"Five billion in losses," you're probably thinking. Sorry. Profits. Mark Hulbert writes today in Market Watch:

Banking industry profits may have been 86.5% lower in the second quarter of this year than they were in the comparable quarter a year ago, as indeed the FDIC reported Tuesday. But note carefully that the industry still did produce a profit, of no less than $5 billion. And that profit came even after the banking industry increased its total loan loss reserves to more than $50 billion, compared to only $11 billion in the year-ago quarter.

In other words, despite the perfect financial storm over the past year involving plunging housing prices and the subprime mortgage mess, the banking industry as a whole still turned a tidy profit.

Time to buy financials? If you missed the opportunity to buy quality financials like Bank of America in the third week of July--an opportunity that I, ahem, identified at the time--you might still take a nibble. Writes Hulbert:

Contrarians become interested in a sector, of course, when everyone else is engaged in an orgy of pessimism. And George Putnam, editor of the Turnaround Letter, is one of the newsletter industry's genuine contrarians.

As Putnam wrote in the August issue of his newsletter, "There surely is money to be made in some of the financial stocks, particularly if you are patient. Many financial companies still have good franchises and good balance sheets."

Among the country's biggest banks, Putnam's favorites for more conservative investors are Bank of America, J P Morgan Chase and Wells Fargo.

His rationale: "They have managed to avoid most of the mortgage problems that have brought down some of their competitors. As a result, they should pick up business and perhaps acquire weaker players."

Putnam hastens to add that he is not predicting that the bottom has been seen for the financial sector generally. "We are concerned that there is more bad news ahead for a number of financial institutions," he wrote. "In baseball terminology, we may be in the middle or late innings of the subprime mortgage mess, but we're probably in the early innings for problems with other real estate loans and different types of business loans."

But the banks he is suggesting have generous dividends "that will compensate you if you have to wait a while for the stocks to rebound." Bank of America's current dividend, for example, is 8.8%; the yield's of the other two banks Putnam mentions are 4.2% and 4.7%.

Hulbert and Putnam think quality financials are a good buy for long-term investors. I do, too.

On another note, my blog last week declaring Usain Bolt a superior athlete to Michael Phelps drew ire from swimmers. One of the aggrieved was my Forbes colleague, Victoria Barret, familiar to viewers of Forbes On Fox.

Vicky, besides being brilliant and beautiful, is a triathlete. That means she swims a lot. That means I was monumentally stupid when I agreed to race Vicky in a 50-meter freestyle.

That race will occur today. Later I will report the sad results.

Post your comments. Are quality financial stocks (BAC, JPM and WFC) good long-term buys? What will be Victoria Barret’s margin of victory over Rich Karlgaard in today's 50-meter freestyle?

In the current issue of Forbes magazine (Sept. 1, 2008, cover date) Ken Fisher writes:

There have been three other bear markets since I started this column 24 years ago: 1987, 1990 and 2000. This is the first time I haven't anticipated the fall. (See my columns of Oct. 5, 1987, May 14, 1990, and Mar. 6, 2000.) I hate that. I let you down.

I love Ken’s honesty. OK, honesty is cold comfort if you lost money in the last year following his advice. I’m down about 25% myself, so I feel the pain. Before you pile on Fisher, see how Guru Grades  ranks him. Pretty good. Prior to mid-2007, Ken was at the top of the Guru Grades list. He’s still near the top. Even Warren Buffett has had bad years.

What did the usually reliable Ken Fisher miss? What did I and other bulls miss?

Let’s go back a year and examine the facts on which we based our bullishness. Corporate profits were strong and growing. The global economy was slowing, albeit from a record 5-year run, and really not much. Ten-year Treasury yields were low. Stocks were a bargain compared to bonds.

Furthermore, the house bubble, mortgage meltdown and credit crunch were widely known in mid-2007. As Ken writes, usually when bad events like these are splattered all over television and newspapers, the effects have already been priced into stocks.

In my 36 years as a professional investor I have not seen a period like this. Investors are afraid, journalists are morose and the same old stories keep replaying endlessly. That's not normal. In the world I've known most of my life, old stories quickly lose their power over capital markets and get replaced by new surprises. That which everyone fixates on gets priced into the stock market quickly and can't drag on. But here, 19 months after we first started hearing about subprime mortgages, housing woes and weak financials, the stories moving stocks are little changed.

Have the dynamics of the investing world changed, or did we miss something right in front of our eyes?

I can’t speak for Ken, but for me it was the latter. I missed the extent of inflation. Evidence was right in front of my eyes. Heck, it was right in front of my magazine column! Steve Forbes, who is always looking for reasons to be contrarily bullish, had been quite bearish during the last two years. Steve saw what was happening to gold prices. As gold went, so oil would follow. The U.S. dollar, said Steve, was in big trouble.

Funds eventually began flowing out of stocks into inflation hedges. One of the hedges, oil, quickly inflated to a bubble. Official government figures could not (or would not) tell us was happening on the ground and in the capital markets. Not until the spring and summer of 2008 did official U.S. government figures begin acknowledge the scope of inflation.

At the core of my own investing mistake was to compare the level of today’s inflation with another inflationary period, the 1970s. That led me to a false sense of security. Having come of age during the 1970s I thought, "Hey, inflation is not even half of what it was in the late 1970s. Relax."

The level of inflation was the wrong measure. The rate of acceleration was the right measure. In 2007, the rate of inflation acceleration caused a tipping point, and funds began flowing from stocks to commodities. The early commodity speculators, such as Jim Rogers, saw it coming and cleaned up.

It's important to remember that the 1970s era inflation actually arrived a few years earlier, during the late 1960s. The long post-World War II bull market in stocks ended during the 1966 to 1969 era when the rate of inflation began to spike.

As fund flows go, it's not the level of inflation that matters. It’s the change in rate. One more anecdote. The level of inflation in 1982 was higher than it is today. But the rate was beginning to come down. August 1982 would mark the beginning of the greatest stock run in history.

Not the level, but the change in rate. I just paid a lot of money for this lesson!

Post your comments below.

“Washington Is Quietly Repudiating Its Debts” writes Cato’s Gerald P. O’Driscoll in today’s Wall Street Journal. This blistering piece will boil your blood. It says the U.S. federal government is inflating its way out of its debts.

The temptation for the Fed to spend its last dime of credibility may prove irresistible. Investors are already being taxed by inflation and can rationally expect that tax rate (the inflation rate) to be raised going forward. Wages are not keeping up. Main Street is being taxed to fund Wall Street excess. Anyone who works, saves and invests is exposed to confiscation of his capital and earnings through inflation.

If the Fed maintained its independence of action and said no to the inflationary finance of Congress's profligacy, we wouldn't have reached this point. But the Fed has forsaken that independence amid an absence of leadership.

O’Driscoll’s analysis won’t surprise readers of this blog. What’s powerful is O’Driscoll’s clarity and the reminder that inflation is a tax, a dirty rotten sneaky tax at that.

A couple of week’s ago I read Ron Paul’s new book, The Revolution: A Manifesto. I strongly recommend it, even though it failed to change my mind about Paul’s qualifications to be president. (We can debate this point in the comment section.) Paul is simply superb in describing how the U.S. Federal Reserve creates inflation.

Where does the Fed get the money to buy bonds? It creates it out of thin air, simply writing checks on itself and giving them to banks. If that sounds fishy, then you understand it just fine.

And what is inflation’s effect? It distorts investment decisions. It muddies up market signals. It effectively raises the capital gains tax rate. Every investor knows these effects. Paul goes further and says inflation hits poor and middle-class Americans the hardest of all.

Some say prices may indeed rise, but so do wages and salaries, and therefore inflation causes no real problems on net. This misconception overlooks one of the most insidious and immoral effects of inflation: Its redistribution of wealth from the poor and middle class to the politically well connected. The price increases that take place as a result of inflation do not occur all at once and to the same degree. Those who receive the money first receive it before prices have risen. They enjoy a windfall. Meanwhile, as they spend the new money, and the next wave of recipients spend it, and so on, prices begin to rise through the economy--well before the new money has trickled down to most people. The average person is now paying higher prices while still earning his old income.

Yup.

Some of you Eeyores may wonder why I still cling to my muddle-though predictions in light of what I’ve written so far. Productivity is my answer. Technology improves at the rate of Moore’s Law, inflation or not, and tech-led productivity rides in the wake. Look at it this way. That the greatest financial crisis since the Great Depression hasn't led to an actual Great Depression is really a miracle … a miracle of silicon, fiber and the electromagnetic spectrum. These are the foundations of our amazing productivity gains.

We’d be in a much bigger pickle without productivity.

Post your comments below.

Allow me to pause from the political and stock market commentary and declare that Jamaica’s Usain Bolt is the greatest athlete of the 2008 Olympic Games. Maybe the greatest athlete of any Olympic Games. Sure, Michael Phelps won more medals--eight golds in eight attempts--but swimming is full of mutant events. The breaststroke? The backstroke? The butterfly? Imagine if track had events such as these: the sack race, the one-legged hop, skipping backward.

Bolt is raw and elemental. No high-tech running suits for him. No mutant events. Bolt is the fastest human on earth, the best who ever ran. Period. Saturday he won the 100-meter dash, breaking his own world record while lollygagging the last 15 meters. Earlier today the Jamaican sprinter won the 200-meter dash in a stunning 19.3 seconds, breaking Michael Johnson’s world record of 19.32 from the 1996 Games in Atlanta. Johnson’s record had been judged the strongest in track, safe for another 10 years prior to Bolt’s assault.

Bolt ran his 19.3 against a 0.9-meter-per-second wind. No sprint record has ever been set against a wind like this. If the race had been run with a legal tailwind of two meters per second, Bolt’s time might have been 19.18.

Bolt won by more than half a second. Since the revival of the modern Olympics in 1896, no Olympic sprinter has ever won by such a margin.

Another reason I am confident saying Bolt’s performances top those of Phelps is because sprinting is the most universal of sports. Every kid in the world who is not physically disabled has run a sprint at one time or another, either on the playground, the street, a dirt road, in a game, after stealing apples or to flee bullies. The sorting mechanism that leads to the world’s fastest human starts with the largest pool of children of any sport. Not every kid in the world gets a chance to swim, twirl around the uneven bars, dig a volleyball out of sand or swing a bat. Kicking a soccer ball is the only sport that comes close to the globally shared experience of attempting to run fast.

The world’s fastest human is really that. The world’s best swimmer is merely the best among those given the chance to swim. That’s a much smaller pool, as it were.

Usain Bolt ranks with Michael Jordan and Tiger Woods as the most amazing athlete I’ve ever seen.

Share your comments.

In June, at a Forbes conference in France, I did an onstage interview with New Mexico Gov. Bill Richardson. He predicted a Barack Obama victory in November--a blowout.  The outlines of Obama’s big win would be evident by late summer, said Richardson.

That hasn’t happened.

Obama carries a three-point poll lead over John McCain, according to Real Clear Politics, which averages the major tracking polls from Gallup, Zogby, Rasmussen and others. Three points is a precarious lead for a Democrat in August. Al Gore and John Kerry edged George W. Bush by similar margins in pre-convention polls in 2000 and 2004. Michael Dukakis famously led George H. W. Bush by 17 points in August of 1988.

Democrats are chewing their pencils right now. Why, in a potential Democratic year like 1974 or 1932, has Obama not yet blown McCain out of the water? Explanations are many.

1. Obama’s failure to connect with older, blue collar voters. Hillary Clinton exposed this Obama weakness during the final three months of the Democratic primary season. Clinton won more popular votes after March 1.
2. Obama’s “too cool for school” aloofness, as explained by the New Republic’s Michelle Cottle here.
3. High gas prices. McCain says drill; Obama advocates wind power and solar.
4. Russia. We are reminded that the world can be a dangerous place--and no place for a foreign policy rookie.
5. Swiftboating.
6. Racism.

These factors all may have, more or less, bits of truth. They don’t explain why Democrats have lost seven of the last 10 presidential elections and have blown leads since 1976, when Gerald Ford almost overcame a 35-point summer deficit to Jimmy Carter.

May I suggest that the Summer Olympics play a role? I think the Olympics may give Republicans a two- to three-point advantage.

Since 1968, Republicans have dominated the patriotism issue in presidential elections. Democrats such as FDR, Truman and Kennedy had no patriotism deficit, but that all changed in 1968 at the Democratic convention in Chicago when the Democratic Party brand became linked with student protests and anti-Americanism.

Since 1968, the Summer Olympics have been a major production on television. The Mexico City games were the first to be broadcast in color, and many events were live. A mid-point baby boomer myself, I fell in love with the Olympics in 1968 and literally camped out in front of the television to watch the Munich games in 1972. Since then, television coverage has only gotten bigger and better.

For 16 days every late summer in presidential election years, American viewers are bombarded with Olympic sports that feed patriotic feelings. This was not the goal of the modern Olympics founder, Baron de Coubertin. He was a French aristocrat who wanted the Olympics to transcend nationalist sentiment. But the Baron’s wishes would meet their match in television. NBC knows that Michael Phelps pulls in viewers. Each time the great swimmer mounted the medal stand to hear the national anthem, Phelps, his mother and scores of millions of Americans shed a patriotic tear.

I have no data to support my theory that the Summer Olympics give the patriotic-branded party, the Republicans, a boost at just the right time in a presidential election cycle. But this theory seems to fit the poll trends of the several presidential elections.

What do you think? Are Republicans helped by the Summer Olympics? Why are Obama’s poll numbers stuck in what should be a blowout year for Democrats?

Post your comments below.

Last week I stated my case for a year-long economic and stock market muddle-through.

1.    The economy grows at 2% or so for nine to 12 months.
2.    Stocks trade in a range.

Such a scenario will disappoint Pollyanna and Eeyore alike, but it rides the Federal Reserve's own muddle-through course. If you bought front-row seats for the next Great Depression, sell them. But don’t count on Dow 15,000 funding your year-end yacht purchase either.

Now comes David Malpass, armed with better data and brighter candles, to forecast essentially the same future. Malpass:

• Global GDP should grow in real terms 2.9% in 2008 and 2.8% in 2009, a marked slowdown from the nearly 4% pace in 2004-2007. The growth outlook for Japan, the U.K. and Canada has slowed materially from our April forecasts. The U.S. started the global slowdown with the August 2007 breakdown of securitization and is recovering first.  We think the U.S. is muddling through, not making a major shift in direction despite continuing financial turmoil. …

• We’re lowering our U.S. third-quarter GDP forecast to 2% (was 2.5%). We note low inventories, low real interest rates, rational consumer resilience, high levels of bank cash (since the write-downs are generally non-cash accounting entries), small business flexibility and reasonable output gains apart from housing, autos and finance. But the economic drags are also clear--Washington’s continuing neglect of the dollar, the resulting June spike in commodities, high inflation, the mark-to-market vendetta on bank equity capital, risk aversion by businesses as reflected in low inventories and rising jobless claims, bank caution and high mortgage rates.   

I don’t see any flaws in Malpass’ analysis. Do you?

Post your comments below.

Today’s blog is a three-cheer yell for our partners at Real Clear Politics, Real Clear Markets, Real Sports and Real Clear World.

What’s going on in the world? Nothing much, other than: (1) a presidential election; (2) a dicey economy and bouncy asset markets; (3) the Olympics; (4) Russia.

Four big stories. Four perfect Real Clear Web sites to match. The Real Clear formula is to aggregate the best commentary and add fresh statistical analysis. Sample today's Real Clear offerings:

Politics

Here’s Atlantic magazine’s Joshua Green on Hillary Clinton’s failure to launch:

Above all, this irony emerges: Clinton ran on the basis of managerial competence—on her capacity, as she liked to put it, to “do the job from Day One.” In fact, she never behaved like a chief executive, and her own staff proved to be her Achilles’ heel.

Markets

Check out John Tamny’s masterful analysis on the meaning of oil’s four-week decline:

Last month, gold rose at one point to nearly $1,000/ounce, and oil hit an all-time high of $147/barrel. Since then, oil has fallen roughly 23 percent against a 17 percent drop in gold. So as is always the case, a large reason for oil’s current weakness has to do with a dollar that currently buys 1/827th of an ounce of gold, as opposed to nearly 1/1000th a month ago.

Still, oil has fallen further, and while rumblings of greater supply reaching the market due to presumption of liberalized drilling rules might explain some of the disparity, another realistic explanation lies in the aforementioned gold/oil ratio. As of last month, the ratio was roughly 6.8/1, so if history is any kind of indicator, oil was and is due for an even greater fall versus gold given the longstanding relationship between crude and the yellow metal. Looking ahead, no matter the direction of gold, oil has room for further weakness given a ratio that as of this writing is roughly 7.3/1.

World

Take the time to read Mikhail Gorbachev’s piece on the Russia-Georgia conflict. Like most of you, my instinct is to blame Russia and the neo-czarist Putin. That may still be the accurate view. But it’s always good to challenge one’s own assumptions, and Gorby provides the alternative take on events:

What happened on the night of Aug. 7 is beyond comprehension. The Georgian military attacked the South Ossetian capital of Tskhinvali with multiple rocket launchers designed to devastate large areas. Russia had to respond. To accuse it of aggression against "small, defenseless Georgia" is not just hypocritical but shows a lack of humanity.

Sports

Have fun with this Olympic medal map at Real Clear Sports.

Full disclosure: Steve Forbes and I became fans of Real Clear Politics during the run-up to the 2004 elections. We got to know the founders, John McIntyre and Tom Bevan. One thing led to another. Now Forbes LLC owns a big chunk of the Real Clear empire.

That’s our bias. It’s an honest one!

Do you like Real Clear's aggregation and analysis? Do you prefer it to newspapers and television news? Post your comments below.

Oil is up a bit today on fears that the Russia-Georgia conflict will escalate. Even so, black gold is way off its peak of $147.27 of only a month ago. My guess is that oil will settle at around $80 to $90 a barrel sometime over the next several months. It will stay there until the global economy gets back to 4%-plus annual growth.

Did you see oil's top?

One didn't have to be a rocket scientist to know oil was in a speculative bubble. The price of a barrel had doubled from August 2007 to July 2008. This jump was too quick, too high to be explained by growing global demand.

Bubbles are really easy to see. Calling a bubble's top, of course, is much harder. Bubbles follow their own mad logic.

Technology and telecom stocks began inflating in 1996 and were in a bubble by 1998. Everyone knew it. But the bubble kept inflating anyway. March 2000 turned out to be the peak, when the Nasdaq briefly went over 5,000.

Houses began inflating around 1998. The 2001 recession killed stocks, but it didn't pop the house bubble. It only put the house bubble on hold and prepared (by way of ridiculously low interest rates) the great inflation of 2003 to 2005.

Today's question is: How can we tell when a bubble is about to pop? Fundamental analysis, we know, is good only at identifying bubbles. It can't predict bubble peaks.

One factor that predicts bubble peaks, I would suggest, is silly overreach.

In July, billionaire oilman T. Boone Pickens mounted the national stage with this television ad. Pickens said:

This is an emergency we can't drill our way out of.

Pickens is a lot smarter than most of us. But here he was wrong. All it took was the threat of new offshore and Arctic National Wildlife Refuge drilling to pop the speculative bubble.

How about the late, great house bubble? Here is a perfectly silly story on house flippers in the March 14, 2005 issue of Time magazine. Money quote:

Buy. Sell. Profit. Repeat. Investors are flipping houses to build wealth. Here is what you can learn.

These days the go-go market is homes, not stocks. In hot spots like Las Vegas and Florida, real estate flippers have discovered that a modest down payment and a little patience can net them tens (even hundreds) of thousands of dollars in profits, sometimes tax-free.

The most aggressive of them figure that some combo of paint, new flooring and kitchen upgrades can turn the dumpy house they bought for $300,000 in February into a $400,000 property they can unload in July. And in the most sizzling markets, they're absolutely right.

The 1990s tech bubble had many stories like this. My favorite--embarrassing, because I missed it at the time--was a March 2000 e-mail poll from Silicon Valley consultant Geoffrey Moore. Recall the Nasdaq had popped up over 5,000 while the Dow had slipped to 10,000. Moore was asking everyone in his e-mail for a prediction: When would the Nasdaq index surpass the Dow's?  The guesses ranged from six months to five years. Everyone on Moore's technocentric list knew it was only a matter of time.

Silly, huh?

Right now, most asset classes are stagnant or deflating. That gives us time to think: Which asset class will form the next great bubble? How will we know that bubble is nearing its peak?

Post your speculations and comments below.

Jim Michaels hated wishy-washy conclusions to Forbes stories. The late, great editor of Forbes magazine called it “palm journalism” … on the one hand this, on the other hand that. Such mushy stories lacked the courage of conviction.

I can hear Jim’s scornful voice as I type these words, but I think America is in a muddle-through economy right now. Sure, it would be more courageous to stand back and pronounce: (1) financial Armageddon, widespread bank collapses, economic depression and a further 20% drop in house prices and stocks; or (2) a quick rebound to 3% growth fueled by $80 oil, $3 gas, strengthening house prices, bankers who actually lent money and the widespread confidence instilled by upside earnings surprises and a 14,000 Dow.

One could make the case for either extreme. But then one runs up against the facts of the economy, which are conflicted and clouded:

Downside case

1. It’s a recession, duh! The last several quarters of gross domestic product have failed to reflect the depth of the slowdown because the Commerce Department has deliberately understated inflation.
2. As the recession lingers, unemployment will creep up.
3. More home owners will default. The spiraling effect will send house prices down a further 10% to 20%.
4. As bankers watch events unravel, their arms will shrink and loans will cease. This will hit small businesses hard. It already has, but things will get worse before they get better. Creditworthy buyers of distressed properties also will be unable to get loans. Thus, the market will be prevented from finding a firm bottom.
5. Barack Obama will win the presidency, and his coattails will bring a Democratic Senate majority of 56 votes. Taxes on dividends and capital gains will double from 15% to 30%. Payroll taxes will go up. The combined marginal tax rate for America’s small-business owners will go to 60%-plus. Consequently, the people who create 70% of America’s new jobs will cease to create new jobs.

Upside case

1. It’s not a recession, as much as the media want you to believe otherwise. The second-quarter GDP will be revised upward.
2. Unemployment, at 5.7%, is nowhere near recessionary levels. It is actually near the post-World War II average.
3. Home prices are firming up. Nationally, the rate of decline has slowed. In some regions, prices are on the rise.
4. Bank of America, which absorbed Countrywide Financial, the poster child of bad paper, has seen its stock go up 80% in three weeks. This amazing rebound demonstrates the underlying resilience of most American financial institutions.
5. The stock market has already discounted the likelihood of cap gains and dividend taxes going up to 20%. Beyond that, the market doesn’t much care whether Obama or McCain becomes the next president.

This is palm journalism at its worst, I must admit. I can hear Jim Michaels saying, "Call it one way or the other, wimp!"

OK. Here’s the call. We’re going to muddle through. Sorry, Jim, but now I must look to Ben Bernanke. On Tuesday the Federal Reserve decided to leave the federal funds rate alone. Let’s call it “palm monetary policy.” One the one hand, the Fed finally sees inflation as a greater threat than recession. Yippee! On the other hand, it is not clear yet that the Fed is really serious about fighting inflation. Boo!

Sorry, Jim!

Don’t fight the Fed. The Fed has scripted a muddle-through economy. For another nine to 12 months, that’s what America is going to get.

Post your comments below.

One expects vigorous debate on politics. We the people have always argued about politics and always will. Politics is never about reaching truth. It is always about a power struggle of competing philosophies and people.

Call me naive, but I used to think economics was about a search for facts and truth. But it seems that getting to economic truth is vastly harder. Maybe politics obscures any shot of getting at truth. Maybe the global economy is so big, interconnected and complex that truth finding becomes impossible.

For example, take the U.S. gross domestic product (GDP). Last week the Commerce Department released a preliminary figure of 1.9% growth for the second quarter. Nominal growth was 3% minus a deflator of 1.1%. Say again, please? The government used a deflator of ... 1.1%?

Who believes that? According to Reuters, the Commerce Department’s own figures showed a 4.3% inflation rate during the second quarter.

But consumers face much higher prices. The gross domestic purchases price index, which measures what Americans buy and includes import prices while excluding export prices, was measured at a much higher 4.3%  in the second quarter.

Forgive my ignorance, but why is 1.1% the GDP deflator and not 4.3%? Were the latter figure used, it would show the second quarter retracted 1.2%. If I am missing something in my simple question, please set me straight.

It seems that wherever I look these days, I find ambiguous or confusing information like this. House prices are bottoming. Wait, they're not. The dollar is finally strengthening. No, that’s an illusion.

My question to you, my smart readers, is how do you sort all this stuff out? Where do you find economic truth these days? What data and trends do you look at and trust? Do you think the financial markets--stocks, bonds, commodities, real estate--are keenly ahead of the data or are thrashing around on winds and rumors, just as most of us are?

Obviously, some investors are making tons of money in these foggy, turbulent times. Are most of them just riding a lucky streak? Or are they  truly better sifters of facts and trends.

Lots to think about. Post your comments.

I have an idea for a comic opera set to a German libretto with whiffs of English rock music. This idea, as you may detect, is cheerfully ripped off from "Die Fledermaus" by Johannn Strauss II.

The plot is about a government that attempts to win favor with its people by spreading money hither and yon.

The rub is, Where does this money come from? The government, correctly, does not want to raise taxes on the people. This government and its leaders are fairly dim. They don’t know much, but they do know this: Raising taxes will not produce much in the way of new tax receipts. That’s a good thing to know. It’s about the only thing this government knows.

So--aha!--the government starts to print money! Suddenly there is more money to give to the people.

The people buy bigger houses and bigger cars. They gorge on bigger meals. They become bigger themselves. They are happy.

Only one creature in the land knows of this ruse. It is a mouse who lives in the factory where money is printed. The mouse sees what it is going on.

The mouse tries to warn the people of government’s scam. But no one listens to the mouse. Except for one deaf, dumb and blind kid--sorry about mixing German librettos and Who rock operas, folks--who understands the implications of printed money.

The deaf, dumb and blind kid starts buying gold. He buys gold at $200. He buys gold at $300, $400, $500, $600, $700, $800. He keeps buying gold and becomes very rich.

The large people have stopped getting rich. Their dollars don’t go very far and no longer buy all their large houses, large cars and large meals. The large people get angry at their government. The government needs someone to blame, so they look about the land for a patsy. Aha! The government decides to blame the deaf, dumb and blind kid and the deflator mouse, who saw the ruse all along.

The large people in their large cars and large pitchforks set out to find and kill the kid and the mouse. The large people are very, very angry. It was all working so well until that stupid mouse spilled the beans to the deaf, dumb and blind kid, who started buying gold.

Where does our comic opera, "Deflator Mouse," end? Dear readers, it is in your hands now. Post your scenarios below.

From The Associated Press earlier today:

The Commerce Department's report Thursday that gross domestic product grew at a 1.9% pace in the second quarter was below the 2.4% predicted by economists polled by Thomson Financial/IFR.

Dang. My own guess was 2.8%, so I flubbed it worse than the pros.

Seriously, is 1.9% growth that bad? Back when football games were allowed to end on a tied score, the phrase you always heard after Your Guys had blown a lead to Their Guys and ended up in a 28-28 tie was: "It's like kissing your sister." Not inspiring. Not the worst.

We might be kissing our sisters for the next 12 months. The dollar shows small yet encouraging signs that it is strengthening. And not just against other currencies, but against commodities, which counts more. Keep an eye on this.

Keep an eye on house prices. Are they bottoming? Perhaps. May declines were 0.9% nationally, an improvement over the 2%+ monthly declines we saw in the winter and early spring.

Keep an eye on the elections. My own opinion is that Barack Obama plus a 55-seat Democratic majority in the U.S. Senate would be bad for the economy and stocks. We can debate whether Obama's economic instincts are leftist or centrist. The gut question is: Does Obama believe wealth must be created before it can be redistributed? I don't know the answer, but I'm inclined to think that Obama is, first and last, a politician. A large Democratic majority in the Senate would pull him left. That could be the difference between a 20% or 30% tax rate for capital gains and dividends.

It is not certain Obama will win the presidency, though the odds favor him. John McCain is running a grouchy and incoherent campaign. Yet he trails by only 3%, according to Real Clear Politics. Obama hasn't closed the deal with American voters. I am reminded that Hillary Clinton won more Democratic primary popular votes than did Obama after March 1. Obama is the presumptive nominee only because his team figured out caucus votes and Clinton's team did not. End of story.

So keep an eye on house prices, oil prices, gold prices and election polls. I have a feeling the trends and results, from an investor perspective, will be mixed. Some good news here; bad news there.

We'll be kissing our sisters for the next 12 months.

Agree? Disagree? Post your comments below.

On the morning of July 14, my wife and two other couples from our neighborhood were drinking coffee and enjoying the 6,000-foot mountain air at the University of California's Lair of the Bear Camp Gold in the Sierra Nevada Mountains.




We talked about our stock portfolios and 401(k)s. If these kept melting the way they had for six weeks, we joked, our retirement homes might be like the foul-smelling tents at Camp Gold.

“No. Now is the time to buy,” said Roger, who works in finance at Cisco. We all looked at Roger. “OK, smart guy, what are you buying?” we asked.

“Financials. They’ve bottomed. I’m buying Bank of America. Today.”

Roger’s bottom call for financials came as Monday’s market was just opening in New York. His recommended BAC had made its 52-week low of $18.44 the previous trading day on Friday.

Today, as I write this blog, BAC is quoting $32.95. That’s a spectacular gain of 79% in 16 days.

My wife used to work at Bank of America in the 1980s. After the October 1987 crash, BAC dropped below $8. She knew she should buy it, but she couldn't pull the trigger and has always regretted it. But on July 15 she caught BAC at $20.50. Unfortunately, it was a small investment of $7,000 within an IRA. Still, a tax-free $5,500 gain in 16 days is nothing to sneeze at.

Question is, Have financials gone too high, too fast? It sure looks like it. On the other hand, at $32.95 BAC is well below its 52-week high of $52.96. If BAC had tracked the Dow Jones industrial average since October, it would be trading in the low 40s today.

What do you think? Have financials gone too high, too fast? Would you buy, sell or hold Bank of America at $32.95?

Post your comments below.

Saturday night our family watched the seventh and eighth innings of the San Francisco Giants-Arizona Diamondbacks baseball game on television. For Giants fans, the ballgame brought hope and disaster. It was a perfect metaphor for the U.S. economy.

Let the San Jose Mercury News describe the game's pivot point:

Tim Lincecum was at the top of his game Saturday night. Tyler Walker was not. As a result, the Giants endured one of their most frustrating losses in a season filled with them.

Lincecum carved up Arizona, striking out a career-high 13 before turning a 3-2 lead over to the bullpen after seven innings, only to watch the Diamondbacks rally for three runs in the eighth against Walker and pin the Giants with a 5-3 loss at AT&T Park.

Lincecum, if you don't follow baseball, is one of the game's top pitchers. He's only 24 years old and throws 98 mph heaters right over the top like Sandy Koufax. But that's as far as the Koufax resemblance goes. Lincecum looks less like a ballplayer and more like a skateboarder with his shaggy hair and small body.



So odd-looking is Lincecum that in a recent Sports Illustrated cover story, Tom Verducci wrote:

The San Francisco Giants' ace has been stopped for trespassing by clubhouse security attendants who don't believe he is a ballplayer. In early June he showed up for work in Washington, D.C., wearing jeans, a T-shirt and a black wool hat pulled low in the 90-degree heat. He is 5' 10"--maybe. He is 172 sinewy pounds of skin, bones, fast-twitch muscles and, in the heat of battle, intracooled circulatory and nervous systems. It frightens the chaw out of the cheeks of traditional baseball people that someone so lithe can throw 98 mph.

Where am I going with this baseball story?

Tim Lincecum is like that part of the American economy that hums along, that is fresh, innovative, lean, daring and crowd-pleasing. This would be industries like technology, software, the Internet, biotech, entertainment and companies like Apple, Google, Cisco, Oracle, the new and improved Hewlett-Packard and IBM, and so on.

Then shuffled in relief pitcher Tyler Walker to blow the game. Walker is 6'3" and 275 pounds. That would be five inches and 102 pounds more than Lincecum. Yet Walker is unable to throw as fast as Lincecum.



Walker isn't just big. He's--how else to put it?--overweight. His stomach hangs over his belt. At the first sign of stress, Walker's prison-yard glare disappears and he looks a panicked, startled bully. He sweats like a cold beer bottle.

Walker is also old. He is eight years older than Lincecum, but looks 20 older. In terms of product design and packaging, Walker is ancient. His bulk, facial hair and prison-yard glare resemble Goose Gossage, the New York Yankee reliever of the 1970s.

Walker is the old economy: slow, bloated, panicked, clueless.

Okay, I've worked this baseball metaphor to death. You won't get the point if you haven't by now.

Let's talk about the U.S. economy. This week we will learn that second-quarter growth was higher than almost everyone expected. The consensus is 2.3%, and I predict it could be as high as 2.8% (after the final revision). Brian Wesbury predicts 3% growth.

But here's the thing. Whatever this week's preliminary gross domestic product turns out to be, it won't represent the way most Americans are living. That's because the GDP figure covers the entirety of the U.S. economy. It incorporates all states, regions, industries, companies and consumers--the whole banana.

What the GDP won't tell us is how unevenly growth (or retraction) is occurring now. Some cities, states, regions, companies and industries are growing well above the GDP figure. North Dakota grew at 7.5% last year and will knock the ball out again this year. Ja--what recession? California's economy, reflecting America's, is mixed. Silicon Valley, Hollywood and Central Valley farmers are doing well. Anything tied to residential real estate or home construction is a flat-out disaster. There is no meaningful average to describe the California economy or that of the U.S.

In other words, the U.S. economy is like those two San Francisco Giants pitchers. Tim Lincecum looks great; Tyler Walker never looked worse.

Post your comments.

Oil is down 14% from its peak just two weeks ago. Last week I suggested that the faked Iranian missile tests might have popped the bubble. Then we learned from Bob Lenzner that George Soros had started to short oil and buy gold:

Soros finally shorted oil at $137 a barrel and put on a long position in gold; he expects to see gold hold its ground even if oil continues to decline. In fact, the gold bug clique believes in a consistent 10-to-1 ratio for gold and oil. It holds that either gold will rise to 10 times a barrel of oil ($1,350 an ounce) or oil will fall to $96 a barrel--one-tenth the present market price of gold. Croesus was told Tuesday that statistics spanning many decades support, on average, this 10-to-1 ratio.

Would you follow Soros' bet? If you think oil prices will continue to drop, what is your guess at oil's new floor?

This Times of London piece says oil could sink to $110 per barrel later this year and settle in around $90 next year. That would be my guess too. Let's peg the new floor at $90, assuming U.S. growth of 2% in 2009 and global growth of 3% to 4%. My $90 guess also assumes that the U.S. Federal Reserve will muddle through the rock of inflation and the hard place of recession. That seems to be what Soros is betting too with his "short oil, long gold" strategy.

Speaking of oil prices, here's an eyebrow-raising anecdote I heard yesterday. My home state of North Dakota is enjoying an oil drilling boom in the state's western half. Manual laborers on oil rigs are knocking down $85,000 a year, says my source. And get this: A local McDonald's franchise in Dickinson, N.D., is paying its workers $14 an hour to compete with the oil jobs.

What do you think is the new oil floor? What is your logic? Post your opinions below.

One of the great feats of the political left has been to turn the word "fascism" into an all-weather pejorative that can be safely hurled at the political right.

Any custom or habit embraced more by the right than the left is tarred as fascistic. Question affirmative action or multilingual voting ballots and you are undoubtedly a fascist. Enroll your boys in football camp or the Boy Scouts, and you are practically a brownshirt.

Jonah Goldberg’s terrific book Liberal Fascism shatters this modern day myth. He shows that fascism’s inventor, Benito Mussolini, was anything but a man of the right. He was a young communist who lost his love for Karl Marx. The Marxist dream of an international brotherhood of proletariat might work in theory. But on the ground, the mass of people are loyal to blood and soil, not international theories. They like having jobs too. Thus fascism became a marriage of socialism, strong central government and large employers.

The enemies of fascism were free-thinking outliers: entrepreneurs, small-business owners, religious worshippers, fans of limited government and practitioners of free speech.

I praised Liberal Fascism in this April blog, and I praise it again.

Keep the word "fascism" in mind as you read Paul Gigot’s blood-curdling Wall Street Journal piece “The Fannie Mae Gang.” Here is an excerpt:

Consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP's bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.

On another occasion, he was invited to a meeting with the Democratic mayor of Racine, which is in his district, though he wasn't sure why. When he arrived, Mr. Ryan discovered that both he and the mayor had been invited separately--not by each other but by a Fannie lobbyist who proceeded to tell them about the great things Fannie did for home ownership in Racine.

When none of that deterred Mr. Ryan, Fannie played rougher. It called every mortgage holder in his district, claiming (falsely) that Mr. Ryan wanted to raise the cost of their mortgage and asking if Fannie could tell the congressman to stop on their behalf. He received some 6,000 telegrams. When Mr. Ryan finally left Financial Services for a seat on Ways and Means, which doesn't oversee Fannie, he received a personal note from Mr. Raines congratulating him. "He meant good riddance," says Mr. Ryan.

Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer, D-N.Y., on Capitol Hill, as well as Mr. Krugman and The Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.

Gigot is too polite to describe Fan and Fred’s formula of crony capitalism and crush-the-dissenters as fascism. But that is exactly what it is.

What should we do with Fan and Fred? Let them fail and drive a stake through their greedy hearts? Bust them up into a dozen smaller, regional institutions? Post your comments below.

So insisted Apple’s chief financial officer, Peter Oppenheimer, during yesterday’s analyst call.

The question is being asked with increasing frequency.

Steve Jobs was diagnosed with pancreatic cancer in October 2003. Pancreatic cancer has one of the highest morbidity rates, something like a 5% survival rate over five years. Jobs’s form of the disease--islet cell carcinoma--is said to be more treatable and survivable, more like 80% if the tumor is isolated, detected early and excised without complications.

Jobs waited until late July 2004 to have his surgery. He disclosed the facts of his disease and surgery a few days later.

Why did Jobs postpone surgery for nine months given the horrible survival odds he would have faced if the islet cell tumor had grown or spread? According to this Fortune article:

Yet to the horror of the tiny circle of intimates in whom he'd confided, Jobs was considering not having the surgery at all. A Buddhist and vegetarian, the Apple CEO was skeptical of mainstream medicine. Jobs decided to employ alternative methods to treat his pancreatic cancer, hoping to avoid the operation through a special diet.

His July 31, 2004, surgery used the “Whipple Procedure” to extract the cancerous tumor. Weight loss from malabsorption is a common side effect of the Whipple Procedure, … and this is where the controversy begins. Is the recent anorexic appearance of Steve Jobs the result of cancer, malabsorption or a temporary and unrelated illness? A month ago, Apple claimed Jobs was suffering from "a common bug." Now it has morphed from "common bug" to "private matter." I don't like the trajectory of this.

In June 2005, Steve looked the picture of health when he delivered his famous and inspiring “Stay Hungry, Stay Foolish” Stanford commencement speech.

A year later, Jobs looked sufficiently thinner, enough to provoke rumors that his cancer had returned. I added my own speculations here.

Over the next six months, Steve Jobs did an amazing thing. He regained weight and energy. At the Apple iPhone introduction in January 2007, he looked to be at the top of his game.

By June 2008, he looked horrible. So wretched that most of today’s stories reporting on Apple’s sliding shares amid record profits were asking the question, Is Steve Jobs ill?

Which brings us back to the title of today’s blog. Is the health of Steve Jobs a private matter? Apple says it is. But can this ever be true of a public company, let alone one as big ($135 billion market cap) and widely held (882 million shares outstanding) as Apple, in which the CEO is one of a kind?

I’m struggling with this question. Help me out. Post your comments below.

Today’s blog is about the stock market. The blog’s title, however, is a sailing tip I picked up from William F. Buckley Jr. in one of his many books on the sport. Buckley was passionate about sailing and twice crossed the Atlantic and once the Pacific in small boats. 

One does not even begin to plan an ocean crossing in a 40-foot boat unless one is an optimist. But this same confidence can be lethal in the wrong circumstances. Once the anchor has been pulled up, skepticism is the preferred attitude. Do you like those weather and wind forecasts? Best to be skeptical and plan for the worst.

I don’t sail, but the same is true when flying small airplanes. The most important five minutes of any flight are the next five minutes. About them one must conjure up the things that could go wrong. What if the engine or radio failed? What if thunderstorms invade my destination airport?

Long-term optimism combined with short-term skepticism is a healthy way to look at stocks too.

In that spirit, read this excellent piece by John Mauldin called “The World Will Not End.” Mauldin, the short-term skeptic, writes:

Housing starts rose 9% and the market cheerleaders proclaimed that we have seen a bottom. But not if you look at the actual numbers. New unemployment claims were OK, but not if you look at the actual numbers. And inflation was simply ugly, no matter what numbers you look at. However, oil is down and there is reason to think it may have further to go on the downside. We cover all this and more, as we first look at why the world is not going to end.

It is easy to find bad news these days, and the torrent that seems to keep coming can ruin a person's summer (or winter, for my Southern Hemisphere readers). The credit crisis, as noted last week, is nowhere near an end. Housing, as we will see, is actually getting worse. Foreclosures, auctions, government bailouts, higher taxes, inflation, the price of energy and food-the list goes on and on.

I thought, since so many think of me as a rather bearish person, I would show you my more optimistic side. Yes, I am bearish in the short term, for reasons I have documented at length in this letter.

But long term I am a wild-eyed optimist.

Mauldin lays out his case for long-term optimism:

With all the negative news thrown at us today, why is the United States not in the midst of a deep recession? How, many of you ask, can I be so sanguine as to suggest a milder recession and a Muddle Through Economy?

First, things are somewhat different now than in the '70s and early '80s. Back then, a great deal of the U.S.  and developed world economies and their resulting employment were linked to manufacturing, which was largely geared to domestic sales. Exports were a much smaller part of the economy for most businesses. When the economy and consumption slowed down, manufacturers laid employees off rather rapidly. Unemployment would soar and a V-shaped recession would occur.

Now, the number of people employed in manufacturing is less in percentage terms than it was back then, and more of what is produced in the developed world is bought by a growing developing world. Exports from the U.S. are booming. The number of TEUs (the large containers on ships: twenty-foot equivalent units) moving through the ports of Los Angeles and Long Beach is up 23% in May year-over-year and up 26% since the beginning of the year. Because of the weak dollar, imports are down by 7% year-to-date. It is export growth that is keeping the U.S. from sliding into the usual deep recession.

So, not only is manufacturing not down as in usual cycles, it is up quite handsomely for many products, except of course for automobiles, which are not just in a recession but facing a depression. But that growth in exports is keeping unemployment from going to 9%.

But let's take a longer-term outlook. My view has been, and is, that we are in for a period of very tepid growth that will last through at least 2009. We have to work our way through the aftereffects of the twin bubbles of housing and the credit crisis bursting. There is no magic Fed wand. That simply takes time. No (rational) government or Fed policy is going to change the facts on the ground (although they can make things worse). But, in the fullness of time, we will in fact get through this.

If you look back over the decades, things are getting better. Goldman Sachs estimates about 70 million people a year worldwide are entering the "middle class" and that by 2030 2 billion people will be in a far better condition than the poverty they experience today. That will also keep demand steady for all sorts of products and services produced in the developed world, even as our population (except for the U.S.) declines.

This is good stuff.

America is sailing through a perfect storm of high energy prices, an 18% national average drop in house prices, and a trillion dollars (and perhaps more) of loans that will never be repaid. Yet, the economy is still moving forward, isn’t it?

Sure, it's a good time to be skeptical, even of last week's stock rally. But don’t lose your optimism.

Post your comments below. Do you like Buckley's idea of short-term skepticism and long-term optimism? How do you apply it to your own life and investments?

Everyone is missing the Gorey story behind the speech. I'll explain in a minute.

Here is the transcript of Al Gore's speech "A Generational Challenge To Repower America." If you haven't read it--your neglect is understandable--the highlights are:

The climate crisis, in particular, is getting a lot worse--much more quickly than predicted. Scientists with access to data from Navy submarines traversing underneath the North Polar ice cap have warned that there is now a 75% chance that within five years the entire ice cap will completely disappear during the summer months.

... And by the way, our weather sure is getting strange, isn't it? There seem to be more tornadoes than in living memory, longer droughts, bigger downpours and record floods.

...The answer is to end our reliance on carbon-based fuels.

... What if we could use fuels that are not expensive, don't cause pollution and are abundantly available right here at home?

...We have such fuels. Scientists have confirmed that enough solar energy falls on the surface of the earth every 40 minutes to meet 100% of the entire world's energy needs for a full year. Tapping just a small portion of this solar energy could provide all of the electricity America uses. And enough wind power blows through the Midwest corridor every day to also meet 100% of U.S. electricity demand. Geothermal energy, similarly, is capable of providing enormous supplies of electricity for America.
 
... Today I challenge our nation to commit to producing 100% of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable and transformative. It represents a challenge to all Americans in every walk of life: to our political leaders, entrepreneurs, innovators, engineers, and to every citizen.

There you have it. No mention of nuclear, which safely electrifies 79% of France. No mention of clean coal, though North America is said to be the Saudi Arabia of coal.

From Al Gore this is predictable. Most of the responses to Gore's speech have been predicable too. Here is a typical paen of praise from the left:

--E. J. Dionne

Matched by an expected gust of scorn from the right:

--David Harsanyi

Yawn. If you search a while, you'll bump into the odd interesting take. Here's one from a Gore fan who nevertheless disapproves of Gore's inflated propaganda.

--Clive Crook


All this commentary is missing a key fact. Follow the money and you'll find it. Al Gore is a partner at the prominent West Coast venture capital firm, Kleiner Perkins Caufield & Byers. The ex-veep and Nobel Prize winner is the most politically connected member of KPCB's "green tech team."

KPCB is a justly famous VC firm. It funded Genentech, Compaq, Sun and Google, among others. Since 1972 the San Francisco/Menlo Park firm--under the first-generation leadership of Tom Perkins, Gene Kleiner and Brook Byers and, since the early 1990s, under John Doerr--has performed dazzlingly well for its limited partners. The best guess is annualized returns north of 40%.

But KPCB hasn't had a big hit since Google. And now, according to this Fortune story, KPCB has bet the farm on green technology.

Al Gore is a visionary (if you like him) or a fraud (if you don't). Drain the emotion and a more accurate description of Gore emerges.

He's a lobbyist.

Do you agree with my portrayal of Al Gore? Post your comments below.

A day and a half’s stock rally of 350-plus points (it is 1 p.m. Eastern Daylight Time as I write this) does not a rebound make. Plenty of weary investors are itching to sell on these little spikes.

I will, however, point out some good news. The good news is, nobody believes in good news anymore.

Four newspapers hit my driveway each morning: The Wall Street Journal, The New York Times, the Financial Times, and USA Today.

Here are today’s headlines above the fold:

-- New York Times:
"Economic Fears Slice Oil Prices for Second Day. Down $10.50 a Barrel. Cut Helps Wall St. Rally – Experts Uncertain if It Will Continue"

-- Wall Street Journal:
“Fed Confronts Spike in Inflation. Consumer Prices Surge, but Stumbling Economy Could Start to Curb Pressure."

-- Financial Times:
“Sovereign Funds Cut Exposure to Weaker Dollar.”

-- USA Today:
“States Eye Job Cycle of Retire and Rehire.”

Detect any positive sentiment in those headlines? Not much. Could be a buy sign.

Another possible buy sign is Gary Shilling’s view that the U.S. dollar has bottomed against other currencies. Watch his interview today with Steve Forbes on the Forbes.com Video Network. You’ll find it on the home page of Forbes.com.

Shilling, the thinking man's Eeyore, is at the peak of his credibility. He called the housing top in 2005. He predicted a 20% peak-to-trough decline in houses. We’re at 18% now. Shilling put his money on the table and shorted the hell out of mortgage-backed securities in 2006. He cleaned up. Eeyore's probably shopping for a yacht.

If the dollar is strengthening and if the oil bubble is hissing, then U.S. stocks might do well in the near term. How well? Modestly well. I’ve become fairly convinced that U.S. stocks are locked in a range-bound market that will last another half-decade. The guy who convinced me of this is Vitaliy Katsenelson, but Warren Buffett, John Bogle and others have said the same thing. Stocks could be in a 9,000-to-14,000 Dow range for a few more years, just as 1966 to 1982 found stocks locked into a 575-to-1,000 range.

In other words, stocks might see a 20% pop from here. If you’re not an active trader but more of the type who ponders stocks only an hour or two a week, it’s a good time to trade in exchange-traded funds. Buy them when sentiment stinks and markets are nearer the bottom of the range. Sell them when the opposite conditions prevail.

What would it take for stocks to break out of their range? A stronger dollar, as signaled by sub-$500 gold and sub-$80 oil. Election results that prevent taxes from going to the moon. And the passage of time. If market history means anything, we might have to sweat out another four or five years of range-bound stocks.

Post your comments below.