Why We've Reached a Market Turn -- and How You Can Make Money Playing It

     Nothing like a few days of vacation to put things in the proper perspective.  But when I returned from Charlotte and came back into our Austin office this morning, it felt like something had changed since last Thursday, when I left.

     A few things had. They're substantive -- "material" in the stilted parlance of the SEC filing.

     Don't worry; I'm not going to send you off to read 10-K forms. You need look no further than any news site to see all you need to see.
 
     Here's why I think the market has begun to change course and will continue to trend upward:

GE lost its triple-A rating
     The ball finally dropped. First the board cut the dividend, then Standard & Poor's downgrade came on March 12. General Electric (NYSE: GE) went from the highest rating, "AAA," down a notch, to "AA+." The most telling part of this downgrade, which was no real surprise, was the debt market's relatively logical response. The composite AAA-rated bond yield was above 9% early last week, about twice the AA bond. After the downgrade, prices started to rise and, in accordance with the laws of finance, yields started to fall. There's still some uncertainty -- and some great yields to be had, if you're interested -- and it may take a few weeks for the markets to settle.  But the entire episode was entirely predictable instead of just outright manic. This is a step in the right direction for the overall market. Predictable is good.

The AIG bonus fracas
     The troubled insurer, now majority owned by Uncle Sam, paid bonuses to a bunch of knuckleheads in the business unit that nearly ran the company into oblivion. CEO Edward Liddy, old chum of Hank Paulsen's or no, will have to fall on his sword for this. True, these bonuses were an obligation and are part and parcel of compensation in the financial-services industry. Also true: $100 million in bonuses is a wholly insignificant figure in the face of a bailout that ran to the hundreds of billions.

     Whatever. Bad pool is bad pool, and the fact is that the public won't sit still for it.  Lots of equally talented people who work at far better companies than AIG didn't get any bonuses this year. In fact, I met with one of them in Charlotte during my trip.  Many such workers -- people these companies absolutely do no want to lose -- didn't get bonuses. It's not because the firms couldn't pay them, but because of the potential PR blowback. Bonuses and private aviation are extremely resonant with the American people. Joe Sixpack doesn't fly around on a G5 and he doesn't understand credit default swaps. He does, however, understand a fat cat getting fatter while he himself has to sweat the house payment and worry about losing his job. The good news is that Liddy's high-profile termination and subsequent media shellacking will do a lot to reassure the public.

     This sort of thing, admittedly, doesn't have anything to do with market fundamentals, but it has plenty to do with overall investor sentiment. That's crucial, and that's why Team Obama -- which has already moved to block the bonuses -- can't let Liddy resign or save face. They have to throw him under the bus. (The one guy who should thank his lucky stars for this diversion, of course, is Bank of America boss Ken Lewis.)

Wells has started throwing a little heat
     Former Wells Fargo (NYSE: WFC) CEO and current Chairman Dick Kovacevich took a shot at the TARP and said the government's stress-testing is "asinine."

     That's just the sort of talk the market needs, and it's coming from exactly the right place. Some financial institutions have lost their credibility along with the strength of their balance sheets. Wells still has lots of both. The bank is the best manager of risk in the business, and it when it talks about adequate capital reserves, the market should listen.

     Now, I don't think that Kovacevich is necessarily going to get anywhere -- he might -- but he's going to make a lot of smart investors out there who have totally lost confidence in the financial system feel a little better. A guy like Kovacevich throwing heat at regulators will go a long way to remind investors that the banks watch the regulators every bit as close as the regulators watch the banks. Some times banks have to take nonsense from regulators. But some times they don't. When the nation's top bankers aren't afraid to voice dissent and say, "Lookit, enough's enough," then that's a good sign.

     Also good signs: Citi's (NYSE: C) Vikram Pandit talking up the quarter's numbers and BofA (NYSE: BA) saying it can earn its way out of its troubles. Almost makes you think someone really smart is out there calling the plays. This kind of talk is how basketball coaches rally their boys to turn things around in the second half.

Madoff pleaded guilty and went to jail
     This purloining parvenu was a lot of things, most of them bad. But as a symbol of all that was wrong with the financial world, he was all right. And it's helpful when such a poster boy is plucked from his posh Upper East Side apartment and tossed into prison as the government seizes all of his ill-gotten gains. It's as refreshing as an April thunderstorm, and for the same reason: It makes a lot of noise and scares the hell out of people, but ultimately it restores the natural order of things. Material impact on the market? Zero. Benefit to his victims? Bupkis. But, the first step to recovery is always making people feel better, making people feel as if things make sense and will be all right, and Bernie Madoff behind bars may well be what finally closes the book on this unfortunate financial chapter. Avoiding a trial was a good thing.

     Those are the headlines, in the background we see strength in oil prices next to a modest retreat from gold, as well as positive indications from around the world that the worst may be over. Benanke has been sounding a positive note and there's even been an encouraging word or two out of Detroit. In numerical terms, the market cratered at 6500 and has since gained +10% -- the chart will show that was the a turn. You always see the most panicked selling right before the rebound begins. We survived. Well, everyone except the newspapers, and they were already dying.

     Now, let me be clear. There's still going to be some bumps in the road. The markets will have to test its lows, and I don't expect the Dow to chart a stable course back to 14,000 anytime soon. That being said, there's some great opportunity. For investors who want to make money now in this market, I'd offer three suggestions...

     Lock in high yields. Nothing proves how important this is more than the episode with GE's debt rating. If you can get your hands on a better than 7% yield with a highly rated company, then you should get it while the getting's good. Bond yields are strong and there are still a few tempting dividends. They will not last long -- prices will go back up and yields will go back down. Among my favorites is the aforementioned Wells Fargo, which is currently yielding 9.9%. This nice part about these high yields is that investors lock in not only a wide revenue stream but the strong likelihood of a huge capital gain.

     Average your costs down. If you're sitting on shares and didn't harvest the loss for tax purposes, then at least make it easier to recoup your losses by reducing your cost basis. Most stocks are still at a bargain: The S&P is trading at a mere 11.5 times earnings -- that's -32.4% below its five year average.

     Consider a new position. We've all seen charts and looked at the low points and wished we'd bought then. Those are now. Reward yourself for keeping some dry powder. I've written about how oil will lead us back from the brink, and a few oversold blue chips like Berkshire Hathaway (NYSE: BRK-A) look pretty good right now. 

     If you're looking for income, then check out Carla Pasternak's High-Yield Investing. Her pick of the month is yielding 13.1%. Click here for more info on High-Yield Investing and to get Carla's top income picks.

     If you're looking for a great bargain, you won't want to miss Nathan Slaughter's Half-Priced Stocks. He's uncovering great stocks that boast up to +427% appreciation potentials. Click here for more info on Half-Priced Stocks and to get Nathan's top value picks.

     If you want a combination of the two -- along with a few other alternative investment ideas -- Paul Tracy's Market Advisor is for you. Click here for more info on Market Advisor and to get Paul's top 10 picks that should lead the rally in late 2009 and beyond.

     The point is, I think we're about to see some recovery... and now is a great time to get back in the game if you've been sitting on the sidelines. So whatever your investment style is, rest assured that the StreetAuthority team is here for you -- ready to help you profit through any kind of market we encounter.

Many happy returns,

Andy Obermueller
Co-editor
StreetAuthority Investor Update

Avon added 3.4% to $17.74, its highest since Feb. 26. The world's No. 1 door-to-door cosmetics distributor may double in the next year as the company expands its sales force and increases advertising to overcome the recession and a stronger U.S. dollar, Barron's said.

-- Bloomberg

OPEC's willingness to hold the line on supply is forcing traders to shift their focus to the demand side, and, at least for a day, the signs are good, consultant
Jim Ritterbusch said. "It's just a feel-good thing that people are looking at and saying, 'Hey, this economy still has a chance to recover during the second half of this year, and if that happens oil demand's going to improve.' "

OPEC said Sunday its members would try to adhere to the group's current output quotas but won't cutt production further.

-- Associated Press

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