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Stocks jumped today after consecutively back to back good reports from Goldman Sachs (NYSE:GS) and Intel (Nasdaq:INTC) as well as a surprise from Gannett (NYSE:GCI) that it beat profit estimates by 9 cents, driving shares up 28%.

 

Good news kept flowing as investors were treated to revisions from the Federal Reserve Open Market Committee that the economy will shrink from 1% to 1.5% in 2009 as opposed to its earlier prognostication of 1.3% to 2%. The committee raised its inflation projection for 2010 to a range of 1.2% to 1.8%.

 

The Dow was up sharply by 256 points to close at 8,616, the highest its been in a month. The Nasdaq closed up 63 points to 1,863 and the S&P 500 roared to 933, up 27 points from yesterday's close at 906.

 

Small-cap stocks fared well with the Russell 2000 closing at 509, up 15 points. 
 

Today's volume leaders in the small-cap space include yesterday's leader, CIT Group (NYSE:CIT) with over 74 million shares traded, although trading was halted before the close on impending news concerning discussion with the federal government. Other small-cap volume leaders include Huntington Bancshares (Nasdaq:HBAN), and Sirius XM Radio (Nasdaq:SIRI).

 

Small-cap gainers were lead by Targacept (Nasdaq:TRGT) up 137% after news broke that its depression treatment drug candidate, currently called TC-5214, was able to significantly outperform a placebo drug in testing on patients with major depression disorders. The company announced that it expects to start late-stage trials of the drug in Q2 2010 and is in talks with several potential partners to help complete the drug's development.

 

Other small-cap gainers include a one-time holding with SmallCapInvestor PRO, Brigham Exploration (Nasdaq:BEXP) up 23%; Ferro Corporation (NYSE:FOE) up 35%; and beleaguered newspaper giant Gannett (NYSE:GCI) up 30%.

*****If you've ever wondered what it's like to be Warren Buffett and have more cash than you can spend or invest, just ask China. China just announced that it has over $2 trillion in foreign reserves.  

That is an unbelievable amount of cash to have accumulated. Bloomberg reports that China's reserves doubled in less than 3 years.  

This much money means two things: China can support it's GDP growth as long as it chooses to; and, China will continue to buy Treasuries. 
Sherman Chan, a Moody's economist in Australia said, "China has the strongest prospects out of all major economies, so it is not surprising that hot money is flowing back…China has certainly recovered from the downturn, and it is on a strong footing now." 

That's why we've been loading up on Chinese stocks in SmallCapInvestor Pro. It's not too late to profit from our top Chinese stocks. Click here for details.  

*****Yesterday morning it was Goldman Sachs (NYSE:GS). Then last night, it was Intel (Nasdaq:INTC). The world's biggest chip maker crushed earnings, but then did the unthinkable and offered a 3rd quarter revenue forecast that is as much as 14% higher than what analysts were expecting.  

Between Goldman and Intel, I'll take Intel. Intel is selling a product. And apparently, consumer demand for Intel's product is stronger than anyone imagined. Sure, much of the strength is coming from Asia (back to my China comment above), but, so what? Revenue is revenue. 

Other semiconductor companies were rallying in after hours, including Texas Instruments (NYSE:TXN) and Advanced Micro Devices (NYSE:AMD).   
As for Goldman, I didn't think that stock will stay over $150. Not that it matters. TradeMaster's Jason Cimpl has made money shorting Goldman. But as for me, Goldman is on the "Never Short" list along with Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL). They may have bad days, their stocks may get a beat-down once in a while, but these are solid companies with a penchant for finding profits no matter what the economy is doing. 

*****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's being released this morning. You can sign up for Top Stock Insights and get my blueprint for profiting in Managed America. Click here for your copy now.  

*****Now, as you know, it's Newsletter Advisors Wednesday. And by coincidence we're going to be speaking with Andy Obermueller about profiting from government-driven investing. It's essentially the flip side of the Managed America. Enjoy.

Best regards,

Ian Wyatt
Chief Investment Strategist
SmallCapInvestor.com

Newsletter Advisors Wednesday

This week's NewsletterAdvisors.com investment expert is Andy Obermueller, Chief Investment Strategist and editor for StreetAuthority's Government-Driven Opportunities.

Andy was a journalist before joining StreetAuthority. He worked for the business desks of the Philadelphia Inquirer and the Star-Ledger, New Jersey's largest paper, before going on to lead business coverage for a Texas daily. Andy briefly left the industry to get an inside look at corporate finance as a commercial lender for Wells Fargo's business banking group. He lives in Austin.

Andy, thanks for joining us today, now let's get started.   

Can you explain your investment process and criteria for investments?

I keep a very close watch on the executive branch of the government, including each cabinet department, as well as Congressional action. This gives me a pretty good sense of what Washington is up to. I study the legislation and regulatory proposals and track all the data I can -- there's a lot of it. I then look at which companies will be affected by government action and what that's likely to mean for them.

For instance, the FDA is part of the Department of Health and Human Services. I have a database of every drug in the approval process. For some giant drugmakers -- a Merck, say, or a Pfizer -- a new drug might not have much impact on the bottom line. But when the government approves a drug for a smaller drugmaker, the effect is huge. Those small drugmakers can be extremely lucrative investments -- all because of a government action.

What do you believe gives the government-driven investment style an edge over other investment styles?

Two words: Billion and trillion. These are the dollar terms of the government programs that the newsletter deals with. The U.S. federal government is gargantuan. It's the most powerful financial force on the planet. Every time a public dollar is spent, a private sector profit is realized. That has enormous implications, especially in light of the bailout, the stimulus bill and the administration's willingness to expand the role and reach of government.

Look, I'm passionate about this topic for one reason: it works. I've personally invested using a number of strategies over the years. Like you, I've tried various combinations of value, income and growth strategies. However, I'm not sure I've ever seen anything with as much potential as the government-driven stocks I'm finding.

What sectors do you think offer the most opportunities to profit from government action today?

I like energy and finance. Mr. Obama's move toward a green-collar economy, that is, merging the environmental movement with the gross domestic product, has far-reaching implications for every industry. And the banking system offers vast possibility: Though most large banks have entered a post-bailout phase, many small and midsize financial institutions are still struggling. They will come back -- they are as vital to the national economy as the large banks are too big to fail -- and their stock will follow suit. These two areas are outstanding for investors seeking large returns over the long term.

Ok, let's look at energy. Tell me about a government-driven stock you've dug up in this area.

Well, everyone knows that clean energy is a major part of the Obama agenda.  He hasn't even been in office a year yet and his green initiatives are already playing out.  On June 28th the House passed the "cap-and-trade" bill - which calls for a dramatic reduction in the amount of CO2 that industry can emit. This is historic.

The problem is, 35% of America's carbon emissions come from coal-fired power plants. Why? Because coal is both abundant and cheap in the U.S. -- we're sitting on enough of the stuff to power every home in America for the next 400 years. And at the same time, these coal plants are simply too expensive to replace. It would take $672 billion and several years.

But 'cap and trade' is a major thorn in the side of coal. The only solution I see is to find a way to burn coal without producing CO2. A handful of companies have actually figured out how to do this. Their method, called oxy-coal, is recognized as being perhaps the most promising environmentally-friendly technology on the planet. My favorite pick in this area is Praxair (NYSE:PX). It owns more than 200 patents related to oxy-coal.

What are your top three stock recommendations, and what attracts you to each?
I like Verenium Corporation (Nasdaq:VRNM). It's a small company that has engineered the leading biofuel process. It can make ethanol using cellulose, which is in all plant material found on earth. The government has put a ceiling on corn-based ethanol while at the same time mandating a +15,900% increase in the production of these "advanced biofuels" by 2022. What sets this company apart is that the government just gave it the nod to build the world's first commercial-scale cellulosic ethanol plant. There's no reason the explosive growth in this biofuel won't be mirrored by Verenium's stock.

Next I like Energy Recovery (Nasdaq:ERII). It makes a device that's critical to the efficiency of large desalinization plants, which are typically owned by governments. Without its equipment, desalinization is cost-prohibitive. ERII has 70% of the worldwide market, which is expected to double in the next ten years as water becomes ever scarcer. This issue is a lot closer to home than most people realize: Water supplies aren't just critical in the Middle East, they're increasingly important in places like California.

Finally, I like several players in the digital medical records space. The stimulus bill provides for $19 billion for these companies to upgrade the way the health-case system stores patient information. Storing these files digitally will improve physician access to information and not only improve the quality of care but reduce its cost, such as by eliminating unnecessary and potentially redundant medical tests. Among my recommendations here is Quadramed (NYSE:QDHC), which helped the Veterans Administration develop its VistA Program, the first and most successful large-scale electronic medical records system.  

Andy, thanks for the insights on how to profit from government spending and for the recommendations you're following. I'm sure readers will want to follow-up on those. This is certainly an exciting time to invest in companies making billions off the federal government.

Andy Obermueller is the Chief Investment Strategist for StreetAuthority's Government-Driven Investing newsletter. Andy invites you to follow his Government-Driven Investing blog, where he publishes his investing insights for free, at http://www.Government-DrivenInvesting.com

Small caps are up nearly 3% this afternoon after the government reported this morning that fewer jobs were lost in April than expected.

At 2:06 pm ET, the Russell 2000 (NYSE:IWM) is up 2.81% at 506.81, while the Dow is up 1.56% and the S&P 500 is up 1.85%.

Employers cut 539,000 jobs last month. That is a big improvement from a revised 699,000 job losses in March and less than the loss of 610,000 jobs analysts had been expecting. Also, the federal government reported that 10 of the 19 largest U.S. banks must raise about $75 billion in new capital, which is less than some had feared.

Small caps on the rise today include MedQuist Inc. (Nasdaq:MEDQ), up 64% after announcing first-quarter 2009 results, and Huntington Bancshares Inc. (Nasdaq:HBAN), 36% higher after completing a $120 million stock issue. Fuel Systems Solutions (Nasdaq:FSYS) is also up 40% today after posting a Q1 net profit, while VNUS Medical Technologies (Nasdaq:VNUS) has popped 35% after news broke that Covidien Ltd. will be acquiring the small cap.

*****The headline reads “Bank Stress Tests Lifts Clouds of Uncertainty.” And bank stocks are rallying. Regional bank Fifth Third Bancorp (Nasdaq:FITB) is up 40% in the early going on the news that it needs to raise $1.1 billion.

In total, the government’s stress tests recommended that banks raise $75 billion to withstand further potential losses. I’m not sure how to reconcile the stress tests results with the IMF report on bank losses that was released in April.

In that report, the IMF said that total losses for banks and financial institutions would hit $4 trillion. The U.S. share of that is $1.6 trillion, of which $510 billion has already been written off. That leaves another $550 billion in write-offs . . .

The Russell 2000 (NYSE:IWM) closed down 2.76, or 0.59%, at 467.94, and is now off 6.3% for the year. Meanwhile, the Dow is down 5.8% for 2009, while the S&P 500 is down 3.7%. Some of today’s small-cap gainers were Huntington Bancshares (Nasdaq:HBAN), Fifth Third Bancorp (Nasdaq:FITB) and Miller Industries (NYSE:MLR).

Other Market Watch highlights today included:

• There was some thought that the market needed a “breather” session after Friday’s gains that flew in the face of a bad employment report.
• Bank stocks continued to perform solidly today, even though a delay in the announcement of the bank bail out plan was deemed necessary.
• Commodities were a bright spot for the market but faded late with the Commodity Research Bureau index slipping into negative territory.
• Crude oil futures closed down 1.5%, or $0.61 a barrel, at $39.56, slipping back below the $40 level after trading above $42 in the morning.
• There was some thought that investors were starting to fret about the stimulus plan vote, which was expected at some point today.
• Volume was relatively thin much of the day for stocks as traders were preoccupied watching for news out of Washington.
• The chart structure for small caps sports an inside session pullback today on light volume, which carries very little downside “oomph” for the market.
• Treasury Secretary Timothy Geithner is slated to have a press conference . . .

Small-cap stocks edged slightly lower Monday, unable to build on the big rally from Friday as the market encountered headwinds on retailer, homebuilder and consumer product stocks that overcame positive movement on bank and financial shares. The Russell 2000 (NYSE:IWM) closed down 2.76, or 0.59%, at 467.94, and is now off 6.3% for the year. Meanwhile, the Dow is down 5.8% for 2009, while the S&P 500 is down 3.7%.

Bank stocks continued to perform solidly today, even though a delay in the announcement of the bank bail out plan was deemed necessary by the Obama Administration in order to focus attention on the fiscal stimulus debate. Energy shares were an important upside force for stocks much of the day, slipped hard in conjunction with the weak close in crude oil, but then staged a bounce back into the close. For the day, energy shares gained 0.3%.

Commodities were a bright spot for the market through much of the day, but faded late with the Commodity Research Bureau index slipping into negative territory by the close, led by the reversal in crude oil and a slide in copper, which pulled back after hitting two-month highs in New York trading.

Crude oil futures closed down 1.5%, or $0.61 a barrel, at $39.56, slipping back below the $40 level after trading above $42 in the morning. Concerns about demand and the global economic slowdown eventually caught up with talk that OPEC leaders were considering further production cutbacks.

There was also some thought that investors were starting to fret about the stimulus plan vote, which was expected at some point today. Stumping for the plan on a trip to Indiana, President Obama said, “I am calling on Congress to pass this bill immediately. Endless delay or paralysis in Washington in the face of this crisis will bring only deepening disaster.”

Even when the market was trying to rally earlier in the day, there were warning signs that the move lacked staying power. For one thing, small caps were noticeably lagging strength in large-cap indices; and for another thing, market breadth in the form of gainers versus losers and new highs versus new lows favored the bearish . . .

Small-cap stocks slipped back into negative territory after a brief morning rally stalled out. Large-cap indices were hovering near steady levels reflecting investor indecision about the stimulus and bank bail out package as traders basically were sitting on their hands waiting on fresh news out of Washington. Some of today’s small-cap gainers were Huntington Bancshares (Nasdaq:HBAN), Albany Molecular Research (Nasdaq:AMRI) and Fifth Third Bancorp(Nasdaq:FITB).

Other Market Watch highlights today included:

• The light volume pullback so far today for small caps really was not that big a warning sign for the chart picture.   
• Homebuilders, retailers, apparel firms, health-care facilities and electronic component companies were down at midday.  
• Despite the upside bump from banks and energy, small caps were still struggling overall and were clearly lagging the large-cap stocks.  
• Energy shares were another source of strength today, with the Energy Select Sector SPDR Fund up 1.3% at midday.  
• The KBW Banking Index was up 2.5% at mid-session. 

Small Cap Gainers:

• Huntington Bancshares rises 22% as many regional banks saw a rise today. See (Nasdaq:HBAN).  
• Albany Molecular Research turns around to profit in Q4; shares rise over 13%. See (Nasdaq:AMRI).  
• Small-cap regonail bank Fifth Third Bancorp jumped 12.5%, and was clearly not rattled by a rpice cut on the stock from Morgan Stanley.  See (Nasdaq:FITB)
• Volcano Corp. rose 7% as the market of heart products gapped higher without any apparent fresh news behind the move. See (Nasdaq:VOLC).

Small Cap Losers:

• Small-cap homebuilder Centex Corp. was off 3.7%. See (NYSE:CTX).  
• On the homebuilder front, the ISE Homebuilder Index was off 1.3%, with similar losses seen for small-cap builders such as KB Home and Lennar Corp. See (NYSE:KB) and (NYSE:LEN). 

Small-cap stocks slipped back into negative territory after a brief morning rally stalled out. Large-cap indices were hovering near steady levels reflecting investor indecision about the stimulus and bank bail out package as traders basically were sitting on their hands waiting on fresh news out of Washington. At 12:19 p.m. ET, the Russell 2000 (NYSE:IWM) was down 1.82, or 0.39%, at 468.89.

Volume seemed quite light through morning activity, but it was interesting to see that bank stocks were among the strongest performers, so investors clearly weren’t too put off that a Washington rollout of the bank rescue plan was pushed back a day to allow lawmakers to focus on the stimulus debate.

The KBW Banking Index was up 2.5% at mid-session, and regional banks were on a roll, hoping that the rescue plan would avert nationalization of the big banks that battling for survival and also prop up smaller banks bogged down by tight credit and hurt by toxic assets. Small-cap regional bank Fifth Third Bancorp (Nasdaq:FITB) jumped 12.5%, and was clearly not rattled by a price cut on the stock from Morgan Stanley. Small-cap regional bank Huntington Bancshares Inc. (Nasdaq:HBAN) jumped 22%, one of the largest percentage movers within the group.

Energy shares were another source of strength today, with the Energy Select Sector SPDR Fund up 1.3% at midday, helped along by a rise in crude oil prices amid talk of further OPEC production cutbacks. The U.S. dollar was down today, providing support to commodity themes as hope for a bank bail out package spurred some . . .

Small-cap stocks edged slightly lower early today, pulled down by sloppy corporate profit results and mild concern that the roll out of the bank bail out plan was pushed back this week. Some of today’s small-cap gainers were Huntington Bancshares (Nasdaq:HBAN), Albany Molecular Research (Nasdaq:AMRI) and Volcano Corp.  (Nasdaq:VOLC).

Other Market Watch highlights today included:

• The U.S. dollar was off about 0.9% against the euro this morning, providing a lift to commodities that are priced in dollar terms.   
• Crude oil futures climbed about $1 a barrel into the stock market open, providing a lift to energy and commodity stocks early.  
• Treasury Secretary Timothy Geithner is slated to have a press conference on the bank plan Tuesday at 11:00 a.m. ET.
• The official excuse for the bank rescue delay was that the Administration wanted to focus attention on the stimulus plan vote.

Small Cap Gainers:

• Huntington Bancshares rises 22% as many regional banks saw a rise today. See (Nasdaq:HBAN).  
• Albany Molecular Research turns around to profit in Q4; shares rise over 13%. See (Nasdaq:AMRI).  
• Volcano Corp. rose 7% as the market of heart products gapped higher without any apparent fresh news behind the move. See (Nasdaq:VOLC).

Small Cap Losers:

• Insight Enterprises Inc. tumbled nearly 16% as the IT firm announced preliminary quarterly results. See (Nasdaq:NSIT).  
• Global Traffic Network Inc. was off 10% as the traffic report specialist took a hit after releasing profit numbers for the quarter. See (Nasdaq:GNET). 
• AMERISAFE Inc. gapped lower and lost 10% as the workers’ comp firm said they would conduct a governance review. See (Nasdaq:AMSF).

Small-cap stocks jumped higher this morning, buoyed by a rush back into bank and financial stocks amid hope that the government will set up a “bad bank” facility to mop up losing bank investments, which would help clear bank balance sheets. In addition, there is a sense that the Obama Administration is moving back toward the original purpose of the TARP of absorbing bad debt paper, a concept that has repeatedly sparked brief rallies in equities. Some of today’s small-cap gainers were Regis Corp. (NYSE:RGS), World Acceptance Corp. (Nasdaq:WRLD) and UCBH Holdings (Nasdaq:UCBH).

Other Market Watch highlights today included:

• The weekly MBA Mortgage Application Index tumbled 38.8% to 732.1% and is now at the lowest point since the week ended Nov. 21.  
• There is a chance that some of the enthusiasm on the financial and banking front has also been stoked by optimism ahead of this afternoon’s FOMC statement.   
• The KBW Banking Index was up nearly 10%.   Small-cap stocks jumped higher this morning, buoyed by a rush back into bank and financial stocks.

Small Cap Gainers:

• Regis Corp. charged 24% as the beauty salon and hair restoration company reported earnings. See (NYSE:RGS).
• Small-loan consumer finance company World Acceptance Corp. gapped higher and rallied 20% on solid earnings news. See (Nasdaq:WRLD).  
• UCBH Holdings is up 14% in pre-market on very light volume. See (Nasdaq:UCBH).
• Huntington Bancshares and Ronald A. Katz Technology Licensing settle patent lawsuit and enter into license agreement; HBAN rises 12% in pre-market. See (Nasdaq:HBAN).  

Small Cap Losers:

• Century Aluminum Co. tumbled 30% as the firm announced plans for a common stock offering. See (Nasdaq:CENX).  
• Plantronics Inc. was down 9% as the headset maker took an earnings-related hit. See (NYSE:PLT).  
• Amylin Pharmaceuticals reports 2008 financial results; shares fall 6% in pre-market. See (Nasdaq:AMLN).