debate over the double dip recession.  Gold is the new currency as it seems that major governments are in a race to devalue the currency values to drive up exports.  Oil runs often inversely with currencies, and the old inverse relation between stock market prices and oil prices is no longer.

Bonds saw a wild swing.  At the end of August, the Long-Bond yield was challenging 3.50% for the 30-Year.  That yield is now more than 4.0%.  The new anticipation is that QE2 will be present but will be sporadic and measured through time rather than all at once or all in a short period of time.  It almost sounds like a stock buyback now at this point.  Now Bill Gross has even implied that he long bull-market in bonds is over.

SPDR Dow Jones Industrial Average (NYSE: DIA) showed a return of 4.97% in September and then in October it gained by an additional 2.76%.  That shows a cumulative return of 8.28% for the two months combined.

SPDR S&P 500 (NYSE: SPY) showed a return of 5.22% in September and then in October it gained by an additional 3.38%.  That shows a cumulative return of 9.25% for the two months combined.

The FOMC can no longer lower rates on the short-end.  The other side of the coin is that it can promise to keep rates low indefinitely.  Quantitative easing is accomplished by Uncle Sam expanding its balance sheet by buying up debt on the long-end of the yield curve and keeping rates at near-zero on the short-end.  The new verdict seems to be a few hundred billion rather than $1 trillion that will be purchased in Treasury and other debt instruments in the coming weeks.  Some would like to see more, others would prefer no QE2.

The consensus is no longer for a double-dip recession, but growth estimates for what lies ahead remain muted or have come down of late.  It seems that the current inflation is too low for the Fed targets but the recent trends in commodities may be taking care of much of the lack of inflation.  Extremely slow growth is not enough despite a recovery, and the hope is that more jobs will ultimately be created.

The FOMC wants inflation higher, yet it wants rates to stay very low.  These notions fly directly against each other in the long-term, and Ben Bernanke did not exactly get the name Helicopter Ben out of the blue.  It seems that our government is about to turn on the printing presses so it can buy debt.  Yep, devalue your currency but artificially keep the rates lower by buying the debt up.  It almost sounds like tech companies with stock options and non-GAAP earnings.

The rule is and has always been, “Don’t Fight the Fed.”  We can complain about the reckless nature of QE2 and the shackles it may put on the next two or three generations or we can generate trading strategies.

Gold in them thar hills…

When it comes to gold, the SPDR Gold Trust (NYSE: GLD) is king with millions of shares traded each day and with assets above $50 billion.  But what about leveraged ETF or ETN products?  If inflation is going to be manufactured and if gold keeps rising as world central banks race to devalue their currencies, then the PowerShares DB Gold Double Long ETN (NYSE: DGP) is your answer.  Keep in mind that this is an exchange-traded note rather than a true asset trust with physical gold.  The “DGP” gives double the performance of gold.

What about betting for or against currencies?

If everyone is devaluing at the same time, then about the only safe bet for a country that might try to hold the line is Switzerland for their Swiss Franc.  The Swiss Franc can be bought either directly or it can be bought via the CurrencyShares Swiss Franc Trust (NYSE: FXF).

The other exception is potentially the Chinese Yuan if the U.S. Congressional move to try to wrangle China from such a tight currency peg.  If China were to de-peg, we have yet to find a real investor who says that China’s Yuan would actually fall against the US Dollar as China’s reserves and fundamentals are among the best globally.  There are two direct beneficiary ETF/ETN products here that will win if China is forced to appreciate the Yuan: WisdomTree Dreyfus Chinese Yuan (NYSE: CYB) and the Market Vectors Chinese Renminbi/USD ETN (NYSE: CNY), although the latter is far less liquid in volume.

Do you not believe that the dollar drop will continue endlessly?  As most financial events peak, markets do usually attempt to discount the news and try to at least work toward the efficient market theory where markets price in almost all available information and discount the rest of the news (so what if it doesn’t work).  If you believe that the Greenback will actually rally soon if and/or when QE2 finally launches, then there is the PowerShares DB US Dollar Index Bullish (NYSE: UUP).  In short, this is the ETN that tracks the Deutsche Bank Long US Dollar Futures index, but be advised that the index is comprised of long futures contracts  rather than of raw currency.  It is also nearly impossible to forget the one rule if you are a US investor: You are already long the US dollar.

The new notion after this week is that the Double-Dip Recession may not come, or if it does that it won’t be a repeat of The Great Recession.  Several things have changed to offer you at least some safety, and several things have remained unfavorable.

15 Things That Have Changed…

The Dollar peaked against the Euro at $1.20 in June and is now back above $1.26.  The markets needed the Euro to stabilize so that U.S., China, and other countries could still compete when it comes to selling products in Europe.  That same stabilization is tied to the notion that perhaps Europe is not to implode and that the Europeans were going to be out of the world economy for a while.  The PIIGS may still get slaughtered, or maybe not.  The good news about the Euro’s pre-June slide is that now Europe can export competitively again.

As far as currencies, the de-pegging of the yuan against the U.S. Dollar was part of the problem.  There may have been a mountain made of a molehill from the promises for a more market-based currency out of China.  It did not take too long for markets to figure out that China’s promise is merely a slightly new target range and its currency is not really going to allow the market to be the judge like the euro or yen.  Will this rise add to manufacturing costs out of China? Yes.  Will those costs escalate to the point that inflation gets out of hand immediately?  No, or at least there is less of a thought on that line.  As far as relations not getting too bad, China has even renewed the license for Google Inc. (NASDAQ: GOOG) to operate in the country despite the company-government fight.

Spain and Portugal sold bonds.  Bloomberg showed on July 1 that Russian banks had some $2.5 billion in various bond sales, the most since 2008.  Other bond sales from Eastern Europe have gone off rather well in the last two weeks when you consider the flow of headlines over the last six weeks.  To show how some recovery has come in some PIIGS bank ADRs, National Bank of Greece SA (NYSE: NBG) has recovered 15% from its absolute lows and The Bank of Ireland (NYSE: IRE) is up 23% from its absolute lows.  Jean-Claude Trichet, president of the European Central Bank, is arguing against the double-dip recession argument.

Longer-dated Treasuries are not signaling the next wave of the Great Recession all over again as the yields are now back over the 3% and 4% hurdles.  By late-June, the 10 and 30 broke back under the 3% and 4% hurdles for the first time since Sept/Oct-2009.  The 10-Year is yielding 3.04% and 30-Year 4.03%, not bad considering that the 10-year low yield seen was 2.88% and the 30-year low yield seen over the last week or so was 3.83%.  The stock market sell-off and added fears along with more and more waves of global concerns that government deficit targets would limit global economic recovery and growth all played into the fears. At least for now, the yields are back above those.  The Barclays 20+ Year Treasury Bond Fund (NYSE: TLT) has sold off more than 2% from peak to trough in just the last three trading sessions.

On stocks, the S&P 500 held above 1,000 and DJIA is now back over 10,000.  The SPDRs (NYSE: SPY) reached ‘only’ a low of $101.13 and the DIAMONDs (NYSE: DIA) is back over $101.00 after hitting a low of $96.17 in the final week of June.  Maybe you can count it on a post-quarter-end rally and the notion that funds can now invest in what they want to again, or maybe it is on a general easing of fears.  All of the chartists calling the gloom and doom and the return to 6,000 DJIA (or far worse) came at the peak of selling and those charts have for now at least not rolled over further.  For now, this is still an issue that could go either way.  The good news is that the most recent market recovery is a help.

The implosion of big oil (and oil prices) might not be quite as dire as many feared.  BP plc (NYSE: BP) has at least somewhat stabilized.  There has been talk for the company raising capital, and there has been refuting of its need to do so to help fund that $20 billion commitment.  Yes, their problems are likely to continue for years, but a stabilization there will keep the rest of the major integrated oil companies (which are large DJIA and S&P 500 components) from sliding endlessly.  In the last 60-day period or so, Exxon Mobil Corp. (NYSE: XOM) slid more than $10 from peak to trough and shares are closer to $58.50 and more than $2.00 off the lows.  Chevron Corp. (NYSE: CVX) slid about $15 from peak to trough in the same period and above $71.00 gives it a gain of almost $4.50 from lows in recent days.  Oil also bounced and did not go well under $70.00 in a sign that demand was going to dry up all over again.

Central banks were net sellers of gold (maybe), taking advantage of high prices and likely to send a signal that banks do not want the shiny yellow stuff from making too much inflation… This is up for debate, and some may even consider it inaccurate.  Stories have been out that this was the Bank for International Settlements, and there have been pros and cons speculated on this.  It may not be a total win for keeping gold from screaming endlessly.  Still, gold became too expensive and slid.  The SPDR Gold Shares (NYSE: GLD) had reached briefly above $123.56 by June 28, yet this went as low as $116.10 on Thursday before coming back above $118 on Friday.

As a counter to the pro or con against and for other commodities and gold, some of “the risk trade” was put back on this week.  Commodities and transports rose.  Machinery and basic materials rose, partly in hope and from reports that Australia won’t go after such a strict target on profit taxes and in part on the hope of continued global demand from many emerging markets.  Even fertilizer gained.  Caterpillar Inc. (NYSE: CAT) is up over 10% Potash Corp. of Saskatchewan, Inc. (NYSE: POT) is up over 10% from trough to peak this week.

IPOs are resuming, slowly, with a mixed fanfare.  Using IPOs as a market barometer is never easy, nor is it entirely accurate.  But a market with no IPO activity is rarely considered a strong market.  The huge AgBank IPO came off in China, and Tesla Motors, Inc. (NASDAQ: TSLA) has at least managed to recover enough from the selling that at least for now it is no longer a busted IPO.

Mergers and acquisitions are not dead.  The pace seen in M&A is not as robust and many deals may have had to be put on hold due to price.  But small deals are still being announced, and there is still hope that M&A can resume in the late-Summer and into the latter part of 2010.  With cash at record levels, any signs that stability will remain will bring about more cash deals.

The dividend taxes in 2011 might be kept somewhat lower than feared due to the election this November, and may be partly due to some reality checks.  Many companies raised their dividends starting late in 2009 and throughout the first months of 2010 after a long pause.  The rate of 15% tax on dividends is going to be gone for many, although that rate or a still-acceptable rate might be kept on the table for those individuals making under $200,000 or families under $250,000… This is still more of a wild card than a win and could still go the other way, but hope and possibilities are often enough to drive stability.

Transportation and tourism is still soft in many markets, but have you flown or rented a car or booked a hotel room lately?  The planes are packed in major routes, and cars and room rates and availability are far less favorable for the consumer compared to any time on 2009.  The deals on flights are long-gone.  Ditto for hotels and cars, at least outside of the Gulf Coast oil spill area.  Even casinos and resorts have visitors.

We entered the third quarter with far fewer companies issuing earnings warnings than some might have expected.  Analyst estimates and targets may be coming down some, but the large companies that did warn about net results did so more on currency effects and on issues from taxes and even healthcare costs rather than an outright implosion of demand for their products.  Many of the major companies have record cash on the books, and Blue Chip stocks are back close to very low multiples.

The fears that instant rate hikes are coming have dwindled.  Our own poll of results so far had the largest percentage by far, of 49%, answer that rate hikes are more than a year away.  If stability comes, and if we se more than just India, South Korea, and Malaysia raise rates the rate hike game could be afoot again.  Inflation has been kept low and the rapid recovery is turning into a more muted recovery that has less and less stimulus and rescue money adding fuel to the fire.  There is still a risk that this means no real growth.  That has of course added fuel to the double-dip recession, but even the bulk of the double-dip recession camp is not looking for repeat of the panic seen from the end of 2008 into the first quarter of 2009.

The fears and building pressure points going into the 2007 and 2008 period before the meltdown had far more fluff and far more inflated asset prices with far easier credit than today.  The DJIA Peaked over 14,000 in the peak of 2007, but went to under 7,000 at the peak of panic selling in early 2009.  This last recovery in the market took us from under 7,000 to 11,000 before the 2010 selling took us to back under 10,000 last week.

What Remains Negative…

The jobs market is still atrocious.  While jobs reports are no longer heading off the cliff, this remains a jobless economy.  Recovery or not, the only great hiring agent so far was the Census Bureau.  That is now gone. This continued weak jobs market has led to lower confidence from consumers of late.  The unemployment figure itself has arguably been misleading along with an unofficial unemployment rate.  The weekly jobless claims are still coming in well above the 400,000 per week threshold, which is more than 100,000 higher than where it needs to be for unemployment to really improve.

Investor pessimism has been weak and is still weak.  This week’s gains may change that in next week’s surveys and polls.  Some argue that large investor pessimism is the biggest bullish indicator.

Whatever the tax code and tax brackets for those who can afford to buy things will be, it is an unknown and the verdict will possibly have an impact on the economy for years.  The attack on wealth is still there.  Cheered by many, hated by many of those with income being targeted.  The argument that taxes are only going back to where they were under Clinton can easily be countered by the reality that the growth rates and opportunities that lie ahead are far less in America compared to the 1990′s.

Europe and some emerging markets are still likely to see much spotted trouble or some outright trouble continuing.  The banks (including the U.S.) remain under pressure via taxation, regulation, reserve requirements, awful demand for loans, and on and on.  Many savvy investors still expect the implosion of governments over the debt levels.

There has now been close to a two-year decline in consumer credit.  Families are borrowing less.  Some is by choice, and some is of course from families continuing to lose credit.  This is not expected to change.  If it does, it is not expected to be a return to anything major.  It is also easy to argue that credit needs to keep coming down.

Housing remains more of a wild card than a win today.  That is why housing was not mentioned above in the what has changed for the better.  Housing prices are not really rising, and all of that tax-benefit buying has stalled even if the extension may help some.  The days that the public get to use their homes as a piggy bank to buy more toys and second houses is gone and won’t be back for years.  Mortgages are at all-time or near all-time lows, yet getting that mortgage remains elusive or next to impossible for much of the country.  There is a backlog of foreclosures that have not been seen and there is still a huge shadow-inventory of housing and property being held by banks in front of that.  Reports on the commercial real estate market keep coming out against any suddenly great business climate.

The trillions of dollars that have been committed for stimulus and ongoing bailouts are still out there, somewhere.  Many still fear that will ultimately bring about hyperinflation.  All that deficit spending from governments to save the system could ultimately lead to a no-way-out scenario where those countries that have the right to print money will pay back their debt in the same manner Germany tried to before World War II.

Economic growth is not likely to return in a sudden and massive way.  The “New Normal” is viewed as an economy of much tighter regulation, much higher taxes for the wealthy and for corporations, higher government spending, and consumers living with less and enjoying far less opulence than in prior years.  It is even arguable that the recovery was merely a stimulus and stability recovery matched merely by an inventory replacement cycle with no follow-on gains.

The rules of the game are being changed without consideration of precedent and without consideration for what it means in the future.  Sudden bans on offshore drilling, sudden retroactive damage caps, sudden big-bank taxes ahead, the ultimate destination of Fin-Reg, unknown expenses for carbon taxes, ongoing healthcare changes, and on and on.  This is cheered by some, hated by some, and is doubtlessly a corporate planner’s challenge for some time.

Earnings season remains a risk.  While many companies will talk about currency and healthcare and other charges impacting the net this year, it is the top-line and the stability of revenues and spending that are likely to take precedent.  Many sectors are already down 10% to 20% since the start of the last earnings season.  The stocks in the consumer sector and the oil sector have been pounded, giving a buffer against most news that is not back toward the levels and concerns seen during the Great Recession.

There are still risks in stocks.  This week’s recovery rally does not offer any insurance against lower share prices in the days or weeks ahead.  Stocks are a benchmark and driven by the supply and demand for them.  Nothing, besides put options or keeping all assets in cash, can protect an investor from falling stock prices.

The markets are still jittery to headlines.  That is not likely to change.  Credit ratings agencies are still more likely to be cautious against sovereign nations.  That may be ignored or it may create more panic.  Former Fed-head Alan Greenspan recently added fuel to the fire, but the markets have so far recovered.

And Finally…

Admittedly, much has been brushed over here.  There is no way to hit every single data point.  If you ask someone else to draw their own independent pro-con argument, the result will depend on where they are a “glass half-full” or a “glass half-empty” person.  It might even still be determined by their geography as many sections of the country remain very challenged.  Autos and manufacturing have been merely skimmed over, and Ford Motor Co. (NYSE: F) is still the only auto company that got through the recession without Uncle Sam’s bailout.  Issues like Afghanistan and Iran remain with no real resolution seen.  The fall elections are all still up for grabs.  The ultimate path of government and regulation is about as murky as vast parts of the Gulf of Mexico.  Taxes remain a huge wild card in 2011 and beyond.

From every recession comes growth.  Growth may be just a bounce from a lower level, and “The New Normal” was a promise of that being the case.  But every recovery period is also followed by immediate warnings of an impending double-dip recession right around the corner.  The argument is also always that “this time is different.”  This time does feel different, but it also needs to be noted that almost all double-dip predictions turn out to have been missed opportunities.

You can see the conundrum that exists here.  You could draw up a Ben Franklin T-Chart and come to opposite conclusions based upon the exact same data.  Half would say, “See, you sell.”  The other half will say, “See, you buy.”  Either way, go look at the tone of Warren Buffett’s outlook from the Berkshire Hathaway Inc. (NYSE: BRK-A) 2010 annual meeting of holders versus the same in 2009.  Almost night and day, despite continued caution.  Slower growth, but no return to The Great Recession.

The last thing to consider is this: even if there is a double-dip recession, getting back to the peak panic of The Great Recession is extremely difficult to justify.  Take yourself back to late-January and early February of 2009.  We had lost Lehman and Bear Stearns and the mentality of the public at that time was that all major banks were then at-risk institutions.  The markets were in free-fall, and the return of The Great Depression was a fear held by many.  There was talk of the banks no longer functioning and people were buying guns and physical assets that could get them through a long-term barter economy.  Literally.  There was even fear that unemployment, the government’s official headline unemployment that is, would read 15% or far worse.  There was a brief period of an implied risk that General Electric Co. (NYSE: GE) was not going to survive along with dozens and dozens of other key institutions that make up the economy.  GE’s stock went from north of $40 to under $6 in less than 18 months.    After everything we have seen so far in the economy of late, even if a double-dip does come, it seems that it might be dubbed “The Mini-Recession” rather than “The Great Recession, Part II.”  The other, and unfortunate, side of the coin is that robust growth is on very few radars right now.

At the end of the day, the ticker tape is what will be the winning factor and the final judge of how things went.  It is at least the most easy yardstick for measurement.  At least for now, the read of this week going into earnings season is that a repeat of The Great Recession is not as likely as many worried as recently as the end of June.

JON C. OGG

These moves look huge when you consider that not a single of our defensive stocks is up and when not a single DJIA component is higher.  The DJIA was down about 250 points and took out 9,900 earlier, and the S&P 500 was down over 30 points and the NASDAQ down over 70 points at the peak.  We have added the reason for the move and color where applicable on each.

The first go to name in major uncertainty is the SPDR Gold Shares (NYSE: GLD).  The gains today of 0.4% at $121.60 may seem muted versus a 52-week range of $88.82 to $123.56, but that is because gold has soared in the last eight to nine months and some may be thinking that the world of gold may be petering out.  Others are not in that camp.

iShares Barclays 20+ Year Treas Bond (NYSE: TLT) is the other ETF which often goes inverse with stocks.  It is no inverse ETF, but it does represent the “flight to quality” trade in that it tracks the Barclays Capital U.S. 20+ Year Treasury Bond index.  It is up 0.9% at $100.91, and it hit a new 52-week high of $100.93 today.

Annaly Capital Management, Inc. (NYSE: NLY) is one of the crazy mortgage REITS that we recently featured in our “big value hunt” with either low P/E ratios or very high dividend yields.  The thought is simple… bonds are up, cost of borrowing is up as are portfolio holdings.  Unfortunately, you never know what its net portfolio of mortgages looks like on a day to day basis.  Shares are up 0.6% at $17.34 and the 52-week range is $14.09 to $19.74.  It shows up as having a 15%+ dividend, but that is very sporadic due to the nature of its business and its REIT status making it pay out some 90% of its taxable income to holders.

BP plc (NYSE: BP) has traded with a mind of its own, so it can’t be too shocking that shares are up when peers are down close to 2% and even when the USO ETF is down 3.2%.  BP’s ADR is up 1.9% at $27.57 on nearly 50 million shares traded.  Imagine if BP’s CEO really does get the boot.

Broadwind Energy, Inc. (NASDAQ: BWEN) is a runner on no formal news.  This one is up 3.3% at $2.48 on nearly 1.5 million shares.  Maybe providing products and services to the wind energy industry is not as dead as many thought after all.

Cyclacel Pharmaceuticals, Inc. (NASDAQ: CYCC) is a runner on no formal news.  For a small-cap biotech it may not be unreasonable considering its recent addition into the Russell 3000.  Shares are up 6.5% at $1.81 on 2.6 million shares.  Keep in mind that the market cap is only about $48 million here.

Smithfield Foods Inc. (NYSE: SFD) is up, but this is on rumors (reports) that the meat producer could be a takeover target by Brazil’s JBS. Stay tuned. Shares are up 3.5% at $15.41, but this traded as high as $16.20 this morning and the 52-week range is $11.36 to $21.48.  The 4.7 million shares with about two hours of trading left is already twice-normal trading volume.

Tesla Motors Inc. (NASDAQ: TSLA) has been a superb IPO for the day.  Shares priced above the range at $17.00 and the opening price was $19.00.  The day’s range so far is $17.54 (if real) to $20.00.  On last look the shares are at $19.90 on 12.7 million shares.  It has traded almost its whole float.

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) appears to be the sole gainer in the NASDAQ-100 at last look.  Bayer dropped a generic patent case over Yaz and Teva has seen several generic announcements in recent days.  Shares are up 1.75% at $52.20, and the 52-week range is $48.10 to $64.95.  Perrigo Co. (NASDAQ: PRGO) is the backside of Teva’s trade as it acquired exclusive sales and distribution rights to the OTC brand versions of Allegra and Allegra D-12 from Teva.  Perrigo shares are only now up 0.1% at $59.35, but shares were up at over $60.00 this morning and the 52-week range is $25.91 to $64.66.

Zep, Inc. (NYSE: ZEP) showed that its net profit was lower, but it still beat Wall Street’s expectations.  As this is a cleaning and maintenance solution products company for commercial and larger-scale markets, imagine how well this could have gone if the ticker-tape was in its direction.  Shares are up almost 3% at $17.69, and the 52-week trading range is $11.99 to $24.37.  Unfortunately, this barely made it over the minimum volume hurdle.

There are of course merger stocks which rise, but that is not sustainable in a single name.

JON C. OGG