CIT, AIG, and DRYS Lead Small-Cap Volume in Seesaw Trading Session

Stocks moved in a seesaw pattern today as they opened high and then slid during the opening hours only to sharply pick up before noon eastern time.

Shares on the Dow closed up 28 points to end the day at 8,359. The Nasdaq finished up 7 points to close at 1,800 and the S&P 500 was up almost 5 points to close at 906.

The Russell 2000, an index of the 2,000 most influential small-cap stocks as determined by Russell Investments, closed the day's trading session at 496, up 3 points.

Small-cap volume leaders today include beleaguered finance firm CIT Group (NYSE:CIT) trading 165 million shares, followed by American International Group (NYSE:AIG), and previous SmallCapInvestor PRO recommendation DryShips (Nasdaq:DRYS). (Find out more here)

Price gainers in the small-cap space were lead by Nevsun Resources (AMEX:NSU) up 32% following news that it had received all approvals for debt facilities totaling $235 million to begin mining copper and gold in Eritrea. The Vancouver-based mining firm expects to be able to repay the entire debt within two and one-half years.

Other small-cap gainers include Noven Pharmaceuticals (Nasdaq:NOVN) up 22% on news that Japan-based Hisamitsu Pharmaceutical plans to increase its U.S. presence in purchasing the company for $16.50 a share; Excel Maritime Carriers (NYSE:EXM) up 21%; and CIT Group (NYSE:CIT) up 20%.

*****The day after the home run derby was held during baseball's All-Star festivities, it's probably appropriate that Goldman Sachs (NYSE:GS) hit it one out of the park.

I'm referring to Goldman's 2nd Quarter earnings blowout. Goldman beat revenue and earnings estimates by better than 30%. Clearly, just like the sluggers in the homerun derby, Goldman had softball pitches thrown right down the center of the plate to hit.

Don't forget that even the bears' best friend, bank analyst Meredith Whitney, turned bullish on Goldman yesterday. It would appear that she could see the writing on the wall - analyst estimates were simply too low.

But why? How could analysts miss Goldman's quarter by such a wide margin? Could it be that they are deliberately low-balling estimates to keep the rally going?

*****Goldman Sachs is up in the early going, but not as much as you might expect. That suggests that the blowout numbers aren't a surprise at all. It was already priced in during Monday's 10% rally.

This type of behavior from analysts puts individual investors in a difficult position. I suspect that buyers above $150 will be showing a loss in the near future. Once again, we are being suckered. And that's business as usual for Wall Street.

*****If you focus on the gain in the Producer Price Index (PPI) from this morning, you're probably thinking that inflation is on its way after prices rose 1.8% in June.

But if you focus on retail sales, you probably see the 0.6% rise in retail sales as a sign of recovery.

So which is it: inflation or recovery? The answer is: both. Inflation is an inevitable by-product of economic expansion.

Now, obviously, the U.S. economy is still playing catch-up. And there's an outside possibility that the economy will grow this quarter. But the most important thing to realize is that both the retail sales number and the PPI number are almost directly related to government actions.

If you exclude auto and gasoline sales, retail sales actually fell for a fourth straight month. Auto sales have been helped by government incentives to trade in a gas guzzling clunker for a new, more efficient vehicle.

The PPI was affected by another government incentive program - the yield on Treasury bills. As the Treasury sells more and more bonds, it has to offer a higher yield to entice buyers. This, along with the sheer amount off Treasuries that are being sold, is driving the value of the U.S. dollar down. That, in turn, is driving oil and gas prices higher. Without food and energy, the PPI only rose 0.5%.

*****Government actions are currently filling in for an actual economy. That's how it is in our new "Managed America." Most expect the heavy hand of government to be temporary, and that Managed America can end sooner than later. We'll see…

I expect the conditions of Managed America - high unemployment, sluggish growth, more regulations, higher taxes, and inflation to last years instead of months. And I've outlined my expectations for investing under these conditions in my new Special Issue of Top Stock Insights. The article is titled Managed America: The New Economic Reality. It will be released tomorrow. You can sign up for Top Stock Insights and get my blueprint for profiting in Managed America when you click here. You'll also be on the list to receive my Predictions 2009 Issue update for the remainder of this year.

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