Wow! The August natural gas (“gas”) contract has fallen from a little over $13 per Million BTU to 10.57 at market close Friday, about a 20% drop in less than two weeks. Is it going to stay down, or pop back up? In favor of staying down there is increasing production from the U.S. deepwater, reduced demand from industries that supply house‑building materials, electricity from new windmill farms reducing the need for gas‑generated electricity and a build of 104 Billion Cubic Feet in the week ending July 11, 2008 (“the last week”). 

This market plunge makes me optimistic. Why, you may ask. Because I feel that Ben Bernanke will finally learn his lesson, which is, “Don’t talk tough on inflation.” Every single time that Bernanke has talked tough on inflation, the market has tanked.

On June 10th, Bernanke stated, "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation." He followed this up with, "Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."

Yes, construction spending in the United States is down. And now Western Europe appears to be following suit. So Manitowoc (MTW), which gets more than 80% of its revenue from cranes, should not prosper. Except for that the United States and the European Community do not make up the whole world. There will be continuing demand for cranes in the Middle East, China, India, Latin America and Eastern Europe. And with Manitowoc down by almost half since last December, this stock looks like a bargain. 

But there is another reason to buy a crane builder. With petroleum prices high and likely to go higher, the world will become more vertical. It was the automobile and the relatively low price of petroleum that allowed American cities to spread out in the first place, from 1950 through about 2005, with a thriving central city giving way to thriving suburbs and then exurbs popping up at the edges. Now the process is working in reverse, with the focus back on the center and housing in the form of multi-story buildings becoming increasingly prevalent. Cranes will be required to build the housing of the future.  

Ahhhh, the business cycle, etched so very deep into the collective mind of Wall Street. The business cycle, so very important, so very fundamental, that there is even a category of stocks known as "cyclicals." And conventional wisdom states, "Don't get caught with a cyclical when the business cycle goes south! Cyclical stocks do terribly in the trough of the business cycle. So if you see even a hint that the down side of the cycle is coming, get out, get out. Run for the hills. It's gonna be baaaad. Oh so very, very baaaaaad."

And what could be more cyclical than steel. Sure, when the good times role, we need steel, out of which to build cars and beautiful office towers. But when the business cycle turns south, we don't need very much steel anymore. And then, per conventional wisdom, there is a competitive frenzy between the steel companies and they start going under and fools who have been crazy enough to invest in steel lose all there money. And that's baaad. Oh, so very baad.

Between the subprime meltdown, potential losses from banks getting stuck on the LBO bridge and losses from loans to builders, investors are beginning to wonder if there is any part of the financial services sector worth serious consideration. Perhaps the place to look is down on the farm, where rural banks are bound to benefit from good times for farmers. They may not be in hog heaven just yet, but rural banks at least have some upside, to reward investors for risking the downside. And of course there is a downside, because even in rural areas a lot of loans have been made to home builders and home owners, some of whom will run into trouble.

But for the investor who has watched the potash miners and the agricultural chemical and equipment suppliers soar to ever new heights, and who is wondering if there are any stocks related to agriculture that are not so expensive that one must think once, twice, three times before purchasing, rural banks represent an inviting opportunity. They are a reasonably priced way to get in on the price of corn, which is as high as an elephant’s eye, right now.

Q: When the percentage of households that own their home goes down, what goes up?

A: The percentage that rent.

The exchange traded fund [ETF] world has blossomed with the introduction of designer exchange traded funds [ETFs] that apportion their holdings according to some statistical process other than mere market cap. There are ETFs from Wisdom Tree that apportion their holdings according to total dividend payments.

Along similar lines the SPDR Dividend ETF (SDY) invests in the 50 highest-yielding companies in the S&P Composite 1500 that have consistently raised their payouts for at least 25 years. On the other hand, the PowerShares FTSE RAFI US 1000 (PRF) evaluates the 1,000 biggest U.S. companies on the basis of average sales and cash flow over the previous five years, total dividends distributed over the previous five years and latest book value (assets minus liabilities) and apportions its holdings according to a formula based on these factors.