Did you hear the one yesterday about why the stock market is at a new high for 2009?

** My Four Reasons Why Stocks Will Continue Moving Higher
-- by Michael Lombardi, CFP, MBA

Did you hear the one yesterday about why the stock market is at a
new high for 2009?

A couple of newspapers I read this morning (and Internet news sites)
credited statements by two Federal Reserve members with bringing
the stock market higher. In specific, a speech by Dallas Federal
Reserve President Richard Fisher, in which he stated that interest
rates would remain low despite a declining U.S. dollar, because
unemployment remained high, was credited with moving stocks
higher.

This is all rubbish.

The stock market is a leading indicator, not a lagging indicator. The
remarks from Fisher about rates remaining low for a prolonged
period is something the stock market is very well aware of. The
stock market likes interest rates that are lower and a lower U.S.
dollar for the logical reason that companies trading on the market
make more money with interest rates that are low and a devaluing
U.S. dollar.

I really get a kick from reading business stories and watching
financial news programs, as they try to tell us why the stock market
is going up. In my business, I try my best to hire people with
experience to do their jobs. I never really understood why the
popular financial TV shows and major news organizations do not
hire seasoned analysts or investors over journalists who know
nothing about stocks or the economy -- they would be doing their
audience a huge favor!

Here are my four reasons as to why the stock market is moving
higher:

1. As simple as it sounds, the stock market always delivers the
opposite of what is expected of it. Did anyone expect to see the Dow
Jones Industrial Average at over 10,000 when it was trading at 6,440
in March of this year? The answer is NO. And that's exactly what the
market is delivering -- what people did not expect.

2. Technically, the stock market was severely oversold on March 9,
2009. What we are seeing now is a normal rebound for stocks from
their March oversold condition.

3. We are in the midst of the most accommodative fiscal and
monetary policies of the past 70 to 80 years. Interest rates are at
historic lows, the government has poured trillions into the economy
to get it going, and the Fed is making money "easy." It doesn't get
better than this for stocks.

4. Finally, trillions of dollars are sitting on the sidelines that have not
re-entered the stock market. Once unemployment stabilizes further,
this money will come into the market, pushing stocks higher, as they
force the shorts to cover.

Now here is the caveat, my dear reader. I see the rally that started in
March of this year as a bear market rally. At some point ahead,
interest rates will need to move back up as inflation sets in and
because of the U.S. dollar plunge.

Are we in a new bull market? Of course not. But, as I have been
telling my readers for months, enjoy the rally while it lasts and make
money from it!

Michael's Personal Notes:

I found the following words of awareness and caution from one of
my co-editors very important and wanted to share it with my readers.
The following is taken from a recent e-mail alert released by Robert
Appel:

"We just spent several months in the US. Does the typical American
understand that his country is on the same path England was 100
years ago when it lost the empire? No.

Does he or she understand that short-sighted and greedy politicians
have left the cities and state infrastructure in chaos? No -- and PBS
actually did a TV special on this, but who watches PBS?

Does he or she understand that the U.S. dollar is dropping and will
continue to drop, and that will make everything more expensive and
lead within 12-24 months to inflation the likes of which America has
not seen for decades? No.

Does he or she understand that, within some 8-14 months, America
will have to raise rates (as Australia and Norway have already begun
to do)? No.

Does he or she understand that raising rates from historic lows will
do additional damage to the stock market (not right away, but with a
time delay of several months)? No."

Where the Market Stands:

The Dow Jones Industrial Average closed at a new record high for
2009 yesterday at 10,246 -- the market is now up 16.7% since the
beginning of the year. There is not much I can say that I haven't
already said over the past several months. First, I feel sorry for those
investors who were scared by the media and "doom and gloom"
analysts into buying T-bills, as opposed to stocks at the March 2009
low. Second, I only hope our readers heeded our advice and did
jump into the stock market. And finally, until proven otherwise, this
"bear market rally" (as I'm defining it) still has life left.

What He Said:

"For the economy, the message from retail stocks is quite clear:
Consumer spending, which accounts for roughly 70% of U.S. GDP,
is in jeopardy. After having spent like 'drunkards' during the real
estate boom years, consumer spending is taking the same trend as
housing prices, slowing down faster than most analysts and
economists had predicted. As news of the recession continues to
make headlines in the popular media, the psychological spending
mood of consumers will continue to deteriorate, lowering earnings at
most high-end retailers and bringing their stock prices down even
further." Michael Lombardi in PROFIT CONFIDENTIAL, January
28, 2008. According to the Dow Jones Retail Index, retail stocks fell
32% from January 2008 through November 2008.

** Finding Growth in a Growth Starved Economy
-- Ahead of the Street Column, by Mitchell Clark, B. Comm.

There are a lot of standout companies that have recovered
tremendously well on the stock market. They've done so since the
most recent financial crisis, but also since the stock market bubble
burst in 2000. A lot of these standouts are very large companies that
pay dividends. In my mind, this presents quite a compelling
argument for owning large, well-managed, dividend-paying
companies for the long term.

One such standout company is the venerable Hewlett-Packard
Company (NYSE/HPQ), the stock of which price has appreciated
significantly this year. Since the March low, this $118-billion
company has seen its stock price double to its current level. Another
10 more points or so and this stock will be trading around the same
record highs as it did back in during the technology bull market in
the late 90s.

Also doing well is International Business Machines Corporation
(NYSE/IBM), or IBM, which has managed to outperform the
broader market this year. It is also trading only a few points away
from its all-time price high set in 1999.

Even the performance on the stock market of The Procter & Gamble
Company (NYSE/PG) has been very noteworthy. This stock lost
about half of its value in 2000, after the company announced that it
was not able to meet expectations in its financial performance. It
took five solid years for the stock to recover, but it did. Then it
proceeded to achieve a new all-time price high in 2007.

For me, these three companies are good benchmarks to follow,
because what they say about their businesses is a good reflection of
what's happening not just in the Main Street economy, but also in the
corporate economy, where so much business takes place. From my
perspective, these companies have proven themselves to be
outperformers, even when times are tough. They don't pay the
biggest dividends in the marketplace, but they have long track
records of slowly increasing their dividend payments to
stockholders.

The luxury of being a long-term investor is that your greatest asset is
time itself. A lot of investors aren't really interested in creating a
portfolio of stocks that include dividend-paying large-caps. A lot of
people want to make money from the market as fast as possible.
They are really speculators, not investors.

I've learned over the years never to ignore any potential opportunity
for investment because it belongs to a certain group or sector in the
marketplace. Sure, a U.S.-listed Chinese stock might offer the
potential for better capital gains in a shorter period of time. But, like
the three standout companies mentioned above, they have proved
that they can outperform the market, pay a dividend, and offer their
stockholders a good night's rest all at once.

** Why You Don't Want to Miss Out on Chinese Stocks
-- Calling the Trend Column, by George Leong, B. Comm.

China is becoming hot once again. The economy is turning and is
expected to show strong growth in 2010 and beyond. I have held our
positive view towards China throughout and so far it is paying off, as
Chinese stocks have rallied and provided some excellent returns.

Just take a look at the country's growth estimates. The Department of
Industry at the National Development and Reform Commission
(NDRC) said that China's GDP expanded by between seven percent
and eight percent in the first nine months of 2009. Economists are
becoming increasingly positive towards China and predict that China
will grow its third-quarter GDP by a whopping 9.1%, up from 6.1%
in the first quarter. The Chinese Academy of Social Sciences
(CASS), a Chinese government think tank, estimates that China will
grow its GDP 8.3% this year and to nine percent in 2010. Of course,
the growth has been aided by the government stimulus spending.
Moody's Investor Services just raised its outlook on the country to
positive from stable.

If you are not in China, it may be time for you to begin to look. Yes,
the stock market is faring well in the U.S. The NASDAQ is up 37%
this year, but did you have any capital in Chinese stocks?

The benchmark Shanghai Composite Index (SCI) is holding above
the psychological level of 3,000. This is important, as it could signal
further gains. The index had been up about 75% this year, and is
rebounding after a 20% correction. That is double the return of the
NASDAQ. In fact, some of the small-cap Chinese American
Depositary Receipts (ADRs) on U.S. exchanges have doubled this
year.

A sector that I continue to like in China is the country's burgeoning
auto sector. The auto industry continues to look strong in China, as
evidenced by the sales there and the influx of U.S., European and
Japanese automakers. China is the world's top auto market with 9.66
million vehicles sold in the January to September period, up 34%
year-over-year. Ford Motor Company (NYSE/F) reported that its
sales surged 79% in the third quarter in China to a record 119,338
vehicles. General Motors Corp. (NYSE/GM) predicts that it will sell
over 1.6 million vehicles in China this year.

In October, sales of passenger cars in China surged 75.8% year-over-
year to about 946,400 cars sold, up from 538,500 cars in October
2008, but down from 1.02 million cars sold in September, according
to the China Association of Automobile Manufacturers.

Some small Chinese auto plays listed on U.S. exchanges include
Brilliance China Automotive Holdings (Pink Sheets/BCAHY.PK),
China Automotive Systems, Inc. (NASDAQ/CAAS), Wonder Auto
Technology, Inc. (NASDAQ/WATG), and SORL Auto Parts, Inc.
(NASDAQ/SORL).

Looking ahead, I continue to favor China for growth investors who
have a long-term view. I continue to like the longer-term situation in
China and believe you should have some capital invested in China,
whether it is with large-cap, blue-chip Chinese companies or with
small, emerging, higher-risk stocks.

Other areas that I like longer-term are infrastructure, industrial,
retail, and services such as insurance, banking, technology, and
advertising.

The key to investing in China is to be diversified. Invest only a
portion of your capital in China. Besides small-cap stocks, you can
also buy large-cap Chinese stocks or major U.S. companies with an
expanding presence in China.

** Just How Useful Was the Bank Stress Test?
-- The Financial World According to Inya Column, by Inya Ivkovic,
MA

Back in May, the Obama administration forced 19 of the largest
banks to undergo the "stress test." Ten out of 19 failed to pass it at
the time and were given six months to raise $74.6 billion in
additional capital. Eighteen of the banks have raised $77.0 billion in
total and only one had failed the second time around, GMAC, which
was enough for the Treasury secretary to declare that the financial
system in the U.S. has improved significantly since the credit and
financial crisis began.

At face value, sure, it makes plenty of sense to sign off on the good
news when we went down from 19 banks to only one bank still
toying with the idea of bankruptcy. However, digging deeper would
show that today's economic reality is starkly different from the one
six months ago. In other words, in today's context, the banks' stress
test carries little value.

How different could the economic landscape be today versus six
months ago? Apparently, quite a bit different, both on the grim and
rosy sides! For example, the economic projection at the time
required the banks to account for annualized unemployment of 8.9%,
while U.S. unemployment currently stands at 10.2%. In contrast, the
government wanted the banks to factor housing prices tumbling 22%
into the stress test. The worst-case scenario, however, did not
happen. Instead, real estate prices fell 5.5% in the first half of 2009
and for the past three months have even edged higher.

The whole purpose of the stress test was to boost confidence by
demonstrating that banks' balance sheets were strong enough to
endure the strongest of headwinds. This is where the regulators have
stepped in and determined the factors that would affect banks'
survival rate if the recession were to sink us deeper than expected.
The only problem was that the recession has diverged from the
projections used to conduct stress tests, rendering them basically
useless.

Undoubtedly, the economic landscape has changed, some of it for
the better, some of it for the worse. While conditions have improved
overall from the depth of the abyss into which we had fallen at the
end of last year and early into this year, difficult conditions persist
and a number of banks still face problems that the so-called stress
test cushions may not be able to solve. According to Christopher
Whalen, managing director of Institutional Risk Analytics, "We're
already at record numbers on losses, and those numbers are rising."
Simply put, the loss rates that the stress test has envisioned are
trending more on the downside than expected and, as a result, the
banks still might not have enough to keep their heads above water.

The one bank out of the initial 19 that six months later is still in
"detention" is GMAC. This bank still cannot unravel its bad loans to
car dealers and buyers and still needs about 11.5 million dollars to
pull itself out of the hole. GMAC is renegotiating with the Treasury,
trying to milk more billions from the rescue fund on top of an
already received 12.5 billion dollars in bailout money. Well, GMAC
can seek all it wants; the terms of the stress test may change for
GMAC this time around and most likely not for the better.

As for the 18 alleged success stories -- those that have received help
from the government -- they must repay the taxpayers if they want to
regain their control back. Through the repayment, plus interest,
credit is slowly, but surely coming back. However, it may not be
enough to help out small and medium businesses get their hands on
new credit lines. In addition, some banks are still too troubled to
afford the provision of credit to others and, by extension, to support
the recovery. As Whalen has put it, "These are zombies and they
can't make loans. None of this is helping the real economy. The only
way to improve [things] would be to push [certain banks] into
bankruptcy and get rid of the bad assets that are weighing them
down."