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Investment Commentary

Financial Gearing

As I’ve said in past few weeks, the financial sector remains interesting for investors with a fairly high risk tolerance, and it’s time to wait for the sector to turn around. Ironically, there are two mutual funds out there that focus on the financial sector and are outperforming the S&P 500 in a pretty impressive way.

There was a time when a triple digit move in the Dow Jones Industrial Average was considered a rarity. Now, it’s an everyday occurrence; in 38 out of the past 45 trading sessions, the Dow has gained or lost more than 100 points.

The more data we see, the more obvious it is that the economy hit a brick wall in October. Today’s blockbuster number was retail sales, which plunged by the largest amount on record, 2.8 percent versus 2.65 percent in November 2001. But it’s just the latest in a steady string of lousy numbers, ranging from surging unemployment to weak manufacturing.

Crude oil and natural gas have declined sharply since early July. Oil has now slipped below the psychologically important $60-per-barrel level, while natural gas continues to hover around $7 per million British thermal units (MMBtu). The obvious questions: How low can oil go, and when can we expect a turn?

China announced a USD586 billion stimulus package Nov. 9, an amount equal to nearly a fifth of the country’s GDP. Global markets reacted with initial glee before turning negative in the face of discomforting economic news.

What Was and What Could Be

This is just the beginning. And it won’t be too long before we look back at these moves and wonder what we were thinking. Hopefully by then we’ll have moved on to a period where Uncle Sam isn’t a partner in a seemingly endless stream of businesses and industries. But for now, as it relates to your investments, the here and now dictates that you need to gear up to invest right along with Uncle Sam Inc.

For at least a month now, many of the markets in which we trade have been in choppy, range-bound, sideways patterns. Soybeans are one example of this, with January soybeans trading in a range from 840 to 860 on the support side and 950 to 970 on the resistance side.

Your View: Money Show Q&As

Greetings from InterShow’s 2008 Washington, DC Money Show. This year’s event comes at a pivotal time in history for investors, with the global economy sliding and a presidential election only days behind us, as well as the globe in a full-scale effort to combat credit pressures that have literally frozen lending for several weeks.

The stock market couldn’t hold its gains after an election day rally, sliding into its biggest two-day slump since 1997. Higher-than-anticipated jobless claims amidst an already weakened economy and disappointing earnings across the market simply took the wind out of the market’s sails.

Vital resource stocks have been pounded during the financial crisis. Some of the losses have come from the liquidation of positions investors piled into—including hedge funds—on the way up. Some have been a result of the current surge of the US dollar, which--in turn--has been due in part to the so-called flight to quality and unwinding of the “carry trade” by large institutions. And some of the losses have been due simply to worries that the liquidity crisis would trigger a steep global recession.

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