Do you think this spike in US economic activity in Q3 2009 is the beginning of the next up leg?

Better think twice.

With the country's publicly traded banks set to undergo further examination in the weeks ahead, it provides investors with the opportunity to examine how the market is valuing the publicly traded TARP banks and what future returns investors can expect.

The simplest way to do this is to compare each of the banks' market caps with their respective TARP investments. The higher the percentage of TARP funds to the company's market cap, the more leveraged the company's stock price is to the government's investment. Conversely, the lower the percentage, the lower the bank's leverage to the government's TARP investment.

Sometimes it just pays to say nothing at all. Secretary Geithner’s comments in front of Congress and in his department’s most recent press release in regards to their Financial Stability Plan show that the Treasury Department under Geithner has absolutely no business communicating with the financial community unless they are absolutely prepared to do so.

In using a term like “stress test” and in failing to outline detailed steps that will be taken by the government to remedy the current crisis, Geithner leaves us wondering how he got such high marks as the President of the New York Fed. It is readily apparent that the markets need something big, in terms of government intervention, to get the credit market and the economy moving again. While the sheer size of the government’s program seems to fit the bill its effectiveness is far from certain.

Nearly every oil company in America is struggling to deal with lower commodity prices. The majority of these companies have chosen to respond to declining commodity prices with severe drilling cutbacks and asset sales. However, Pioneer Southwest Energy Partners (PSE) is likely to stand out as an aggressive grower within the energy sector as it has the resources to continue its drilling programs and to purchase assets at below market prices.

It is clear from recent statements by Pioneer that it is using its strong balance sheet to take advantage of the recent drop in oil prices and the corresponding drop in asset values across the sector. On Pioneer’s last conference call, management said they were negotiating a $200 million acquisition from the company’s parent, Pioneer Natural Resources (PXD); these assets will probably be centered in the Spraberry field.

In what is likely to be one of the more interesting stories in 2009, the Financial Times on Wednesday discussed the impact that the falling price of oil will likely have on some of the world’s largest multinational oil companies.

Despite having record breaking profits in 2008, 2009 looks to be a different story altogether as the decline in oil from $150 to $40 could lead to hard choices for oil companies. Particularly on whether or not to continue with their current level of capital expenditures, share buybacks and dividends or to reduce these expenditures to reflect their current cashflows and the price of oil. Below you will find a fascinating graphic from the Financial Times that breaks out the cashflows of six of the worlds largest oil companies and the impact that the fall in the price of oil will likely have on them.

While the future is always uncertain, it is looking slightly brighter for First Marblehead (FMD). The company’s quarterly report last Monday shows a company that is striving to ensure that it is still an independent entity when activity in the credit markets returns.

While the stock has been decimated and will likely never fully recover to its past levels, it does nevertheless offer an interesting play on increased federal involvement in the private label student loan market and student loans in general. Going forward the company has two significant items going for it, namely its recent ability to significantly reduce costs and the expansion of the Department of Education’s asset purchase program.

The demise of AIG has been well documented in the business press over the last year. The company’s insatiable thirst for cash to satisfy its derivative contracts will likely become the stuff of legends in future business school case studies.

While the company has survived in its pre-bailout form since September via the use of government funds, it has not been easy. The high interest rate on the government money has and will likely continue to make it difficult for AIG to operate in its current state for a prolonged period. Fortunately, AIG’s management team has vowed to take proactive steps to reduce the company’s debt level in 2009 via the sale of non-essential divisions.

Last July I wrote a blog entry that discussed the possibility of margin and multiple expansion at Dow Chemical (DOW). The thesis of this recommendation centered around Dow Chemical’s acquisition of Rohm & Haas (ROH) and the company’s ability to pass on price increases and its ability to hold these price increases should the price of oil retreat.

While I still hold shares in Dow Chemical, the investment story behind the company has clearly deteriorated. This has been caused in large part by the collapse of the company’s deal with Kuwait, further deterioration in the credit markets and by the U.S. economy’s significant turn for the worse. While I am thoroughly convinced that the company would have done quite well had economic growth only slowed and not collapsed and had the company been able to complete the sale of a select group of low performing units to the Kuwaitis, it is clear that the company is facing a completely different environment than it was six months ago.

There are signs that credit is flowing once again in the beleaguered energy sector and in particular within the Master Limited Partnerships [MLPs]. MarkWest Energy Partners’ (MWE) announcement that it has successfully entered into a new joint venture with NGP Midstream & Resources and expanded its credit facility are tell tale signs that this illiquid corner of the energy sector is seeing a return of financing and investment.

The new joint venture, when coupled with the increase in borrowing capacity, allows MarkWest to realign its capital expenditures to account for projects that it was required to undertake in the second half of the year. In achieving this, a significant overhang has been removed from the stock, as the company will likely not be forced to raise dilutive equity to undertake its obligatory contracts with Newfield Exploration (NFX) and Range Resources (RRC).

The week got off to an improbable start on Monday with the announcement that Pfizer (PFE) had entered into a definitive merger agreement with fellow large cap drug maker Wyeth (WYE).

Pfizer, like nearly every large drug company, has come under tremendous pressure in recent years to replace an aging pipeline with innovative new blockbuster products. Despite ambitious attempts by Pfizer’s management team and by all of the other drug makers in a similar position, the results have been dismal. As a result, these broken firms have been left with but one quasi solution, and that is to merge with their rivals in an attempt to diversify and prolong the life of their pipelines.

Fred Joseph, co-founder of Morgan Joseph had some interesting commentary on the state of the financial industry on Bloomberg last week that I thought would be appropriate to discuss here. The interview with Joseph on Bloomberg can be found below.

Joseph’s commentary is interesting as his firm, Morgan Joseph, is one of the more prominent investment banking firms that spends the majority of its time working almost exclusively with mid and small market companies. His discussion of how these companies are dealing with the turmoil in the credit markets clearly shows that there is still a tremendous amount of work to be done by the Federal Reserve and the Treasury Department in their fight to restore liquidity to the credit markets.

The collapse in the share prices of our country’s three largest money center banks over the last week has been truly stunning and is assuredly a crisis of confidence. What started out as a growing unease that the losses of the past year would continue into late 2009 and early 2010 for Bank of America (BAC), J.P. Morgan (JPM) and Citigroup (C) has now snowballed into utter fear that these banks, along with their European peers, could potentially face nationalization as government regulators strive to save a financial system that is still on the brink of cataclysmic failure.

Bank of America, Citigroup and J.P. Morgan have all reported results over the last week and they have ranged from being appalling and awful to just plain bad. One bright spot has been that each of these banks appears to have reduced their exposure to various mortgage securities and derivatives to acceptable levels when compared to where they were in 2007; however, this has come at an enormous cost. Primarily in the form of vast infusions of dilutive government capital that these banks have been required to take since the passage of the first half of the U.S. government’s TARP program.

In a world where finding investment capital has become a fine art, Atlas Energy Resources (ATN) has shown its ability to do what no other energy company could even dream of undertaking in the current credit environment.

Unlike any of its competitors, Atlas Energy operates a partnership program that allows private investors to participate in its drilling activities, in return for giving up a portion of its drilling rights, the company receives a huge cost advantage and management fees that are highly accretive, in addition to the portion of the drilling interest that it keeps for itself. In using other people's money, Atlas Energy Resources is able to leverage its own capital position to garner projects that it would not otherwise be able to participate in if it were only operating off of its own balance sheet.

After taking a little holiday inspired break, I have decided to rededicate myself as there are simply too many interesting things going on in the markets to stand idly by on the sidelines. Given how awful 2008 was, 2009 should be better as I doubt we can go any lower than the November lows that were set late last year. I still believe that when invested in the right companies investors should be able to beat the market. Below, I have compiled a list of some of the most interesting stocks for 2009 that I put together before the New Year but that I am just now getting around to posting.

1. Allied Irish Bank (AIB)

An Irish bank with significant overseas assets in Eastern Europe, the U.K. and the U.S, when these assets are coupled with the company’s strong position in Ireland, the stock has a strong risk / return ratio going forward. The bank has been battered by financial market turmoil but the bank’s balance sheet appears to be in decent shape relative to its Irish peers. With newly added capital, Allied Irish should be able to hold onto its international divisions making it a rising international banking star.

In recent months many Master Limited Partnerships [MLPs] have declined in price as commodity prices have fallen. If you read my earlier article on midstream MLPs you know that some types of MLP assets do have commodity exposure while other types do not.

Quicksilver Gas Services (NYSE:KGS) is unique in that it is in the gathering and processing space but it does not have the commodity exposure of a typical gathering and processing MLP. This is because Quicksilver Gas Services charges Quicksilver Resources (NYSE:KWK) volume based fees. Typical gathering and processing MLPs make their money off of keep-whole or percent of proceeds contracts. However, Quicksilver Gas Services' volume based fee contracts more closely resemble those of an interstate gas pipeline contracts such as those used by Boardwalk Pipeline Partners (NYSE:BWP).

Earlier this week Chesapeake Energy (CHK) announced that the company was proceeding with the sale of a 32.5% interest in its Marcellus Shale development to StatoilHydro (STO), the Norwegian oil giant.  In return for its new interest in one of North America’s more interesting shale plays, StatoilHydro is paying $1.25B plus the guarantee that it will foot 75% of the expected drilling costs through 2012 for an additional $2.13B.  Another Norwegian company, Norse Energy has already built up a sizeable acreage position in the Marcellus Shale totaling somewhere around 175,000 acres. 

Given the interconnectedness of Norway it would not surprise me at all if the executives at Norse Energy and StatoilHydro had at the very least talked over the opportunities that the Marcellus Shale offers to natural gas prospectors.  Nevertheless, the emergence of StatoilHydro as a passive foreign partner should serve as a reassurance to domestic gas produces in search of cash as the Norwegian giant is more likely than not only the beginning of wave of large foreign multinationals looking to diversify their production base via the acquisition of U.S. oil and natural gas producers in relatively low cost venues. 

With the automakers in such dire straits and in search of government funding for the second time this year, it is only natural to assume that the federal government will be able to dictate terms to America’s once proud industrial titans.  With the changing political climate, these new terms will be driven by Barack Obama and the congressional democrats. 

While the Big 3 (General Motors (GM), Ford (F) and Chrysler) are currently asking for over $50 billion, they have already received $25 billion to retool plants for more fuel-efficient vehicles.  Such a large intervention should be used by the Obama administration to expand their own agenda while at the same time saving countless American jobs in the process.

The Wall Street Journal was out with an article on Monday stating that over 1,800 publicly traded banks would likely seek access to the Treasury Department’s rescue plan.  While the total dollar figure being attached to the rescue plan is in excess of $700 billion, only $250 billion has been earmarked for bank recapitalizations.  While this is a large sum, it is increasingly looking as if more money will be needed given the sheer number of banks that have not yet received government investments. 

As we can see from the table below (via thestreet.com), nearly $170 billion has already been committed to supporting the institutions that control the majority of our banking system’s deposit base.  However, this leaves only $80 billion in Treasury funds for the support of our country’s remaining 8,000 banks, most of which are private and state chartered. 

I have been amazed to watch the price of oil crash from its peak of $147 to its recent low of $62.  If you read my prior article, you know that I believed that there were strong fundamental reasons that were driving the price of oil higher. 

After oil prices collapsed 57% from their peak, the main reason given as an explanation for its fall was the decline of oil consumption as the economy began to slow.  While this theory certainly holds true to some degree, I believe the driving factor in oil's decline has been the lack of liquidity in the marketplace rather than the declining consumption of U.S. businesses and consumers.

Atlas Pipeline Partners (APL) and Atlas Pipeline Holdings (AHD) have declined significantly recently over concerns about the margins at APL's processing plants. 

A large percent of APL's income comes from the sale of natural gas liquids that the company strips out of the natural gas that flows through its pipelines.  At APL's processing plants unprocessed natural gas goes in and APL then burns a small amount of the natural gas to pull out the higher value natural gas liquids.   APL then sells the natural gas liquids and has to pay for the amount of natural gas that has been burned up in the process.