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The Nasdaq 100

September 27, 2007

The Smart Profits Report: Issue #460
Thursday, September 27, 2007

The Nasdaq 100: As The Nasdaq 100 Hits 6-Year Highs, Can The Other Indexes Follow?
By Jim Stanton
Quantitative/Technical Analyst, Mt. Vernon Research

So much for September and October historically being the worst time of the year to own stocks. The indexes scoffed at history last year when stocks sets lows in July, then bolted upward until February.

And stocks are heading down the same path this year. The only difference is that rather than set lows in July, the indexes notched up their highs for the year during the month. This set up the perfect scenario for a September-October selloff.

But the subprime and credit markets had other ideas. As the bough broke in August, the cradle fell - and fell hard. The markets sold off ahead of schedule, slumping 12%.

Since then, however, stocks have rallied, with the Nasdaq 100 (^NDX) climbing to new highs for the year. The question on Wall Street now is: Can the other indexes follow suit, or will we see the sellers back in action?

The Nasdaq 100 Leading The Market Rebound

As the market has rebounded, the tech-laden Nasdaq 100 has led the way, impressively surging to new 6-year highs this week.

Obviously, this is a bullish development that should lead to higher prices. But an important piece of the puzzle is missing. None of the other indexes have joined the party. While the Dow Industrials (^DJI) and S&P 500 (^SPX) are within striking distance of setting new all-time highs (the Dow is 1% shy of doing so and the S&P needs to tack on 2%), they need to do so in order to confirm the rally.

Of greater concern, though, is the performance of the Dow Transportation Index (^DJT) and the smaller-cap indexes, which are lagging the others. This could become a problem later on if they don’t pick up the pace, but for now, the bulls have the upper hand.

So let’s turn to the charts and see where stocks are headed next…

Nasdaq 100 Resistance Levels Are Up

Okay, let’s get the simple stuff out the way first. By setting new highs for the year, the Nasdaq 100 is having itself a fine Indian summer. Its next intermediate-term resistance level is up around 2,155 (to recap, a resistance level is a higher point on a stock/index chart that is seen as a temporary “barrier” to a further price increase - i.e. a level that a security can hit before falling back as sellers outnumber buyers).

Taking a look at the S&P 500, the index’s intraday high in July was 1,555, so if it can close above that level (and it’s 24 points away right now), it should be well-placed to continue to the 1,626 area. I generated this upside target using a Fibonacci calculation (see today’s “Related Articles” for more on Fibonacci) from two completely different points - and both projected 1,626. As you can see from the chart below, trendline support comes in around the 1,495 level.

Fibonacci Calculation of the S&P 500

Chart Courtesy of Trade Navigator Software: http://www.genesisft.com

Small-Cap Indexes Rally Large-Caps

As I mentioned above, while the large-cap indexes have performed well over the past month, they need some help from the smaller-cap indexes and the Dow Transports, in particular. This is because Dow Theory (you can read more about this in today’s “Related Articles”) states that in order for a rally to continue, both the Down Industrials and Transports need to set new highs together, within a reasonable amount of time (1-3 weeks).

Simply put, if the larger-cap indexes (Nasdaq 100 and S&P 500) reach the resistance targets mentioned above and the smaller-cap indexes and/or the Dow Transports fail to make new highs, it will trigger a Dow Theory non-confirmation and the rally could stall.

And as far as the Dow Transports are concerned, the outlook doesn’t look too great…

Take a look at the index’s daily chart below. As you can see, it’s been trading sideways for about six weeks now and appears to be stuck in a bearish consolidation pattern. It’s actually closer to its August lows than to its July highs.

The Dow in a bearish consolidation pattern

Chart Courtesy of Trade Navigator Software: http://www.genesisft.com

If the large-cap indexes continue to rise, the smaller-cap indexes would have to rally about 5% in order to make new highs, while the Dow Transports would need to surge more than 13% to do the same. That would be one heck of a rally!

The Bulls Are In Control, But The Bears Are Lurking Again

Having analyzed all the index charts, along with various technical indicators, the odds are that the bulls will maintain control over the intermediate-term and the indexes should head higher and approach the resistance levels mentioned above.

A close above 1,555 on the S&P 500 will confirm this analysis. However, if it fails to accomplish this and closes below its trendline at 1,495, a test of the August low around 1,380 will be in play. In addition, if the lagging indexes don’t improve, the longer-term health of the market comes into question.

Good investing,

Jim Stanton

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Today’s Smart Profits Action Center

  • Today certainly wasn’t the best day for stocks to gain much momentum - not with yet another batch of poor housing numbers. The Commerce Department reported that new home sales flopped by 8.3% in August to the lowest annual rate since June 2000. Home prices continue to fall, too, with the average sale price slumping by 8% to $292,700 in August, compared with August 2006. It was the biggest decline in 17 years.
  • The U.S. dollar also set another record day - a bad one. For the sixth straight day, it hit a new low against the euro, with the euro coming within a whisker of the $1.42 mark. While the recent 0.5% Federal Reserve interest rate has damaged the dollar further, some want another one in the face of the weak housing data. The Fed faces a conundrum. While second-quarter U.S. GDP growth hit 3.8%, the bankers still want to control inflation after giving consumers some relief. However, the growth figure doesn’t factor in the main impact of the housing slump and credit crisis this summer - an impact that will be truly reflected in the third quarter, which ends on Sunday. Current estimates peg third-quarter GDP growth at an annual rate of around 2.5%.
  • Any reference to Dow Theory (as Jim mentioned today) wouldnt’ be complete without talking about Richard Russell. For 50 years, he’s written the Dow Theory Letters, and used the theory to make some remarkable predictions. In December 1974, for example, the Dow was set to post a crippling 35% loss for the year - the culmination of a 12-year malaise. But using this highly reliable, time-tested theory, he issued a “buy” on the index. Result? It shot up by 75% over the next 18 months. Visit this link to find out how he called the move - and how you can use this powerful theory, plus 30 other secrets direct from the pros, to increase your wealth many times over.

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The Airline Sector

September 25, 2007

The Smart Profits Report: Issue #459
Tuesday, September 25, 2007

The Airline Sector: Airlines Are Headed For The Bermuda Triangle… Time To Bail Out?By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

We’ve all had days where, through no fault of your own, you end up losing a ton of time and are then forced to play catchup. We’ve all had days where frustration is rampant, yet there’s nothing you can do. Welcome to the airline sector - where experiences like this seem more prevalent these days.

Just recently, for example, I got stuck for 7 hours at Los Angeles Airport, with little alternative but to wait out the delay. To cap it off, I got sandwiched between two chatterboxes when the cross-country flight finally got off the ground (you’d think they’d be tired by that time!)

The airline sector has a trio of tough problems facing it right now - and stocks look ready to tumble. Here’s how you can cash in…

Crude Oil Prices Up… Passenger Numbers Down

Obviously, the main problem that all airlines are struggling to deal with is rising oil prices. With crude hovering at all-time high around $80 a barrel, the airline sector is feeling the squeeze.

But perhaps more importantly, passenger numbers are down, which is hampering airlines’ ability to offset those high fuel costs. Airline load (the percentage of seats sold) was 86.6% in July and 84.4% in August. Now, if you traveled over the summer, you might be surprised at those figures, since it seemed every flight was overbooked and there were long lines at every Starbucks, pizza place or newsstand.

But this summer was a miserable time to fly - and the media were chock full of stories that illustrated the problems. Heck, you know the situation is bad when an organization is founded to specifically fight for passengers’ rights in the wake of huge delays and horror stories of angry passengers stuck on the tarmac for hours with no food, water or updates.

And the next few months don’t look promising…

American Airlines Sneezes… And The Airline Sector Catches A Cold

While the numbers aren’t in yet for September, I’ve noticed many more empty seats on several flights that I’ve taken recently. Passenger traffic in airports appears lighter, too.

With all the negative press and woeful experiences of many travelers over the past few months, it may be that the mess is persuading many folks to nix air travel if a destination is reachable by car or other means instead. Combine that with higher expenses and that’s a recipe for tighter margins.

Just yesterday, American Airlines (NYSE: AMR) shares suffered their worst one-day drop in four years (14.3%) after the company issued gloomy third-quarter projections. It expects passenger unit revenue to rise between 4% and 5%, while revenue per available seat mile will rise between 3.7% and 4.7%. Both numbers were below expectations. In addition, the airline said it expects costs to rise, as it refurbishes aircraft, cuts capacity and aims to improve passengers’ experience.

With a major carrier like AMR reporting disappointing results, it’s logical to expect several of the others to follow suit. Most flyers aren’t loyal to one particular airline. They fly whichever carrier has the best rates or most convenient flights.

Turbulent Technicals Could See Sector Dip Under $40

And it wasn’t surprising to see AMR’s news trigger a widespread selloff in most of the airlines on Monday. And while the airline sector rebounded a little today, the technicals look ugly. Take a look at the chart of the AMEX Airlines Index (AMEX: ^XAL) - it’s making lower lows, which is never a good sign.

The Airline Sector Index making new lows

So where to from here for the turbulent airline sector?

I expect the index to slip back to support at $40. But with oil prices rising in what is usually a quieter period for airlines before the busy holiday season, I wouldn’t be surprised if the index breaks that support level - particularly if the broader stock market (still under some pressure) turns south. In that case, we could see a serious selloff.

I expect demand for flights to slack off, at least until the holidays. Individual names that look particularly vulnerable to me include Continental Airlines (NYSE: CAL), Northwest Airlines (NYSE: NWA) and US Airways (NYSE: LCC).

I’m not necessarily advocating an outright short of the airline sector. If the overall market remains strong, the downside could be fairly limited. But if we see a correction, I suspect the airlines could be hit hard. If you like short selling or buying puts, keep the airline sector on your radar.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

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Today’s Smart Profits Action Center

  • American Airlines isn’t the only carrier with rising costs. This morning, leading low-cost carrier Southwest Airlines said its third-quarter costs will rise faster than revenues, due to expenses from an employee buyout program. Southwest said employees with 10 years service, or those who have hit their pay threshold, would receive a $25,000 payout, plus medical and dental benefits, in return for leaving the company voluntarily. The $25 million pre-tax charge is expected to tack on 4% to 5% to unit costs - around double Southwest’s projected 2% rise in revenue per available seat mile. However, the program is expected to benefit long-term growth, with annual savings of $20 million through 2012.
  • Despite its third-quarter woes, American Airlines received a boost today, with the news that it has received approval to start a new Chicago-Beijing route next year. Delta will also operate a new Atlanta-Shanghai route and United will fly between San Francisco and Guangzhou. Right now, while the Chinese market is jammed domestically, the international market is underserved and capacity and competition is hotly contested. The U.S. Department of Transportation also announced that American, Northwest, Continental and US Airways have been cleared to operate four new daily flights to China, starting in 2009, aimed at increasing the number of daily flights between the U.S. and China from 10 to 23 within five years.
  • The new October Xcelerated Profits Report issue is now online - complete with the “anti subprime cure” recommendation from Investment Director Karim Rahemtulla, a stock that could hand subscribers a double, as the credit crisis worsens. And for just $49 a year, this team of professional traders will show you how to trade stocks and options just like the pros do every day, in order to accelerate their profits - and guarantee an 80% win rate, too. Click this link for more details.

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Written by admin · Filed Under 2007 | Leave a Comment 

Option Straddles

September 21, 2007

The Smart Profits Report: Issue #459
Tuesday, September 25, 2007

The Airline Sector: Airlines Are Headed For The Bermuda Triangle… Time To Bail Out?By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

We’ve all had days where, through no fault of your own, you end up losing a ton of time and are then forced to play catchup. We’ve all had days where frustration is rampant, yet there’s nothing you can do. Welcome to the airline sector - where experiences like this seem more prevalent these days.

Just recently, for example, I got stuck for 7 hours at Los Angeles Airport, with little alternative but to wait out the delay. To cap it off, I got sandwiched between two chatterboxes when the cross-country flight finally got off the ground (you’d think they’d be tired by that time!)

The airline sector has a trio of tough problems facing it right now - and stocks look ready to tumble. Here’s how you can cash in…

Crude Oil Prices Up… Passenger Numbers Down

Obviously, the main problem that all airlines are struggling to deal with is rising oil prices. With crude hovering at all-time high around $80 a barrel, the airline sector is feeling the squeeze.

But perhaps more importantly, passenger numbers are down, which is hampering airlines’ ability to offset those high fuel costs. Airline load (the percentage of seats sold) was 86.6% in July and 84.4% in August. Now, if you traveled over the summer, you might be surprised at those figures, since it seemed every flight was overbooked and there were long lines at every Starbucks, pizza place or newsstand.

But this summer was a miserable time to fly - and the media were chock full of stories that illustrated the problems. Heck, you know the situation is bad when an organization is founded to specifically fight for passengers’ rights in the wake of huge delays and horror stories of angry passengers stuck on the tarmac for hours with no food, water or updates.

And the next few months don’t look promising…

American Airlines Sneezes… And The Airline Sector Catches A Cold

While the numbers aren’t in yet for September, I’ve noticed many more empty seats on several flights that I’ve taken recently. Passenger traffic in airports appears lighter, too.

With all the negative press and woeful experiences of many travelers over the past few months, it may be that the mess is persuading many folks to nix air travel if a destination is reachable by car or other means instead. Combine that with higher expenses and that’s a recipe for tighter margins.

Just yesterday, American Airlines (NYSE: AMR) shares suffered their worst one-day drop in four years (14.3%) after the company issued gloomy third-quarter projections. It expects passenger unit revenue to rise between 4% and 5%, while revenue per available seat mile will rise between 3.7% and 4.7%. Both numbers were below expectations. In addition, the airline said it expects costs to rise, as it refurbishes aircraft, cuts capacity and aims to improve passengers’ experience.

With a major carrier like AMR reporting disappointing results, it’s logical to expect several of the others to follow suit. Most flyers aren’t loyal to one particular airline. They fly whichever carrier has the best rates or most convenient flights.

Turbulent Technicals Could See Sector Dip Under $40

And it wasn’t surprising to see AMR’s news trigger a widespread selloff in most of the airlines on Monday. And while the airline sector rebounded a little today, the technicals look ugly. Take a look at the chart of the AMEX Airlines Index (AMEX: ^XAL) - it’s making lower lows, which is never a good sign.

The Airline Sector Index making new lows

So where to from here for the turbulent airline sector?

I expect the index to slip back to support at $40. But with oil prices rising in what is usually a quieter period for airlines before the busy holiday season, I wouldn’t be surprised if the index breaks that support level - particularly if the broader stock market (still under some pressure) turns south. In that case, we could see a serious selloff.

I expect demand for flights to slack off, at least until the holidays. Individual names that look particularly vulnerable to me include Continental Airlines (NYSE: CAL), Northwest Airlines (NYSE: NWA) and US Airways (NYSE: LCC).

I’m not necessarily advocating an outright short of the airline sector. If the overall market remains strong, the downside could be fairly limited. But if we see a correction, I suspect the airlines could be hit hard. If you like short selling or buying puts, keep the airline sector on your radar.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

Sign Up for The Smart Profits e-Report!

Today’s Smart Profits Action Center

  • American Airlines isn’t the only carrier with rising costs. This morning, leading low-cost carrier Southwest Airlines said its third-quarter costs will rise faster than revenues, due to expenses from an employee buyout program. Southwest said employees with 10 years service, or those who have hit their pay threshold, would receive a $25,000 payout, plus medical and dental benefits, in return for leaving the company voluntarily. The $25 million pre-tax charge is expected to tack on 4% to 5% to unit costs - around double Southwest’s projected 2% rise in revenue per available seat mile. However, the program is expected to benefit long-term growth, with annual savings of $20 million through 2012.
  • Despite its third-quarter woes, American Airlines received a boost today, with the news that it has received approval to start a new Chicago-Beijing route next year. Delta will also operate a new Atlanta-Shanghai route and United will fly between San Francisco and Guangzhou. Right now, while the Chinese market is jammed domestically, the international market is underserved and capacity and competition is hotly contested. The U.S. Department of Transportation also announced that American, Northwest, Continental and US Airways have been cleared to operate four new daily flights to China, starting in 2009, aimed at increasing the number of daily flights between the U.S. and China from 10 to 23 within five years.
  • The new October Xcelerated Profits Report issue is now online - complete with the “anti subprime cure” recommendation from Investment Director Karim Rahemtulla, a stock that could hand subscribers a double, as the credit crisis worsens. And for just $49 a year, this team of professional traders will show you how to trade stocks and options just like the pros do every day, in order to accelerate their profits - and guarantee an 80% win rate, too. Click this link for more details.

Related Articles:

Smart Profits Report Archives

Sphere: Related Content

Written by admin · Filed Under 2007 | Leave a Comment 

Investing In The Stock Market

September 19, 2007

The Smart Profits Report: Issue #457
Wednesday, September 19, 2007

Investing In The Stock Market: You Work Hard For Your Money, Now Make Sure It Works Hard For You
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

“So what do you do for a living?”

“I’m a stock analyst.”

As soon as I answered the question, I immediately had that “uh-oh… here it comes” feeling. She’s going to want a stock pick, my thoughts on investing in the stock market, or my opinion on her favorite stocks. And considering the person in question was my chiropractor, who was working me over at the time, I’d have to choose my words carefully!

But her response surprised me. “I don’t know anything about that stuff,” she said. “I don’t even know what I own, nor do I care.” Yikes. Red flag #1.

I asked her what she does with her money. “Nothing really,” she answered. Red flag #2. I pressed her on whether she just puts her money in the bank, is saving for retirement, investing in the stock market, etc. She said that her brother-in-law “handles all that stuff since he seems to know what he’s doing.”

It’s a good thing I was lying down at the time, otherwise I’d have probably fallen over from the shock. Like it or not, money is one of the most critical things in life - and she’s making some big mistakes when it comes to deciding what to do with it. Are you doing the same?

Don’t Be Intimidated By The Stock Market… Just Get Smart

The exchange served as a good reminder. Just because investing is my bread and butter and the people I work with are very interested in their finances, I sometimes forget that the stock market intimidates some people to the point of inaction.

Sure, not everyone has the time or interest to research stocks, bonds, mutual funds and other asset classes. But everyone should find the time to make sure their money is working for them. My chiropractor works hard for her money - and it should be doing the same for her.

Here’s how to get smart with your money…

Hit The Money Trail Running With These Three Investing Tips

  • Prepare A Plan Or Plan To Fail: If you’re a stock market rookie, or you don’t have the time, knowledge or inclination to research top-performing investments for yourself, that’s fine. But you should at least work with a financial professional to establish an investment or savings plan.
  • Set Goals: If you don’t know what you’re working towards - i.e. retirement, college education, dream vacation home, etc. - you’ll never set targets or know how much you need to earn and how much risk you can afford to take. Aim for specific goals, set targets, and make sure your money has a purpose, otherwise you’ll be in the same spot tomorrow as you are today. You can always change your objectives and methods later on (after all, you still need to be as flexible in the markets as you are in life), but starting off down a path is critical.
  • You Need Some D.I.Y (Do It Yourself): When my chiropractor said she trusted her brother-in-law to take care of her money for her, I was concerned. I’m sure he’s a stand-up guy, but if investors don’t read their statements, or have a clear understanding of what they’re invested in and why, that’s a recipe for disaster. In the best case, the investor is unlikely to reach their financial goals. And in the worst case, the person you trust might be uneducated, reckless, or unscrupulous and can take advantage of the disinterested account holder.

You don’t need to be able to read a company’s income statement to be a successful investor in the stock market. But you should understand why you invested in that small-cap international equity fund.

Make A Date With Your Money

In addition to setting actual targets for the amount of money you need/want to make and when, you should also set aside a regular time to review your progress.

  • For example, you should read your financial statements (bank, savings, investments) at least every month.
  • Once a quarter, do an overview of your overall finances to see where you stand and whether you should be investing/saving more or less.
  • Then, once a year, conduct a thorough review. Pick the same time every year to go over your accounts, see whether your goals are the same as the year before, how close you are to reaching them, and what revisions you need to make.

I do this right after my birthday and come up with a battle plan for the year ahead.

And such diligence has served me well. I believe that we’re currently on target to reach our retirement goals, as well as paying for my kids’ college education. Of course, a nasty bear market could change that, but if that’s the case, I’ll reassess next year.

It’s OK to make changes more often in your trading account, but when it comes to long-term goals, I wouldn’t make radical changes more than once a year (unless of course there is a dramatic change in your life such as a birth, death, medical situation, etc).

Remember, nobody cares more about your money than you. It’s imperative to take an active role in the managing of that money, even if it’s just a supervisory one.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

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Today’s Smart Profits Action Center

  • When forming your investment plan, always heed the core tips. First, make sure you spread your risk by having a diversified, balanced portfolio. You can diversify in several ways, too - by country, by sector, by asset class (i.e. stocks, bonds, etc.) Second, decide how much you want to invest - and never risk more than you can afford to lose. You can mitigate this risk by position sizing - allocating the same amount to each of your positions, so no one loser can kill your portfolio. Then make sure you use stop-losses. This is one of the best risk management strategies, because it ensures that if one of your positions declines, you stay disciplined by never taking a heavy loss.
  • The Federal Reserve slashed the federal funds interest rate today by 0.5% to 4.75% - the bank’s first cut in four years. This was the relief the market craved - and investors promptly sent stocks flying higher. But imagine if you didn’t have to depend on external forces like this and could start every year with the certain knowledge that you’re going to collect 96 checks a year (8 per month) - like clockwork - no matter how well or how poorly the market is performing. It doesn’t involve anything complicated or risky - it’s actually extremely safe, lucrative and has the flexibility to succeed in all markets. And you can start this November. Click to continue on for more details.

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iPhone Price

September 14, 2007

The Smart Profits Report: Issue #456
Friday, September 14, 2007

iPhone Price: Steve Jobs Scrambles As Vodafone Launches MusicStation
By Martin Denholm
Managing Editor, Mt. Vernon Research

Just 11 weeks to the day that tech titan Apple (Nasdaq: AAPL) launched its much-ballyhooed, hyped-to-the-max iPhone, some punters are already riled up.

Contrary to fears, it’s not because it has a ton of early bugs, or because the service is patchy (and with exclusive carrier AT&T having spent $16 billion on network upgrades and locking iPhoners into a two-year deal, I’d certainly expect stellar service!) From what I’ve heard, the device has justified the hype so far, with many owners happy.

The problem: Some customers are miffed because Apple CEO Steve Jobs abruptly slashed the iPhone price. And with the iPhone set to hit the European markets in November, he’s had to scramble to save face with this unsettling news…

iPhone Price: One Million Sales And A Messy Apology

Last Sunday, Apple had sold its one-millionth iPhone a full month ahead of schedule. A great achievement in just 74 days, for sure. But it was tempered because of some front office shenanigans. Without warning, Apple slashed the iPhone price of the 8-gigabyte iPhone from $599 to $399 and discontinued the $499 4-gig version.

Cue lots of smoking keyboards, as ticked-off customers fired complaints to Apple. Okay, timeout. Sure, Apple was a little shifty and the speed of the iPhone price cut took people by surprise. But these folks knew what they were doing when they breathlessly bought their iPhones.

As with all new products (particularly in the cellphone industry), you know the price is going to decrease eventually and you’ll always pay top dollar if you can’t wait to get your hands on the latest, flashy gadget so you can show it off to your mates.

Nevertheless, Steve Jobs didn’t break the news very well. He initially told annoyed customers to “go back to the store where they bought it and talk to them. If they bought it a month ago, well, that’s what happens in technology.” Nice.

Once the sensitivity trainers got hold of him, however, he changed his iTune the next day, promising to “… do the right thing for our valued iPhone customers.” We need to do a better job taking care of our early iPhone customers [who] trusted us and we must live up to that trust.”

And right now, for Apple, this is a major issue…

Hey iPhoners, Here’s $100… Can Apple Have Your Trust Back?

Those who bought iPhones within 14 days of the iPhone price cut are eligible for a $100 credit if they opened the box, and a full refund if they haven’t.

Okay, fine. But I’m pretty sure that Apple knew what it was doing from the start…

  • Steve Jobs & Co. aren’t dumb.
  • They had to know that early buyers would be unhappy with a hefty iPhone price cut just two months after the launch.
  • They probably already had the $100 credit in mind to make them look generous. But it doesn’t do anything for those “early” customers that Jobs mentioned.

The more important question is whether this has damaged Apple’s thus-far pretty spotless image. There’s no doubt that Apple slashed the iPhone price to broaden the customer base and sell more phones, once it thought it had fully tapped the initial wave of excited buyers. That could propel iPhone sales this holiday season.

But will loyal customers - the all-important trendsetters - who feel stiffed trust the company with future product launches? They may be less likely to buy early again if they suspect the price is going to sink just weeks later. This situation could result in weaker product launches. And that’s not what Apple wants, with the iPhone building for a major European launch in Britain, Germany and France.

And here’s one iPhone/Apple alternative you may want to consider…

Vodafone Says “No” To Apple’s Big Bite Of Revenues

Earlier this summer, Vodafone was vying to be the exclusive British carrier for the iPhone. But the bigwigs at Vodafone HQ quickly nixed the idea once Apple demanded too much revenue, as well as restricting content.

When it comes to mega telecommunications companies, you don’t get much bigger than Vodafone Group plc (NYSE: VOD). Through its subsidiaries in Europe, Asia, Australia, South America, Africa, the Middle East and in the U.S. with Verizon Wireless, it’s got a vice-like grip on the industry across the world. As of June 30, 2007, the firm had 232 million customers. The stock trades on both the FTSE-100 in London and the NYSE, boasting a market cap of £89.6 billion and $180.9 billion respectively.

Instead, Vodafone backed off and left Britain’s O2 to partner with Apple in the U.K., while T-Mobile and Orange will become iPhone carriers in Germany and France respectively. But that doesn’t mean Vodafone is sitting on its hands - far from it. Rather than getting into bed with Apple, it’s going into all-out battle with it instead…

Apple’s iPhone vs. Vodafone’s MusicStation

Just as the iPhone will hit Europe in time for Christmas, so too will Vodafone’s new MusicStation product - a music subscription service, designed to appeal to the company’s 17.4 million British customers, who will be able to access it on existing Vodafone handsets, plus new customers.

The difference is that unlike the iPhone, where you’re forced to cozy up to Apple alone because it’s not 3G data network-compatible, MusicStation uses multiple operators’ networks and allows for more choices.

It’s the brainchild of Rob Lewis, CEO of tech firm Omnifone, and a group of other British dotcom millionaires, who have agreed to a deal with Vodafone. The service is subscription-based, charging £1.99 ($4) a week for unlimited downloads from major record labels like Sony, EMI, Warner Music and Vivendi. Lewis says, “We hope to do for mobile music what the Blackberry did for e-mail.”

To sweeten the pot, Vodafone has also launched a new range of smart phones from Nokia and Samsung, which will also hit the market in time for Christmas. And not only do they offer web browsing, they will do so faster than the iPhone, without the iPhone price cut. The only catch is that once subscribers stop paying, the music becomes unplayable. But Vodafone is hoping to attract customers who would ordinarily stick with the service and who are also keen to avoid running up a large tab on downloaded music. For $4 a week, they get as much as they want.

So can Vodafone compete with the iPhone price in Europe? With unlimited music downloads, more choices from other operators, smart phones, and faster Internet speed, I think it can. It may not beat it, since the iPhone is certainly not going to flop in Europe, but Steve Jobs & Co. haven’t done themselves any PR favors recently and Vodafone offers a viable alternative. And if you fancy a flutter, the stock trades in New York and London under the symbol VOD.

Have a great weekend,

Martin Denholm

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Today’s Smart Profits Action Center

  • According to Nokia, there are 3 billion mobile subscriptions worldwide - a number that will grow to 5 billion by 2015 when two-thirds of the world’s inhabitants have cellphones. And while developed markets currently represent the bulk of revenues for global telecommunications firms like Vodafone, the company also has a strong presence in developing regions like Africa. And recent figures suggest this could be a rich source of future growth.
  • Quoted in BusinessWeek, Leonard Waverman, chairman of the economics faculty at London Business School, figures that a 10% increase in a developing country’s mobile-phone penetration adds 0.6 percentage points to the economic growth rate. Indeed, the International Monetary Fund says the African economy will grow 7% this year, to a 25-year high. In 2001, the 134 million population of Nigeria had just 500,000 telephone lines between them. But today, Nigeria has 30 million cellphone subscribers alone.
  • And in Kenya, carrier Safaricom (40% owned by Vodafone) has set up the hugely successful M-Pesa e-commerce service, where customers can use the service to execute tasks like wiring money. Right now, 6,000 people a day are signing up for Safaricom - and Vodafone is thinking of extending the service into the massive India market.

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Emerging Markets

September 12, 2007

The Smart Profits Report: Issue #455
Wednesday, September 12, 2007

Emerging Markets: Four Ways To Cash In On The “Made In China” Debacle
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

When you’re in a confined space with lots of other people, it’s sometimes hard not to overhear conversations. And on those long, boring flights, you can really learn something much more valuable that watching the latest Ben Affleck movie.

For example, while on a recent flight, I overheard two executives complaining about doing business in China. What they said was very revealing - and if it’s part of a larger trend, it could open up some other investment opportunities in some very unlikely emerging markets…

“Made In China”… Lead Paint Anyone?

By now, you’ve probably heard all about the recent product recalls of items “Made In China.” Toys and toothpaste are the main bad eggs. And the company hit the hardest is toymaker Mattel. The firm has endured a miserable summer so far, with three recalls - and counting.

On August 1, its Fisher-Price division recalled 1.5 million items, due to dangerous amounts of lead paint. Beloved characters like Big Bird and Elmo were among those tainted. Just two weeks later, Mattel recalled a massive 18 million items worldwide. Again, the Chinese slapped on too much lead paint, as well as flimsy magnets that kids could accidentally swallow.

And last week, Mattel’s Fisher-Price guys issued yet another recall - this time, 844,000 toys that included Barbie sets and two other toys. The reason? You got it… lead paint. And the executives I overheard on the plane painted (pun intended) a grim picture…

Losing Faith In The “Made In China” Labels

One executive mentioned that he’d completely halted the production of his household name beauty product because he no longer had faith that it was safe. Furthermore, he felt that the American consumer would also question the safety of his products. Hardly surprising, given the high-profile Mattel recalls this summer. So even if he felt assured that his product was contaminant-free, he thought sales would suffer as a result of the stigma now attached to the “Made in China” label.

The other guy shared the same view, saying that he’s frustrated with his Chinese manufacturing partners, because the factory’s management often told him what he wanted to hear in order to avoid a confrontation. He was considering pulling up stakes as well.

Clearly, it’s not good practice for Chinese manufacturers to be less than forthcoming with their foreign business associates - but according to the conversation I heard, it’s pretty prevalent and is causing problems for many businesspeople around the globe.

Tainted toys… poisoned pet food… contaminated toothpaste… faulty tires… and more. Consumers and managements alike recalling and reconsidering products made in China. The country’s manufacturing image taking a beating. But is there a way to profit from this? The answer is yes…

Cashing In On The China Fallout… A Trio Of Emerging Markets

Many emerging markets are performing strongly, and even a small China fallout could light a fire under their economies. Okay, before I go any further, don’t get me wrong here… China’s enormous manufacturing machine is not going to suddenly grind to a halt. Don’t forget, China produces over 80% of all toys sold worldwide - and can do so at a very low cost, with dramatically lower labor costs than the equivalent job in America.

But there’s no doubt that companies and consumers are increasingly nervous about Chinese-made goods - right before the crucial holiday season, too. And even if just a small fraction of businesses move their operations to other smaller developing nations, it could be enough to move the needle in those countries. Here are a few to keep an eye on:

  • Vietnam: Did you know that Vietnam received $10 billion of foreign investment in 2006? It wasn’t just a flash in the pan, either - that number is expected to swell to $16 billion this year. And the Ho Chi Minh Stock Index is reaping the rewards - it has jumped 81% over the past year.
  • Bangladesh: Despite its military rule, Bangladesh’s GDP is forecast to grow 6.4% this year, following 6.5% growth last year. Thanks to growing investor confidence and a rash of new IPOs, its stock market is expected to double in size over the next 12 months. Over the past six months alone, the number of people opening brokerage accounts jumped by roughly one-third. The Dhaka Stock Exchange Index is up 61% over the past year.
  • Sri Lanka: Another country experiencing political instability - but it’s certainly not affecting its economy. GDP growth is still expected to grow over 6% in 2007-2008 as foreign direct investment continues to increase. Its stock market is up 14% this year, but has nearly tripled over the past five months.

You can bet that with the Beijing Olympics less than a year away, China is pulling out all the stops to keep its image intact and raise its global profile. But concerns over its massive manufacturing sector are dragging its image down. So keep your eye on these other emerging markets that may benefit from the Chinese fallout, as well as their own organic growth. And here’s how you can benefit, too…

Three Ways To Gain Exposure To Emerging Markets

If you portfolio doesn’t already have any exposure to emerging markets, you should strongly consider ETFs or mutual funds. Emerging market investing is an excellent way to diversify and spread your risk within your portfolio. In addition, because emerging markets have more room to grow, when times are good in these countries and markets, your returns could get an extra boost. Keep in mind, though, that by nature, they can be a bit more volatile than the U.S. market.

If you want to dip into emerging markets, there are a couple of simple ways to do so. There are many mutual funds and ETFs that focus on the sector. Here are three to consider:

  • Vanguard Emerging Markets ETF (AMEX: VWO): This is based on the MSCI Emerging Markets Index, with the fund investing in the shares of the 840 companies within it. The fund is up 22% in 2007.
  • Fidelity Southeast Asia (FSEAX): If you want to head down the mutual fund path, take a look at this one. It boasts a five-star rating on Morningstar, has no load expenses (its category average is 5.3%) and a measly 1.04% expense ratio, compared with the category average of 2.02%. What’s more, it’s been flying this year, sporting a 39% return. The fund invests 80% of its capital in Southeast Asia, including stocks in Hong Kong, South Korea, Thailand and Taiwan.
  • Matthews Pacific Tiger (MAPTX): This fund also has no load expenses, low expenses and a solid 46% over the past year and 28% over the past five years.

For an overall emerging markets fund, consider T. Rowe Price Emerging Markets Stock (PRMSX). And if you do opt for a mutual fund investment, be sure to look at the expense ratios and the prospectuses carefully, so that you are getting the most for your money.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

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Today’s Smart Profits Action Center

  • While China does have an increasingly affluent middle class, most of its population is poor and unable to handle such severe increases. And not even four interest rates hikes this year, culminating in a 9-year high of 7.02% last month, have arrested the trend. Speculation is mounting that the government may have to take more decisive action to cool its economy (GDP growth hit 11.9% in the second quarter), as well as the stock market and real estate bubbles.
  • Just one week before the Mattel toy recall story broke, Karim Rahemtulla positioned Xcelerated Profits Report readers in the “ultimate contrarian play” on China. As the U.S. credit crisis spilled over into the global markets, the Chinese market slumped - and readers walked away with gains of up to 112% in just five weeks. In the next issue, due out at the end of next week, Karim will reveal his “anti subprime cure” recommendation. To find out more about Karim and the team of professional traders that have notched up other recent gains of 120%, 79%, 65% and 45%, visit this link to continue.

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The Bank of England

September 10, 2007

The Smart Profits Report: Issue #454
Monday, September 10, 2007

The Bank of England: How To Profit From The Credit Crunch And Subprime Woes
By Martin Denholm
Senior Analyst, Mt. Vernon Research

Picture the scene… a majestic-looking, wood-soaked boardroom at the “Old Lady” at Threadneedle Street, headquarters of the Bank of England in London.

On the table… a rainforest of paper, with a mass of numbers that would give John Nash’s “Beautiful Mind” a seriously ugly workout. Computer screens with mind-boggling spreadsheets, charts and tables - enough to make most regular folks go cross-eyed before sobbing like a little girl. And nine people diligently poring over it all. Poor saps, eh?

Not really. The people in this room aren’t your average Joes. They’re central bankers. They love this stuff! They live for numbers. And this is the scene that played out at the Bank of England this week - following similar scenes in Washington and Frankfurt.

Yep, the Bank of England has not-so-boldly gone where the Federal Reserve and European Central Bank have gone before and pumped a ton of money into the market to help relieve the “credit crunch” (are you as tired of this phrase now as me?)

But will it actually help? The jury is out…

The Bank of England Provides Sweet £17.6 Billion Relief

It took them a while to catch up to their counterparts in the U.S. and continental Europe (perhaps they were finishing their tea or something), but Governor Mervyn King and his band of bankers decided to toss some money at British banks on Wednesday.

£17.6 billion ($35.4 billion), to be exact, in order to “relieve some pressure on interest rates for overnight borrowing, which have been unusually high.” Remarkably, it was the Bank of England’s first public statement on the credit crisis since it rocked the markets a few weeks ago.

The problem is that banks are nervous about lending to each other over a longer period and have charged higher interest rates to provide a measure of security. That’s led to less credit. But the Bank of England’s move means banks can save money on their loans.

A $31.25 Billion Game Of Market Tag

Not to be outdone, however, the Fed responded yesterday by injecting a further $31.25 billion into the markets. Since August 9, the central bank has poured $200 billion into the markets to prevent liquidity from drying up.

As if that weren’t enough, the Fed and the Bush administration recently promised to introduce measures to tackle the current problem to prevent it from really getting out of hand. Excuse me for not doing cartwheels, but once you get bankers and bureaucrats meddling too much, it can become counter-productive. Investors suddenly come to expect them to ride to the rescue, but all it does is artificially prop up stocks, rather than just letting market forces deal with it. The result is that it could make investors even more nervous and leave the market more susceptible to wild, unpredictable moves.

As former Fed chairman Alan Greenspan said today, “The human race has never found a way to confront bubbles.” But he then went even further in his speech to economists, comparing the current situation to the stock market crash of 1987 and the meltdown of the Long-Term Capital Management hedge fund in 1998. The Wall Street Journal quotes Greenspan’s assertion that “… bubbles cannot be defused until the fever breaks.”

The question is: Can the Fed help “break the fever?”

The Fed’s Power To Deflate Bubbles Is Limited

According to Greenspan, the Fed’s powers to deflate bubbles and save stocks are limited. In his speech, Greenspan cited the bank’s two efforts to put the brakes on the massive stock bubble in the mid 1990s and in 1997 by raising interest rates - neither of which worked.

The old adage that fear and greed are the only two forces that move the markets is never truer right now. Fear is driving this wagon, folks - a concept that Greenspan notes “is more important than euphoria.” Banks are fearful of lending to each other and investors’ nerves are frazzled, wondering which way the market is going to lurch next, taking their money with it.

With the Fed saying that the subprime losses could hit $100 billion, the bankers are facing increasing pressure to help out the little guys, not just the big boys (banks and hedge funds), by following up their cut to the discount rate with a cut to the Fed Funds interest rate.

But that’s unlikely.

  • Not with oil prices bouncing higher again,
  • Other inflationary pressures still present,
  • And second-quarter GDP growth rebounding to a 4% annual rate - the fastest in five quarters.

So if you’re hoping for a Bernanke bailout, don’t get too excited. The Fed’s white horse is headed for the glue factory…

Will Interest Rates Change on September 18th, 2007?

When the Fed’s monetary policy board meets again on September 18, it’s expected to leave interest rates unchanged. Cue groans and disappointment from investors looking for a bailout - and more market pressure.

In any event, the Fed’s recent moves to relieve the pressure on the market are likely to have a limited and temporary impact. As my colleague Marc Lichtenfeld noted in Issue #452, Recent Home Sales, the real estate market is a mess, with ugly recent data and a shift in buying and selling sentiment. It’s all very well for the Fed and Bush administration to want to reduce the soaring number of foreclosures, but how? Supply and demand is out of whack, with the largest number of homes on the market in 16 years. Sellers are struggling to dump their houses, prices are slumping and owners are strapped for cash. It’s unrealistic to think the bureaucrats can save the day.

With credit drying up, consumers under pressure (as seen in the recent weak retail sales) and the subprime mess sucker-punching an already weak real estate market, it’s possible that the fallout could affect corporate sales and earnings growth and business and consumer spending. This is one situation that is likely to play out over months, not weeks.

But there is a way you can profit from all this, while the Bank of England waits to see what the Fed will do.

Have a great weekend,

Martin Denholm

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Today’s Smart Profits Action Center

  • This week, the Bank of England and European Central Bank left interest rates unchanged (at 5.75% and 4% respectively). Canada and Australia followed suit. With the Bank of England stating that its recent interest rate hikes are “starting to bite,” it seems they’re all hanging around, waiting to see what pans out from here and the Fed does and says on September 18.
  • But some economists in London expect U.K. interest rates to peak at 6% in November, citing strong economic growth, continued inflationary pressures and only “tentative signs of a slowing in consumer spending” (according to the bank’s statement this week). If the bank does raise rates a final time, expect the British pound to strengthen further. So if you want to diversify your portfolio and take advantage of an already strong pound against the U.S. dollar (with the potential for more), take a look at Everbank’s World Currency CD. In addition to grabbing an annual interest rate of up to 4.5%, you also benefit from further currency appreciation. The CD has flexible maturity terms, has no monthly account fees, and is FDIC insured. For full details, please click this link.(Disclaimer: The publisher of the Smart Profits Report has a marketing relationship with EverBank, but that’s because we believe it has the most competitive products on offer).
  • I just asked my Mt. Vernon Research colleagues what ideas and picks they’re thinking about for the October Xcelerated Profits Report issue. And talk about intriguing… here’s the reply I received from Investment Director Karim Rahemtulla: “Good ideas? Hell, yes - I have the anti-subprime cure on deck for the next issue.” The last time Karim made a trend-busting, contrarian pick, he not only scooped the rest of the market - but some excellent gains, too. Profits between 40% and 112%, in fact - in just five weeks. You don’t want to miss this one. To make sure you don’t, simply visit this link.

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Smart Money

September 5, 2007

The Smart Profits Report: Issue #453
Wednesday, September 5, 2007

Smart Money: The Best Way To Blaze Your Own Money Trail
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

I guess my working life started when I was 10, shoveling snow off driveways. It continued in high school when I toiled in an ice cream shop and a tuxedo store after school and at weekends. Don’t get me wrong, it wasn’t child labor or because my parents wanted me out the house; they were both hard-working teachers and it was actually through their strong work ethic and example that I learned one of the most valuable life lessons.

Through my parents’ example, I understood the need to work and earn what I had. And when I saw the fruits of my labor, I had a valuable lesson ingrained in my brain from an early age: The value of a dollar and how to be responsible with my money, in essence, making smart money.

To this day, I haven’t purchased anything I can’t afford. Sure, we were offered crazy loans that would have enabled us to move into a McMansion. Nice? Yes. Practical? Not really. My current house is large enough for my family and more importantly, I can sleep at night without worrying about how I’m going to make the mortgage payments.

That’s not to say we don’t have nice things. When the 27-inch television that we bought in 1995 finally blew (I’d say we got our money’s worth there!), I took my first plunge into the high-def world this weekend…

Smart Money At Work - High-Def At A Low Price

Remembering the smart money life lessons I learned as a kid, I resisted the temptation to follow what everyone else is doing and buy the biggest, flashiest set available. Instead, I got an excellent price on a great TV - the same one that my neighbor paid $500 more for just four months ago, but is reduced now as buyers flock to newer models.

The point is, a strategy like this leaves you with more money to invest in other areas - one of those being investing itself. Using the same approach that I do when buying big-ticket items, I look for stocks that are either under-the-radar, out-of-favor, or undervalued.

In his book, “Contrarian Investment Strategies: The Next Generation”, David Dreman, the father of contrarian investing, cites numerous statistics showing how out of favor stocks outperform the markets. For example, over various time periods, stocks with price-to-earnings ratios in the lowest quintile consistently beat the overall market by over 300 basis points.

Discovering stocks that other people don’t want, or aren’t paying attention to, is an excellent way to make smart money - as I’ve discovered first-hand…

A “Dynamic” Company With Dynamic Profits

In March 2006, I recommended shares of Dynamic Materials (Nasdaq: BOOM) to readers of TheStreet.com. The firm isn’t exactly in a business that gets the pulse racing - it clads metal together to make a stronger metal, with its products used in places like oil refineries and ships.

While it might not be exciting, it’s certainly profitable. But nobody else seemed to notice that the company boasted strong earnings and cash flow and a healthy balance sheet. When I issued the recommendation, shares were trading just under $33. Today it’s at $43 - a tidy 30% gain in 18 months. That compares to a 13.6% gain in the S&P 500 during the same period.

Smart Money: If You Want To Gain, Go Against The Grain

Today, I make stock picks like this for Xcelerated Profits Report subscribers - stocks that most people don’t want, or won’t bother looking at. And yes, when you’re comparing your portfolio with someone else’s, you might get blank stares when mentioning the names of your stocks. Some folks may even ridicule you for owning such a dog.

But that’s OK. Few people ever got rich by following the crowd. While they chase the “exciting” stories or blindly follow the analysts’ stock ratings, remember that the upside is relatively limited on the big names. On the other hand, the sky is the limit for your undiscovered or out-of-favor stocks with big potential for making yourself some smart money.

So while it might be difficult to go against the grain in life and the stock market, those who do are usually richly rewarded.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

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Today’s Smart Profits Action Center

  • While developing a contrarian investment strategy will help you succeed in most cases, you still need to make sure that your theory is correct, so you’re not just branching out for the sake of it. Fortunately, there are various tools you can use to help you. For example, is sentiment on an idea or stock heavily tilted one way or the other? If so, you can play the alternative side when reality sets in. Are investors confident or nervous? Using tools like the CBOE Volatility Index (^VIX) can help you steer clear of the crowd.
  • “It’s The Ultimate Contrarian Play… And We’re Going To Profit Before Anyone Else.” So said Mt. Vernon Research Investment Director Karim Rahemtulla in the July issue of the Xcelerated Profits Report. And profit he did. While everyone else chased upside gains from the Chinese market, Karim gave readers a way to play the downside. Just five weeks later as the Chinese market slumped, the value of adopting a contrarian investment strategy proved its worth yet again, handing readers gains between 40% and 112%. Find out how you can get on board and cash in on the next opportunities - and win on 80% of your trades… guaranteed.

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