The stock market got rocked today on the news that the largest bank in France, BNP Paribas, is halting withdrawals from three of its investment funds. The reason for the halt is that the bank can no longer fairly value its holdings. Yikes!

Let me explain. Hedge funds like to make money, but what they love to do is make money steadily. James Altucher, at Stockpickr, described the hedgies' goal of making, say, 2% a month, every single month rain or shine. If you're a hedgie and you can knock out 2% a month all the time, investors will adore you and you'll soon find yourself in the Grand Caymans managing a gazillion dollars. I wish I were exaggerating.

When the Federal Reserve lowered interest rates, many hedgies thought they had found the Holy Grail. They could borrow at short-term rates for next-to-nothing, then turn around and buy mortgage-backed securities for a lot more than they had originally borrowed. Presto, instant money! Best of all, it was so easy. The housing market was booming, and there was tons of money just lying around. Soon funds were using their collateral to leverage up 5-to-1 or even 10-to-1 at times.

Hey, what's to worry about? Everybody's doing it.

Now that the housing market is taking it on the chin, those mortgage-backed securities are getting walloped, and the subprime sector has been hurt the most. So the problem these hedge funds are having is that they can't unload their mortgage-backed bonds because no one will buy them.

In an interview today, Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York, said, "There are no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, don't have any buyers."

This means they really don't know the price of the bonds--and that means they have no idea how much collateral they really have. So instead of "only" being leveraged 5-to-1 or 10-to-1, they're really leveraged...ugh, I don't even want to think about it!

So now you can see the problem BNP Paribas faces. Think about that in global macro-economic terms. A hedge fund in France gets a super-atomic wedgie because some schmoe in Sheboygan can't pay his mortgage! Paribas said that the funds lost 20% in the last two weeks and are now down to two billion euros.

This is almost an exact repeat of what's happening at Bear Stearns (BSC). As the crises hits at Bear, two of its top executives were at an important engagement in Nashville--a national bridge tournament. Again, I wish I was exaggerating.

Well, I'm glad to see they're not worried, unlike this guy.

So now that we know what isn't working on Wall Street, let's turn our attention to what is working--namely, earnings. And by earnings, I mean real actual profits, not bought for, or highly leveraged money, just real earnings.

Last week, I highlighted one of my favorite Emerging Growth energy stocks, Holly Corp. (HOC), an independent petroleum refiner. I said that I thought the company's next earnings report would be quite good. Well, the earnings report came today and I was wrong--the report wasn't good, it was fantastic.

Holly is a perfect example of a company that's still able to generate strong earnings in a difficult environment. For the second quarter, Holly earned $2.84 a share, which creamed Wall Street's consensus estimate by 41 cents a share. Revenues jumped to $1.22 billion which topped estimates by over 20%. The shares shot up 8% today before pulling down some this afternoon. The stock is now up over 400% since I first recommended it to members of my Emerging Growth service less than three years ago.

Don't be fooled by any of the talking heads on TV--there are plenty of stocks like Holly out there. In fact, I think the next candidate for an earnings surprise is Guess (GES), the teen jean store. I currently recommend the stock in my Emerging Growth service.

The company is due to report its second-quarter earnings soon, although the company hasn't given us a specific date yet, I suggest you keep an eye out. Guess has made a nice habit of creaming Wall Street's predictions for the past several quarters. Last quarter, the Street was expecting EPS of 28 cents, Guess earned 38 cents. In February, Guess beat earnings by six cents a share and the stock vaulted 12%. In a year-and-a-half, Emerging Growth members have made over 180% in shares of GES. I currently rate Guess a buy anytime the price is below $50 a share.