Happy New Year to all our dear readers!

2010 is going to produce decent profits for all investors. Second half of this year may be challenging, but first half will produce decent returns.

Commodities are one of the few attractive investments. Barclays Capital has estimated that inflows into commodity investments during 2009 will be a record $60 billion, topping $51 billion from 2006, said analyst Amrita Sen. The figure includes retail and institutional flows into commodity indexes, exchange-traded products and structured notes. Weaker dollar will contribute more profits to commodities investments. If Fed tightens interest rates or if the dollar rate falls, the returns in commodities investments will fall too.

Fed will increase the interest rates sometime this year. If the economy stabilizes, Fed must increase the interest rate to prevent any inflation. But, interest rate increase will induce a fear in traders that the party is over. Many traders are afraid that interest rate increase will slow down the economy especially U.S. real estate market even worse. On the other hand, Fed can’t afford to keep the interest rates low for long time without causing damage to inflation.

“We’re probably still only in the early stages of a potentially big economic recovery but I think it’s probably not until well into next year that investors begin to broadly recognize it,” says Thomas Lee, U.S. equity strategist at J.P. Morgan Chase.

Investing in Technology and energy stocks may possibly yield attractive returns. Selective Financial stocks may also yield attractive profits if the economy turns around by end of 2010.

In recent weeks Ben Bernanke has been taking a lot of heat in the Senate as they debate whether to confirm Bernanke to a second term or not. His first term expires on January 31st of 2010. At least for the moment Bernanke will get his day in the sun as Time Magazine announced him as their Person of the Year for 2009. Since Time Magazine started naming their Person of the Year in 1927, the honor has gone to the person with the most influential and newsworthy person from that year.

Time Magazine described Bernanke as “the most powerful nerd on the planet.” While at Princeton Bernanke was a leading scholar of the Great Depression. Bernanke concluded that the passive Fed of the 1930′s contributed to the depression, which is precisely why he decided that the Federal Reserve could not afford to be passive during this financial crisis. Most definitely this severe economic recession that dominated the news in 2009 could have been another depression, but Time Magazine, as well as many others, believe Bernanke helped stop that depression. He led the charge in reshaping monetary policy and injected millions of dollars into an economy that was screaming for help from somewhere.

Personally I find Bernanke to be a solid choice as Person of the Year for 2009. Bernanke gets little credit for his understanding of Main Street, but he really isn’t a Wall Street man by heart. In Time Magazine’s interview of him Bernanke says “I understand why people are frustrated, I’m frustrated too.” He goes on to say, “This is all very real to me,” and lets the world know he understands this isn’t a video game or anything to be messing around with. Probably the best quote of them all from the interview is “I’m not happy with where we are, but it’s a lot better than where we could be.” I couldn’t agree more with the Fed Chairman on that quote. While our economy isn’t in a good place, things looked as if they could get much worse. There will definitely be different challenges going forward, but in 2009 Bernanke did a solid job at the helm.

Maybe, just maybe, the consumer is starting to feel like dipping their toe into the water. It seems as if the consumer is finally starting to feel confident enough about the current path of the American economy to start to spend some money and get the ball rolling. Today both the retail sales number from November and the University of Michigan consumer sentiment number from early December showed a whole lot of promise.

Retail sales rose by 1.3% in the month of November, more than double the estimate that economists were looking for from the month. A strong Black Friday and Cyber Monday certainly contributed to the report, which showed that consumers are no longer feeling as if they shouldn’t spend at all. Clearly discounting at retailers helped bring consumers in, but in the past even deep discounts hadn’t been enough to make consumers make the purchase.

Consumer sentiment jumped to 73.4 in early December from a reading of just 67.4 in November. This is the highest level of consumer confidence in 3 months. Most analysts believe that the slight improve in the labor market as well as promotions and discounting for holiday sales has gotten consumers into a better mood in the last month.

Consumer confidence and retail sales don’t always move in the same direction, but when they are both moving upward it is certainly a strong positive for the overall economy. Consumers account for 70% of the American economy and without strong consumer spending the American economy simply cannot thrive. The current upswing isn’t yet a confirmed trend, rather it has the potential to be the start of something big. The real key going forward will be whether the labor market can continue to improve, which would in turn allow consumers to continue to feel more comfortable making purchases and stimulate the entire economy.

The controversial TARP Program, which had been set to expire at the end of 2009, will be extended through October of 2010, Tim Geithner announced today. The treasury secretary said that the extension will be met with shifted priorities for expenditures through the program. The program was initially set up to deal with the economic disaster of last fall by allowing the United States government to purchase assets and equity from financial institutions. The program basically gave the government the authority to go in and buy out troubled portions of any troubled financial institution.

The real controversy over the time that the TARP Program has been in place has surrounded two things: exactly what the TARP is supposed to be doing, and exactly when the TARP money should be used. One of the biggest cases was when PNC Financial received $7.7 billion in TARP funds, only to use that money to buy up National City and create a massive merger. In addition firms that have been getting this bailout money have continued to pay huge compensations to executives, which has definitely drawn the ire of the average tax payer.

What exactly is the TARP program going to go toward in the next year? According to the treasury secretary the majority of the TARP money in the next year will be spent on giving aid to homeowners and providing capital to small and community banks so that more small businesses are able to get access to credit once again. Geithner said that the government injections into large banks have been “effectively closed,” but that the smaller banks will continue to receive some capital from the government.

The TARP program has certainly helped the economy in some areas, but some worry about endless spending to try to get the economy out of debt. I agree with getting some aid to consumers and small community banks to open up the availability of credit again, but the government must make sure the banks are using this money properly or the system will be very flawed.

Earlier today the positive economic surprise that Bharathi wrote about was the drop in the unemployment rate and the minuscule amount of jobs lost last month. Since the news from the labor market hasn’t been positive in quite some time today’s news is most definitely welcome and very important to the economy and the market.

As only the stock market can do it instantly turned from a positive reaction to the jobs number to slightly negative on the day due to worries about the Federal Reserve possibly moving to raise interest rates sooner rather than later because of this positive announcement on the economy. I think this is definitely the wrong reaction to news of this sort. First of all, please remember that the jobs market still lost 11,000 jobs last month, which is much better than it has been, but we still have a long ways to go. In addition Ben Bernanke has been adamant that the FOMC will keep rates at historical lows as long as is necessary to stimulate the economy and pull out of the downturn. When the economy is still in clear danger and jobs haven’t even been created it is a little strange to be terribly worried about inflation or the need to raise interest rates in the near term.

Sure interest rates will eventually go higher in the long run. They can’t go any lower! The truth is though, worrying about a small uptick in interest rates that may come in the distant future shouldn’t be on the minds of investors or consumers right now. Right now any kind of good news in the labor markets that might signal more people will get a chance to go back to work is extremely good news, no matter what some market analysts may tell you! Interest rate worries are far overblown right now, and the continuing goal should be to move the economy forward!

Economists expected last month’s non-farm payroll declines to be in the range of 125,000. However, non-farm payrolls fell just by 11,000. U.S. unemployment rate declined from 10.2% to 10%. Employment fell in construction, manufacturing and information, while temporary help services and health care added jobs.

Job market is in recovery mode. The good news is that it is still in recovery mode. It’s not getting any worse. Antulio Bomfim, a former Fed economist, said “We expect the jobless rate to start falling very gradually in the first half of 2010″.  Carl Riccadonna, senior U.S. economist at Deutsche Bank, said  “We’ve still got a long way to go, but the good news in this report provides important positive momentum.” Positive momentum… that’s what we need now! This report is cheering up the market today. This enthusiasm may last for a while until another Dubai screws up with their finances.

Related Link: Wall Street Journal

Today the automobile companies delivered a nice little surprise. It seems that most of the auto companies have beat analysts expectations for sales in the month of November. It is important to keep in mind that last November was a horrible month for car sales, so this isn’t a difficult comparison, but anything positive in this part of the economy is very big news at this point.

Toyota reported a 12 increase from a year ago on an adjusted basis for number of sales days and Ford sales rose by 8.7% on that same basis. These numbers make it a real possibility that the auto industry could actually sell more cars in the month of November, 2009 than they did a year ago. This would be the first over year increase this year other than August, which was fueled by the “cash for clunkers” government ran program.

The consumer has been understandably reluctant to dive back into the economy, primarily because of the continuing weakness in the job market and the instability that surrounds the entire labor market. Things like automobile sales have been hit the hardest, so an increase out of them definitely shows that consumers have become at least a little more confident about the economy. Maybe the best news of all is that this good news about the consumer comes at a time when retailers and the economy most need the consumer, the holiday shopping season. If the consumer surprises to the upside this holiday shopping season, that will definitely pave the way for a nice rebound. Here’s hoping the job market improves and consumer confidence rises in the months to come!

Though the comparisons are easy it is certainly good news to see more customers back in the show rooms at automobile dealerships. The auto industry has been one of the very hardest hit during this economic recession and if we could see a nice stabilization in that industry it could definitely do a lot to help the economy going forward.

Democratic senator Chris Dodd unveiled a bill today that is 1,136 pages long and proposes several sweeping changes in the financial regulatory system. The bill would include adding a consolidated bank regulator, which would combine all federal bank overseers. Dodd believes this would stop banks from searching for a regulator with the lowest standards and keep an even playing field for the entire industry. In addition to this the Dodd bill would remove the Federal Reserve’s oversight responsibility. In the bill the words are “The Federal Reserve will focus on monetary policy without being distracted by responsibilities for bank oversight and consumer protection.” The third important addition this bill would bring is a Consumer Financial Protection Agency. The agency would write rules for mortgage and credit-card products that would be offered to consumers.

The bill is definitely going to have some strong opposition from republicans and probably even some moderate democrats in the senate. The creation of a consolidated bank regulator may be the most controversial part of this bill, while the Consumer Financial Protection Agency seems to be the most popular part of the bill because it should help keep the credit rating agencies honest.

One has to wonder if anyone will ever actually read the entire 1,136 pages of this bill? Sure seems like a whole lot of reading for one bill. I think that the debate over moving forward with financial regulation that tried to help us avoid something like the credit crisis of last year is a positive one, but all steps should be taken to not overstep boundaries or block a group like the Federal Reserve from being able to make necessary moves to help consumers. What is clear is that the current financial regulatory system isn’t working. The part that isn’t clear just yet is exactly what the solution should be.

As was pointed out earlier today the 10% level of unemployment has now been breached. The unemployment level in the United States is now higher than it has been in the last 26 years. In October the economy shed another 190,000 jobs, bringing the total number of jobs lost to 7.3 million since the recession began. The construction sector lost another 62,000 jobs and manufacturing lost another 61,000 jobs last month.

The debate is now raging on Wall Street. Some economists and analysts are saying that this is your typical labor market lagging the overall economic recovery, while others are saying that this economy that is not producing any jobs is becoming a real threat to the overall recovery. The White House economic advisors are saying that this is the typical pattern and investors and consumers should not be too concerned just yet, but there is definitely increasing amount of worry surrounding the unemployment situation.The breaching of 10% is pretty important psychologically for many people who are looking for a job. Many wonder if this level will discourage them and keep them from trying to look for a job.

It is definitely true that the labor market lags the overall economy in a typical recovery, but is this getting to be a troubling sign? As of now the labor market has still improved from where it was a few months ago, but the fact that it can’t get over the hump and create any jobs is certainly worrisome. The construction sector that is supposed to be reaping the benefits of the stimulus package and all the projects associated with it continues to get hurt quite badly. More and more Americans are being forced to work part-time to try to make a living, which is definitely not a good sign. The labor market seems to be stuck in the mud right now, and I think if this happens for too many more months it could threaten the overall economic recovery. Without a jobs recovery there will be no real recovery.

The United States government is planning to sell a record amount of treasury bonds next week and traders are preparing by seeking higher returns. Two year treasury yields have been declining while ten year treasuries have been staying flat or rising slightly of late. As this continues to happen we are seeing what is often called a steep yield curve.

The so-called yield curve is currently at 265 basis points, while the long-term average for that curve has been around 135 or 140 basis points. Basically a steep yield curve means that treasury investors are looking to find higher returns and are seeking protection from inflationary risks and in this case they are also preparing for a huge amount of supply from the government.

Is the treasury yield curve steepening good for the overall economy and the stock market? Most would say yes since that generally means that investors are looking for a nice rebound in the economy and do not wish to lock their money up in assets such as bonds, certificates of deposits, or other lower yielding investment products. It means that investors believe that they can do better than these yields, which is a positive sign.

Watch the treasury yield curve over the next week as the government brings $81 billion of notes and bonds to the market next week. The steepening may continue, and some are actual predicting that we could see some records on the level of how steep the treasury yield curve is, but that may well be largely because of the huge amount of supply coming in.

If you haven’t kept an eye on the treasury yield curve before now, you should probably start doing so. Today’s very steep yield curve is a good sign for the economy, but things can change quickly so make sure you are paying attention.