The Dow Jones industrial average added 37 points, or 0.4%, and closed at its highest point since November 4.  The broad S&P 500 index added 7 points, or 0.7%, and closed at its highest level since October 6.  The tech-heavy Nasdaq gained 10.63 points, or 0.5%, ending at its highest point since October 1.  On the New York Stock Exchange 776 million shares exchanged hands and advancing stocks outpaced those that fell two to one.  The Vix "fear factor" index, fell 2.9% to 24.71.

Treasury prices rose after an auction of $15 billion 30-year bonds met with strong demand.  The 30-year rose 1 20/32 in price and its yield declined to 4.432%; the 10-year was up 30/32 in price as its yield declined to 3.604%. This week the government issued a total of $75 billion of debt. 

Financials led the gainers yesterday on news that John Paulson’s hedge fund bought stakes in Bank of America (NYSE:BAC).  Bank of America shares surged 6.7% to $17 and were the leading gainers on the DJIA.  Basic material shares rose 2.7%.  On the DJIA Alcoa (NYSE:AA) shares gained 5.8%.  An increase in metal prices sent shares of Freeport McMoran (NYSE:FCX) up 4.9% and Newmont Mining (NYSE:NEM) 2.5%.  Ford (NYSE:F) shares increased 2.6% on its announced plans to increase current quarter production by 100,000 vehicles, with additions to the fourth quarter as well.

Technology shares advanced 1%.  Barclay's (NYSE:BCS) raised its price target on Apple (NASDAQ:APPL) shares to $208, citing its product pipeline. JP Morgan (NYSE:JPM) raised its price targets for Dell (NASDAQ:DELL) to $13 from $10 and Hewlett-Packard (NYSE:HPQ) to $49.50 from $40.

Nevertheless, consumer spending, which accounts for a whopping 70% of the US economy, remains a concern.  Yesterday’s report which showed a surprise 0.1% fall in retail sales, versus estimates of a 0.8% growth, did raise some doubts on demand side growth assumptions from the consumer sector.  The drop indicated that the "cash for clunkers" program may have stolen from alternative purchases and perhaps from future purchases as well.

Whether a rally for Asian stocks outside of Japan -- up more than 30% from their low in 2009, set on March 4 -- can be sustained remains in doubt, with analysts saying that the full brunt of the global recession has yet to be reflected.

In Japan, the Nikkei 225 Stock Average fell 0.9%, to close at 8,842.68.  The Japanese market remained weak  after Sumitomo Realty & Development Co. missed its profit target and on concern that valuations at a seven-year high overstated earnings prospects.  A senior equity analyst wondered if the recent gain in Japanese shares is reasonable relative to earnings prospects for this year. 

Singapore devalued its currency after posting, on Tuesday, its worst ever quarterly economic contraction due to shrinking global trade.  A forecast for weaker demand for oil by the International Energy Agency sent crude oil prices tumbling to below $50 a barrel.

Media reports pointing to higher odds of a bankruptcy outcome for General Motors (NYSE:GM), as well as a reduction in guidance from Boeing (NYSE:BA), were a drag on the continuing rally by financial-sector shares, following the announcement of good quarterly results by Goldman Sachs.  The DJIA clawed its way back from a 120-point loss shortly after the open to close with a 25-point drop. Trading on the NYSE was a moderate 1.5 billion shares, with advancing shares ahead of decliners by a 3 to 2 margin.  Sentiment is expected to be guided by the likes of Phillips Electronics and defensive play Johnson & Johnson (NYSE:JNJ).

Financial stocks in the DJIA turned in dramatic advances on Monday, as Bank of America (NYSE:BAC) breached $11 for the first time since January 12, rising 15.4%, and Citigroup (NYSE:C) rose 25.0%. Also posting sharp gains were American Express (NYSE:AXP) which moved up 8.7%, and General Electric (NYSE:GE) which rose 7.1%. On the downside, General Motors (NYSE:GM) shares fell 16.2% after the NYT reported that the US Government had notified the troubled auto maker that  it should plan for a June 1 bankruptcy filing, should its talks with bondholders and the UAW on restructuring plans fail to materialize.  Among other notable movers, Boeing (NYSE:BA) shares fell 5.1%, after Cowen & Co. downgraded the stock to "underperform" from "neutral," noting airlines' inability to finance purchases of new planes.

Four out of the ten sectors in the S&P showed gains, topped once again by advances in financials, up 4.1%, followed by gains of 1.4% in basic materials, 0.3% in health care, and 0.1% in consumer services.  On the downside, oil and gas shares fell 1.2%, utilities -1.3%, consumer goods -0.8%, telecommunications -0.7%, technology -0.6%, and industrials -0.03%. Oil and gas shares were adversely affected by Chevron's (NYSE:CVX) earnings warning based on lower oil prices and shrinking refined-product margins. Moreover, the latest oil inventory report is expected to reveal a 2.2 million barrel increase in US crude stockpiles.  Metal prices increased on hopes for an upturn in the global economy.  Gold prices gained $12.50 to reach $895.80 and copper prices rose 5% during the session, sending Freeport McMoran (NYSE:FCX) and Rio Tinto (NYSE:RTP) shares up 4%.

Goldman Sachs reported better-than-expected results of $3.39 per share, beating estimates by $1.79. The firm also announced plans to sell $5 billion of new stock in its effort to pare down the $10 billion in government aid. The case was different for Genworth Financial (NYSE:GNW), whose shares fell 17.8% after it was denied S&L status, necessary for recipients of TARP funding, and granted to its competitors including Hartford Financial Services (NYSE:HIG).

Today's economic releases include government reports on wholesale prices.  Retail sales for March are also on the docket, and expected to post a 0.3% gain, following the prior month's 0.1% decline.  At 10:00 am, ET business inventories are expected to be announced. Technology bellwether Intel (NASDAQ:INTC) will release results after the close.

Andean Resources came out with a prefeasibility study for its Cerro Negro high-grade gold and silver project in Argentina. The study envisions production of 350,000 ounces of gold per year with cash costs ringing in at $198 per ounce generating an internal rate…

Slowing growth and inflation problems means the short-term outlook for commodities is not pretty. But over the long term, scarcity of resources is strongly bullish for commodities prices.

This is a great chance to add commodities stocks to you your portfolio and hold for long-term profits.

This from Chris in Penny Sleuth:

Jeremy Grantham heads up GMO, a respected money manager. Grantham has been largely spot on in the big-picture sense of staying bearish on stocks for the last eight years or so. He is bullish long-term on commodities. In his latest quarterly letter, Grantham makes some good points about the future of commodities and emerging markets.

His conclusion first: “In the short term, slowing world economic growth combines with credit, currency and inflation problems to dominate the outlook and offer poor prospects for emerging markets and commodities. Longer term, the reverse is true, and they look like the assets to own.”

It is mostly the long term (looking out a couple of years) that interests me, although I obviously don’t aim to step into any immediate problems if I can help it.

Longer-term backing for commodities demand comes from two sources, Grantham says:

The first is that if enough people enter economic take-off at approximately the same time, as 2.3 billion Chinese and Indians have now done, then the pressure on resources might happen to increase marginal costs slightly faster than technology could offset them.

This has already happened. It’s why the price of oil, for example, is so much higher than historical averages. All that demand hits very quickly, but it takes time to bring new supply to market. In the interim, higher prices result.

This seems well-known already. Most investors realize that behind the commodities boom stands surging demand from countries such as China — former ‘runts’ now muscling in on the global dinner table.

The second reason is more interesting. Grantham believes that the global growth spurt has come at the expense of eating away at some hard-to-replace resources:

“Underground water resources that currently sustain some of our most productive land but, like a metronome, tick off a reduction of several feet each year; rain-fed waters that, although renewable, are finite and already so overused that previously valuable lakes retreat to sometimes disastrous local effects and river volumes, once seemingly limitless, are now fought over; subsoil, which took thousands of years to form, is depleted through casual use (in the Midwest, for every bushel of wheat produced, it is said that a bushel of subsoil is lost. Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite); high-grade mineral ores are fully developed, the very best are long gone and all are irreplaceable; previously fertile land has often been overgrazed and turned into desert.”

At Mayer’s Special Situations, we’ve been on the water beat since this publication began in summer 2006. We’ve also watched the agricultural boom unfold, and we’ve picked up nice profits along the way. We are, in fact, still invested in these ideas.

Along with these ideas, oil, natural gas and base metals all have become more difficult and expensive to produce. Recently, we’ve had to sit through a pretty tough correction on the commodity names. Stocks in these sectors have sold off in a big way this summer, as I’ve noted. Based purely on fundamentals, though, these stocks haven’t looked this cheap in years.

But short term, such drawdowns are common on the way to eventual higher prices. Grantham, too, says as much:

“The prices of commodities are likely to crack short term, but this will be just a tease. In the next decades, the prices of all future raw materials will be priced as just what they are: irreplaceable. Oil, for example, will never again be priced on the marginal cost of pumping a marginal barrel from some giant Saudi oil field, as has been the practice for most of the last 100 years of oil production. Real cost is always replacement cost, and oil, a precious feedstock for chemicals and fertilizers, simply cannot be replaced.”

I don’t take as hard a plumb line as old Grantham does. I believe there is, even now, lots of room for innovation and replacement. Oil, for example, is replaceable in a broad sense. We can get energy from a broad array of sources. But it’s not an easy or painless transition.

Slowing economic growth is the bigger issue. That’s problematic for most commodities, short term. The market, though, is probably punishing the commodity companies too severely. That creates some interesting opportunities.

You can more easily pick up stocks trading for discounts to readily ascertainable net asset values now than anytime in the last five years, in my view.

It doesn’t mean making money in commodities is a lock or that it will be easy. Lots can go wrong with individual companies, and the drawdowns will probably be more than most investors can stomach. But longer term, looking out a few years, I think an investor will be happy with the portfolio assembled in the doubtful summer days of 2008.

Source: Vancouver’s Laboring Drunks

The company's primary focus remains on organic growth, exploration and opportunistic value acquisitions. With the acquisition of Alcan Inc., Rio has become a global leader in the aluminum industry with large, long-life, low-cost assets across the globe and a strong pipeline of attractive growth projects.

However, cost pressures due to ongoing supply constraints are adversely impacting Rio's margins and profitability. Also, significant capital spending on its expansion and development projects might put pressure on near-term free cash flow generation. We reiterate our Hold recommendation on the stock.

On September 2, Rio Tinto announced that it has signed two joint venture agreements with CODELCO's 100% owned subsidiary, CCM Los Andes, in Chile. These agreements follow an earlier exploration joint venture agreement signed between Rio Tinto and CODELCO in January.

At the current price of $268.50, the stock trades at a P/E multiple of 8.4x our 2008 EPADR estimate of $31.87. Even though we saw record earnings growth in 2007 and 1H08, fear of a global economic slowdown makes us take a cautious view on the stock. The stock is fairly valued at around 8.8x our 2008 EPADR estimate.

Read the full analyst report on RTP

The company's primary focus remains on organic growth, exploration and opportunistic value acquisitions. With the acquisition of Alcan Inc., Rio has become a global leader in the aluminum industry with large, long-life, low-cost assets across the globe and a strong pipeline of attractive growth projects.

However, cost pressures due to ongoing supply constraints are adversely impacting Rio's margins and profitability. Also, significant capital spending on its expansion and development projects might put pressure on near-term free cash flow generation. We reiterate our Hold recommendation on the stock.

On September 2, Rio Tinto announced that it has signed two joint venture agreements with CODELCO's 100% owned subsidiary, CCM Los Andes, in Chile. These agreements follow an earlier exploration joint venture agreement signed between Rio Tinto and CODELCO in January.

At the current price of $268.50, the stock trades at a P/E multiple of 8.4x our 2008 EPADR estimate of $31.87. Even though we saw record earnings growth in 2007 and 1H08, fear of a global economic slowdown makes us take a cautious view on the stock. The stock is fairly valued at around 8.8x our 2008 EPADR estimate.

Read the full analyst report on RTP

However, slow growth, weak pricing in the company’s key businesses and higher gasoline and metal prices are serious matters of concern. Further, the company’s Temperature Control segment is facing strong competition from Chinese imports. Thus, we rate shares of SMP a Hold with a target price of $5.50.

With the shift to Mexico, the company expects annual cost savings of $9 million, starting in 2009. The company expects to achieve gross margin of 27% to 28%. However, the full benefit of the shifting of plants will be realized in 2009. Further, in the Engine division, the company has initiated a price increase of 3% to 3.5%, which is being implemented over the next few months. The company expects to see some of the benefits in 2008, but mostly in 2009.

Standard Motor Products is not exposed to the cycles of the automotive industry significantly, as it is focused on the aftermarket and is a leading niche market player. More than 50% of the business focuses on the traditional aftermarket while the rest stresses on retail aftermarket. A steady increase in the number of autos on the road, an increase in the average auto age to 9.5 years, and an incessant increase in the number of miles driven (3% annually) should increase the demand for repair products.

Read the full analyst report on SMP

Ike's long-term fate has two main possibilities:

1) Ike may hit eastern Cuba, as forecast by the latest (12Z, 8am EDT) runs of the GFDL and ECMWF models, and a number of ensemble members of the latest 12Z GFS model (Figure 2). A hit on Cuba would severely disrupt the storm, weakening it to a Category 1 or 2. Ike could then move on into the Gulf of Mexico and re-intensify, as forecast by the ECMWF model.

2) Ike may plow through the Bahamas and come very close to South Florida (the consensus of the HWRF, NOGAPS, and GFS models). A trough of low pressure may then pull Ike to north. This turn to the north might occur over Florida, or over the western Bahamas, within 200 miles of the Florida coast. In the latter case, North Carolina might be at risk. The recent model trend has been to depict a weaker trough, resulting in Ike getting stranded, like Fay and Gustav did. Ike would resume a slow motion to the west as ridge of pressure builds in, potentially crossing Florida into the Gulf of Mexico.

And then there's OPEC. They meet on Tuesday. What the heck are they going to do? ...

OPEC Is Unlikely to Cut Production at Vienna Meet, Goldman's O'Neill Says OPEC is unlikely to cut supply at next week's meeting in Vienna because of the hurricane season, Goldman Sachs Group Inc. Chief Economist Jim O'Neill said.

XX Sean’s note – I disagree. I think OPEC is going to cut either official or unofficial production. Stay tuned.

GOLD

I’m about to show you some bullish fundamentals. The fact that gold keeps falling in the face of bullish fundamentals is quite bearish for the short term.

South Africa gold production falls 10 percent

JOHANNESBURG, South Africa (AP) — Gold production in the world leading supplier South Africa fell more than 10 percent in the second quarter compared to the same period last year, the industry said Thursday, blaming electricity shortages since the beginning of the year.

A dire fuel shortage caused by poor government planning forced rolling power cuts across the country in the first couple of months of the year. Since February, industries have been limited to 90 percent of their normal power usage.

Weak India Gold Prices Attract More Buyers

Indian gold demand rose on Friday as buyers and sellers kept themselves busy ahead of the peak festive season due to a fall in prices, dealers said.

XX Sean's note -- but this bullish news matters not when the traders are ready to sell.

Gold Heads for First Weekly Drop in Three in London as Dollar Strengthens Gold headed for its first weekly drop in three as the dollar strengthened against the euro, curbing demand for the metal as an alternative investment.

AGRICULTURE

Agriculture Prices to Stay High on China, India Demand Global agricultural prices will probably remain higher than in the previous decade as strong demand from China and other developing nations outstrips gains in production, a U.S. agriculture official said.

Australian Wheat Crop May Be Below Forecast on Dry Weather, JPMorgan Says Australia, the world's sixth-largest wheat exporter, may produce less of the grain than forecast because of dry weather, JPMorgan Chase & Co. said.

US ECONOMY

U.S. Payrolls Fell 84,000 in August; Unemployment Rate Increases to 6.1% The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high, heightening the risk that the economic slowdown will worsen.

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

* Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.

* There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).

GLOBAL ECONOMY

Global Wealth May Fall 10% This Year Due to Markets, Financial Post Says Global wealth may decline 10 percent this year because of volatility on financial markets, the Financial Post reported, citing a study released by the Boston Consulting Group.

Australia, New Zealand Dollars Decline to Lowest in Two Years Against Yen The Australian and New Zealand dollars slumped to the lowest levels in more than two years against the yen as a decline in U.S. stocks prompted traders to sell higher-yielding assets financed in Japan's currency.

The company, a Zacks #1 Rank (Strong Buy), operates in two segments: ferrous and non-ferrous scrap metal recycling and lead fabrication.

It is the scrap metal recycling segment which is spurring the company's growth. In the second quarter, volumes rose 185% for ferrous and 93% for non-ferrous metals year-over-year.

Prices have skyrocketed. In the second quarter, ferrous metal prices increased 126% and non-ferrous soared 215% quarter-over-quarter. The largest source of non-ferrous revenue in the quarter was in the Platinum Group Metals (PGM).

Metalico Cautions About The Third Quarter

MEA obviously operates in the highly volatile commodities sector and is susceptible to price fluctuations. For the third quarter, the company expects ferrous metal pricing to remain near record levels with both international and domestic demand expected to remain strong but pricing has been volatile in recent days.

The company said at the end of July that non-ferrous prices were settling into a trading range lower than that of the first half. It expects sluggish third quarter pricing for stainless steel and copper and steady prices for aluminum.

Platinum Group Metal prices are off their record levels in the first part of the third quarter, but the company believes they'll settle into a narrow, but lower, trading range.

Metalico is still in an expansionist mode. It hopes to complete at least one more acquisition before the end of 2008.

Consensus Estimates Rising for the Year

As would be expected coming off the best quarter in the company's history, covering analysts have been raising estimates for both the third quarter and the full year. For the third quarter, consensus estimates are up 2 cents in the last 30 days to 33 cents from 31 cents per share.

For the full year, estimates have jumped 12 cents to $1.22 from $1.10 in the last month

Additionally, analysts expect sales to grow 55.42% year-over-year.

Solid Fundamentals

Metalico has surprised on estimates 3 out of the last 4 quarters by an average of 30.46%. It has an excellent one year return on equity (ROE) of 22.09%. MEA's forward P/E is only 9.54.

"MLAO" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

The company, a Zacks #1 Rank (Strong Buy), operates in two segments: ferrous and non-ferrous scrap metal recycling and lead fabrication.

It is the scrap metal recycling segment which is spurring the company's growth. In the second quarter, volumes rose 185% for ferrous and 93% for non-ferrous metals year-over-year.

Prices have skyrocketed. In the second quarter, ferrous metal prices increased 126% and non-ferrous soared 215% quarter-over-quarter. The largest source of non-ferrous revenue in the quarter was in the Platinum Group Metals (PGM).

Metalico Cautions About The Third Quarter

MEA obviously operates in the highly volatile commodities sector and is susceptible to price fluctuations. For the third quarter, the company expects ferrous metal pricing to remain near record levels with both international and domestic demand expected to remain strong but pricing has been volatile in recent days.

The company said at the end of July that non-ferrous prices were settling into a trading range lower than that of the first half. It expects sluggish third quarter pricing for stainless steel and copper and steady prices for aluminum.

Platinum Group Metal prices are off their record levels in the first part of the third quarter, but the company believes they'll settle into a narrow, but lower, trading range.

Metalico is still in an expansionist mode. It hopes to complete at least one more acquisition before the end of 2008.

Consensus Estimates Rising for the Year

As would be expected coming off the best quarter in the company's history, covering analysts have been raising estimates for both the third quarter and the full year. For the third quarter, consensus estimates are up 2 cents in the last 30 days to 33 cents from 31 cents per share.

For the full year, estimates have jumped 12 cents to $1.22 from $1.10 in the last month

Additionally, analysts expect sales to grow 55.42% year-over-year.

Solid Fundamentals

Metalico has surprised on estimates 3 out of the last 4 quarters by an average of 30.46%. It has an excellent one year return on equity (ROE) of 22.09%. MEA's forward P/E is only 9.54.

"MLAO" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Cimarex Surprised by 5.51% in the Second Quarter

On Aug 5, the company once again beat Wall Street estimates when it reported its second quarter earnings. Net income soared 191% to $229.3 million, or $2.68 per share, from $78.7 million, or 93 cents per share in the year ago period. Analysts expected $2.54 per share in the quarter.

Revenues jumped 81% to $588.7 million from $325.8 million a year ago.

Obviously, the revenue growth could be attributed to the surging crude and natural gas prices as crude rose during the quarter. Natural gas prices increased 45% to an average of $10.57 per thousand cubic feet (Mcf) and crude gained 98% to an average of $121.64 per barrel compared to the second quarter of 2007.

However, it's not just pricing which is spurring the growth. The company has also been increasing production. In its second quarter report, XEC forecast full year 2008 production would be 9 - 12% higher than fiscal year 2007.

Cimarex's fundamentals remain in place. 5 out of 6 covering analysts have raised estimates in the last 30 days for the full year to $9.25 from $8.32 per share. One analyst also lowered in the last week.

XEC remains a Zacks #1 Rank (Strong Buy). Read the May 30 analysis.

Update to Previous Value Zacks Rank Buy Stocks

Bunge Limited (BG), a worldwide agribusiness company, continues to beat Wall Street estimates as fertilizers and agribusiness boom. The company has a five year average return on equity (ROE) of 14.37%. Read the Aug 12 analysis.

Metalico, Inc. (MEA), a scrap metal processor, recently reported the best quarter in the company's history as soaring metal prices pushed up revenues by 342%. Metalico has a forward P/E of 9.70. Read the Aug 13 analysis.

Olympic Steel, Inc. (ZEUS) is profiting from strong steel demand. The company recently announced a $1 special dividend. Olympic Steel has a forward P/E of 8.87. Read the Aug 14 analysis.

Gulfport Energy Corporation (GPOR) is riding the energy boom to big profits as it raises production as crude and natural gas prices also pop. It has surprised on estimates the last 2 quarters by an average of 33.5%. Gulfport's forward P/E is 6.24. Read the Aug 15 analysis.

"XEC" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research