Investors, especially Boomers, want two things: Safety and Income. In the quest to achieve these goals, they took $233 billion out of equity funds and put $559 billion into bond funds from January 2008 to June 2010. Was this a good idea?

Two famous professors from the Wharton School of Business, Drs. Jeremy Siegel and Jeremy Schwartz, don't think so. In an article, "The Great American Bond Bubble," published in Wednesday's Wall Street Journal, page A17, they claim that bond prices are way too high and are fixing to come tumbling down just as internet stocks did in 2000. Mr. David Rosenberg, former Chief Investment Strategist at Merrill Lynch, thinks the "Two Jeremies" are dead wrong, saying that bond prices won't come down anytime soon. (See http://www.businessinsider.com/david-rosenberg-on-the-bond-bubble-2010-8.) Mr. Rosenberg believes deflation is likely to come upon us and low interest yields on totally safe T-Bonds will be looking awfully good compared to negative inflation rates. My position is that Mr. Rosenberg may be right, but I'm not interested in investing my money on a 1 or 2% return.

The "Two Jeremies" suggest that investors consider buying stocks of solid companies such as AT&T, which have a relatively high yield, currently 6.23% on 08/19/10. Mr. Rosenberg doesn't totally disagree with this, but wonders why an investor can't invest in safe government bonds and "safe" stocks. This sounds OK, but who can be satisfied with a return of less than 10% on their money?

I've done a lot of research on retirement strategies since receiving an email last summer from a subscriber requesting assistance in this area, and there's one thing I know for sure. You're never going to get the 10% return you want by buying low yield bonds and so called "high yield" stocks. Actually, I knew this from the moment I wrote my first retirement strategy essay last September. That's why two of the four strategies I described involved the technique of selling Covered Calls on dividend paying stocks. This technique was featured as our "Strategy of the Week" presentation on September 25, 2009 and it has been featured several times since then.

On June 4, 2010, I wrote an essay called, "The PayDay Portfolio." This essay reiterated my conviction that selling Covered Calls on stocks paying high dividends is a relatively safe, practical way of generating 20-30% return on your money. You need to know how to trade Options, however, to properly implement this technique. Therefore, we have illustrated the basic technique several times as the "Strategy of the Week" presentation. (See the SOTW presentations of 09/25/09, 03/26/10, 05/14/10, 07/23/10 and 07/30/10.) We also made it a bonus presentation in our Options Course and have made it available to options savvy subscribers via the purchase of a special PayDay Portfolio Report.

As of yesterday's close, a backtest of a hypothetical $100,000 PayDay Portfolio started on January 8, 2010 shows a Total Value of $130,035.95. I have been trading Covered Calls with real money for several months now in accordance with the rules described in the PayDay Portfolio Report and I'm satisfied that it's the best way I know of achieving both Safety and Income.

TAMING THE TIGER WITH COVERED CALLS.
Ever since the so called "Flash Crash" of May 6, 2010, the stock market has shown manic-depressive behavior, going back and forth from euphoria to depression on the slightest bit of news. It's been hard to make money by going either long or short, but the strategy of selling Covered Calls does both at the same time. So visit the VectorVest University to see Mr. Glenn Tompkins, Manager of Educational Services, illustrate how it is done in this week's rewarding "Strategy of the Week" presentation, "Taming the Tiger with Covered Calls."

THE $1000.00 AWARD CHALLENGE.
We believe we have a winner, but we need more time to check the results. If it pans out the way we think it will, we will give you the details next week.

Six weeks ago, June 11th to be exact, I wrote an essay called, "Tentative Bottom." That turned out to be oh so true. This time, I think it's different.

Caterpillar bulldozed the Bears out of the way yesterday, leading a strong rally with news that its orders are growing and production will increase in the second half of the year. UPS also raised its outlook because of more spending by businesses. These reports support evidence of increasing economic activity as seen by rail shipments which have been increasing for the past several months.

In another good sign, investors pushed bad news on housing and unemployment aside, rationalizing that it could have been worse. They focused instead on earnings reports from a wide range of companies that showed little sign of a slowdown in the economy. This behavior is reminiscent of that at the bear market bottom in March 2009. Is the market ready for a sustainable rally?

As I said last week, the combination of low inflation, low interest rates and rising earnings is the perfect recipe for driving stock prices higher. This week, it finally appears that stocks of companies with great earnings reports are getting rewarded with higher prices. Those companies who missed their forecast got punished. That's the way it's supposed to work. A quick look at our Market Climate Graph shows that forecasted S&P 500 earnings are expected to soar higher into next year.

Going back to the January - February 2009 period, it is interesting to note that the Price of the VectorVest Composite was caught in the jaws of a Wicked-Wedge as it has been recently. Back then the market broke to the downside on February 10, 2009, leading to the March 9th bottom, which we nailed. Yesterday, however, the Price of the VectorVest Composite broke-out to the upside, which I view as a positive sign. This view is supported by the fact that the Price of VectorVest Composite hit the low point of $22.57 per share on 07/06/10. This was only nine cents above the $22.48 per share support level hit on 02/08/10.

The market rallied almost three months from the 02/08/10 support level to a closing high of $26.29 per share hit on 04/23/10. While I doubt that this is likely to happen again, we could see the market rally into the September - October time frame. Exactly 50 trading days passed during the downturn from the 04/23/10 high to the 07/06/10 low. That seems long enough to me. Thirteen trading days have passed during the rebound from the 07/06/10 low to today, and the Price of the VectorVest Composite went up for two consecutive five-day periods yesterday, giving a preliminary signal of a sustainable upturn. The Color Guard also flashed a Green Light in the Price column yesterday.

Now all of this happened several times during the bumpy downturn from the April 23rd high, so don't run out and bet the farm on this rebound. We are not reliving the March 2009 bottom. A nascent rally has begun, however, and we could be seeing A Breakout Bottom.

THE MONEY MAKER.
The up and down price fluctuations we have encountered since the market peaked on April 26th, have made it awfully hard for most stock traders to make money. But those who trade stock Options have found a bonanza. Volatility causes Option premiums to go up, making them more expensive. Therefore, it was a good time to sell Covered Calls. That's exactly what we have been doing in the PayDay Portfolio, which was up 26.64% as of yesterday's close. How does one sell juicy Covered Calls? Mr. Glenn Tompkins, Manager of Educational Services, will show us. So visit the VectorVest University to see this week's money making "Strategy of the Week" presentation: "The Money Maker."

Hardly a day goes by that I don't hear a discussion or read an article about "the" forthcoming double-dip recession and today was no exception. The market tanked on more bad economic news and every self-appointed expert on the history of the Depression alleges to see striking similarities with today's political, economic and financial conditions. That may be so, but I do not believe a double-dip recession is likely to happen.

Yes, the economy is slowing down and even the Federal Reserve has lowered its forecast of economic growth. Unemployment is still near 10%, the housing market is still weak, retail sales have slipped for two consecutive months and consumer sentiment is sinking fast. But inflation is benign, interest rates are extraordinarily low and corporate earnings are rising. This combination of factors is bullish, very bullish, for stock prices.

Supporters of the double-dip theory can talk all they want about government debt, slowing consumer spending, the oil spill, LeBron James or whatever. It doesn't drive the economy like inflation, interest rates and earnings do. So why is the economy slowing?

The economy is slowing because small business owners are not spending money and creating jobs as they have done in the past. They are concerned about the political turmoil within the country and uncertain of the future. Those who need the money to grow, can't get it. Those who can get the money, don't want it. Those who have it, won't spend it. The traditional effect low inflation and interest rates have on stimulating the economy will be inhibited until government policies become more business friendly. So where do we go from here?

It is my contention that regardless of government policies, a double-dip recession will not occur as long as inflation remains benign, interest rates stay low and corporate earnings continue to rise. The Fed has repeatedly said it will keep interest rates low as long as it takes to keep the economy growing. That's great, but it may not be possible. They can control interest rates, but they cannot control inflation.

If inflation turns into deflation, the economy will shrink. If inflation takes off, the Fed will be forced into raising interest rates. When that happens, a double-dip recession is a virtual certainty. So it all depends upon what inflation does. It's The Wildcard.

MOVING TO THE SIDELINES.
I hate to say this, but it appears that we have gotten caught within the jaws of another Wicked Wedge. What does this mean and what to do now? Mr. Bryan Barnes, Consultant and Instructor, will explain what it all means and what to do now. So visit the VectorVest University to see this week's insightful "Strategy of the Week" presentation: "Moving to the Sidelines."

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, "A Tale of Two Cities"
English Novelist (1812 - 1870)

The present is so like that period past, I have an uneasy feeling in my bones. I've never seen a greater disparity of views on what our country should do and where the financial markets are heading. There are those who believe we are all going to hell, while many believe our glory days still lie ahead.

Alas, matters political are beyond the scope of this essay, so let's take the stock market for example. Yesterday, I had just finished watching a video in which the speaker made an extremely strong case for the onset high inflation and rapidly rising interest rates due to our profligate spending, when I saw Mr. Ken Heebner on CNBC speaking enthusiastically about the great bull market that lies ahead. Now I know that there will not be a great bull market if inflation and interest rates run wild. I also know that Mr. Heebner is a great investor, so he could be right. But I take what he says with a grain of salt because he is always bullish and he was bullish throughout the recent crash.

To add to the confusion, yesterday's Wall Street Journal ran a front page article entitled, "Evidence Mounts of Strong Recovery," but yesterday's Jobless Claims report didn't suggest that a strong recovery is on the way. Moreover, Fed Chairman, Ben Bernanke, was reported in the Journal to express an "optimistic but cautious" view of the economy and pointed to a "sharp and dispersed slowdown in inflation." That means he's not confident of a strong recovery and he'll not raise the Fed Funds rate soon.

Finally, I received an unsolicited email from a newsletter writer who has been predicting a market crash for over a year now. He promised to not send anymore warnings until the crash finally occurs. Is today's 126 point drop in the Mighty Dow the start of the predicted crash or are we about to embark on another leg of this great bull market?

I'll take my clues from the Color Guard rather than ponder over A Dickensian Rhapsody.

ATTENTION GOLD BUGS.
You may want to re-visit Ms. Angel Clark's excellent 12/31/09 "Strategy of the Week" presentation, "The Midas Touch." I look at it regularly and it appears to be close to giving a buy signal. As of 04/15/10, the Mining(Gold\Silver) Industry Group has an RT of 1.05 with an RT Rank of 176, so it's still early in this up move if it blossoms.

TGIF: WHEN TO WIN BIG THE EASY WAY.
On February 26, 2010, we introduced you to a "Strategy of the Week" called "Winning Big the Easy Way." It showed how one could trade the 5-Day Derby Winners from Friday-to-Friday and make big profits. The results were so impressive that our users wanted to learn more about the strategy. So we gave another presentation on March 5, 2010 which provided detailed, step-by-step, instructions on how to conduct the strategy. A week later, we gave a third presentation in which we illustrated how one might implement the Strategy on days other than Friday. Since then we have tested the Strategy in detail to see how it performed on each day of the week. You will be surprised by the results we obtained. So join Mr. Todd Shaffer, Manager of Research, at the VectorVest University to see this week's startling "Strategy of the Week" presentation: "TGIF: When to Win Big the Easy Way."