Let me see if I have this right, the Fed cut rates by 0.25% yesterday and the market drops 362 points today.

Yes, I know it's painful to see, but this week I'm going to tell you about a stock market that's up over 120% this year. But there's one hitch: It's not in the United States--it's in China.

The Shanghai Composite Index is currently near 6,000. To put that in some perspective, two years ago, the index stood at 1,100.

As bad as things look for the U.S. dollar (which just hit a 130-year low against the Canadian loonie), the plunging dollar is a gigantic boon for emerging markets. In fact, my Global Growth service has been making huge profits in China and other foreign markets.

Consider these numbers. Last week, my Global Growth recommendations, rose 6% on average. In comparison, the S&P 500 rose just 2.3%. My top three Global stocks had a "slow" week, up 2.46%, but my 11 China stocks rose an average 7.38%, and I just added two new China stocks this week.

Last week, 14 of our 36 stocks gained 9% or more. One South Korean stock was up 16.2% and a Chinese stock was up 19.7%. In the last ten weeks, my Global stocks are up 49.9% compared with 6.3% for the S&P 500. It gets even better. In just ten weeks, my top three picks are up 126.8%.

Before I get ahead of myself, you can subscribe to Global Growth for three months at $1,395 or one year for $5,000. I know it's pricey but there's no other investing service I know of that scans the world for the best growth stocks with a record of beating the S&P 10-to-1. So sign up today!

Would you believe that one of my favorite China stocks isn't even in based in China? It's a Greek shipper! Athens-based DryShips (DRYS) is just one of the many companies that's benefiting from the emergence of China as a world economic power. Since I first added DryShips to our Global Growth Buy List in January, the shares are up an astounding 570%.

Before I tell you about my one of my favorite China stocks and how you can profit from the dominant growth story of this decade, let me fill you in on some of the details of the Chinese economy.

The G7 nations recently called on China to accelerate the pace of the yuan's snail-paced rally. Naturally, they didn't say anything about the euro's strength or, for that matter, the dollar's weakness. Rodrigo Rato, the head of the IMF, chimed in by saying, "It is in China's interest to let its currency be determined by market forces, and right now we see it is considerably undervalued."

Well, Rodrigo, let's just say that China doesn't seem too worried about world public opinion. The head of the Chinese Fed, Zhou Xiaochuan, skipped on the meetings last week so he could attend the Communist Party Congress in Beijing.

Either the food is a lot better at the Commie confab or China is simply going to do whatever it wants. I'm guessing it's the latter. Don't get me wrong. I'm not saying I approve of China's policies, but I will look at global dislocations for profit opportunities. In Greece or China or wherever. My team and I leave no market behind.

Two years ago, China stopped pegging the yuan to our dollar and instead pegged it to a basket of currencies. The yuan doesn't exactly float freely like our dollar (cough, cough) but since the peg changed to a basket of currencies, the yuan has gained nearly 10% against the dollar, and slipped more than 5% against the euro.

As a result, the valuation on the yuan is a major concern in Europe because the euro is at a big disadvantage, and there are concerns that Europe's growth is slowing. For example, it was recently reported that Germany's IFO business climate index slipped in October to 103.9 from 104.2 in September. In contrast, China posted another stunning quarter of GDP growth, +11.5% for the third quarter.

The brewing problem isn't so much China's incredible economic growth, but that inflation there continues to rise. The government just reported that consumer prices rose 6.2% in September. Compare that to the hand-wringing over inflation in the United States where consumer inflation is less than half that.

Due to the high inflation, the Chinese Fed will more than likely raise rates soon. The Chinese have negative real savings deposit rates relative to inflation, and that leads to speculation in real estate and stocks. It's an old story but it's now happening in a new ball field. This is why the Chinese Fed has to raise rates so it can prevent an asset bubble as Chinese investors seek higher returns.

The inflation problem is worst in food prices; especially pork. The Chinese government will try its best to contain double-digit food inflation because higher food prices can lead to widespread hunger and social unrest. Remember Tiananmen Square? Well, so does the government. Also, keep in mind that the Beijing Olympics are only nine months away.

It's possible that the People's Bank of China will wait until after the Party Congress is over to hike rates. Personally, I expect a rate hike sooner. Despite the inflation problems, the Chinese economy is red hot. The economy grew at an annual pace of 11.1%, 11.9% and 11.5%, for the first three quarters of this year. Now you can see why I like this sector so much.

The Global Growth China stock that I want to tell you about this week is Baidu.com (BIDU). This is basically the Google of China. In fact, Google used to be a major investor in Baidu. Last week, BIDU reported outstanding earnings. The company's profits doubled to 70 cents a share. Wall Street was expecting 63 cents a share. The stock has exploded on the news and it's up 17% in the last week. Personally, that's the kind of inflation I like.

Investor confidence in major financial institutions is sinking from bad to worse. Forbes reported in its current issue (November 12) that Citigroup (C) has the most "off balance sheet" assets of any bank, at $222 billion, and potential exposure of $80 billion in Structured Investment Vehicles (SIVs). Obviously, the resignation of Citi's CEO and the latest earnings restatement will add to the speculation that the bank may have to cut or suspend its dividend as well as recognize some substantial losses. There's no word of a SEC investigation into Citigroup's off balance sheet assets yet, but I would not be surprised if that is possibly in the works, too.

As a result, if you are an investor from outside the U.S., you probably think that the U.S. financial system is imploding. No wonder the U.S. dollar continues to collapse, which helps many of my Global Growth stocks. Just to demonstrate what a mess the financial system is in, USA Today reported that out of the 307 S&P 500 companies that had reported third quarter earnings so far, the average year-over-year change is DOWN 5.3%, the worst quarter since the fourth quarter of 2001, just after 9/11. However, USA Today added that if the earnings from the homebuilders and financial companies were subtracted, the earnings of all the other S&P 500 companies were a handsome +13.1%! Obviously, financial institutions account for the vast majority of the losses.

The sub-prime, CDO and SIV credit crisis is not limited to the U.S. Last week, Switzerland's Credit Suisse reported a 31% drop in earnings due to a $1.9 billion write off, due to mortgage and leverage loan commitments. However, since the crisis started in the U.S., we are being blamed other financial problems around the world. Merrill Lynch was the leader in CDOs and Citigroup was the leader in SIVs. It will be fascinating to see if any major banks in better shape will try to acquire either Merrill Lynch or Citigroup. One year from now, I suspect that at least one of these major financial institutions will have been acquired, possibly by a big foreign bank.

Everyday, it seems, the stock market drops another bomb shell on investors. Yesterday, General Motors (GM) announced a charge of $39 billion. That's far more than most companies are worth. The Dow responded by shedding 360 points.

Earlier, Citigroup (C), the largest financial firm in the world, said that it may write off $11 billion of subprime losses. This is on top of a previous announcement of a $6.5 billion write off. Not surprisingly, their CEO just resigned.

It doesn't end there. Merrill Lynch (MER) reported a write off of $8.4 billion, and their CEO also left (but not before taking a payment of $160 million). These problems are even going international. Last week, Switzerland's Credit Suisse (CS) reported a 31% drop in earnings due to a $1.9 billion write off stemming from mortgage and leverage loan commitments. Dick Parsons, the top dog at Time Warner (TWX), will also be leaving the CEO post. Many shareholders have been demanding his resignation for months

So be careful the next time you go into Kinko's. It might be crowded with laid-off CEOs working on their resumes! Given all of these problems on Wall Street, this week I want to cover a topic most investors never think about--how to protect yourself from stock bombs.

Nearly every stock will, at some point, have a rotten day. Even the best of stocks can plunge 10% or 15% in a single day. That's expected to happen. Some 23-year-old analyst will downgrade XYZ Corp. and suddenly every 24-year-old hedge fund manager will panic and dump their shares. Honestly, nothing I can do will protect you from that. But what I can do is show you some key steps to take to minimize your risks to the worst of the stock bombs.

The first and most important step is to make sure that you're properly diversified. It's amazing how many investors never grasp this fundamental concept. In my Blue Chip Growth service, I recommend that investors be 60% diversified in conservative stocks, 30% in moderately aggressive stocks and 10% in aggressive stocks. It's easy and it's a great way to hold down your risk exposure.

I've been very lucky to have amassed a great long-term track record in Blue Chip Growth. According to the independent newsletter tracker, The Hulbert Financial Digest, the Blue Chip Growth Buy List is on its way towards beating the S&P 500 for the eighth time in the past ten years. All told, we're up over 240% which is nearly three times better than the overall market. And remember, that includes the worst bear market in 70 years.

Some commentators say that our superior results have been "paid for" by taking heavy risk or reckless sector bets. That's absolutely not true. In fact, keeping your risk to a manageable level is one of my highest priorities at Blue Chip Growth. We want investors to eat well and sleep well. That's why, according to Hulbert, our risk-adjusted performance also rates very well.

I'll even admit that, years ago, I recommended Enron in Blue Chip Growth. The numbers looked great and they had a great story. Of course, that later turned out to be untrue, but at the time the stock was racing higher so nobody bothered to ask the tough questions. Where we were different from the crowd, however, is that we started to see unusual volatility in the stock. That's never a good sign. When the risk level got too high, I gave the word to our subscribers to sell Enron and we pocketed a nice 30% gain before the bombs really went off.

This week, I want to cover ten tech stocks that you ought to sell right now. I'm not saying they're like Enron, but they could do damage to your portfolio. The stocks are:

1. Advanced Micro Devices (AMD)
2. Micron Technology (MU)
3. Motorola (MOT)
4. QLogic (QLGC)
5. LSI Corp (LSI)
6. JDS Uniphase (JDSU)
7. Xerox (XRX)
8. Symantec (SYMC)
9. Tellabs (TLAB)
10. Teradyne (TER)

Some of these stocks have deteriorating earnings. Some have lousy margins, and some have poor earnings quality. But all of them rank poorly in my proprietary stock-screening tool, PortfolioGrader Pro.

Don't be afraid to take a loss on a position. Some investors will sit on a loss forever. That's a huge mistake. The best way to make up a loss is by owning a fundamentally superior stock, and not waiting for a bad stock to hopefully turnaround.

Before you make any investment decision, I strongly encourage you to visit PortfolioGrader Pro. The tool is completely free. Just enter in each ticker symbol and it will give you my rating, ranging from "Strong Buy" to "Strong Sell." The database covers over 5,000 stocks and it's updated every week so you're never left in the dark.

Now that I've told you the tech stocks that I don't like, I want to give you three tech names that I do like. My favorite technology stocks in Blue Chip Growth are Google (GOOG), Apple (AAPL) and Research in Motion (RIMM).

I first recommended Google two years ago and the stock has already given us a nice 125% gain. I currently rate it a moderately aggressive buy up to $691. We added Apple nearly three years ago, back when a lot of folks were still skeptical. We're now sitting on a 520% profit. Apple is a moderately aggressive buy up to $183. Finally, Research in Motion has nearly tripled for us since February. The stock is a strong buy for aggressive investors up to $127.

The bombs continue to go off on Wall Street. Shares of E*Trade Financial (EFTC) plunged 59% yesterday after the company projected a decline in fourth-quarter profits. An analyst from Citigroup piled on saying the company could go bankrupt. For the year, EFTC is down 84%.

Last week, I talked about how investors can protect themselves from these stock bombs. One of the easiest ways to mind your portfolio is to see how your stocks rate at my Portfolio Grader Pro website. This is my free stock-rating website where I give out buy-hold-sell advice on over 5,000 stocks.

The plunge in E*Trade's stock wasn't much of a surprise to me. I had the stock rated as "F - Strong Sell" in Portfolio Grader Pro.

The Dow Jones Industrial Average made news this week when it briefly fell below 13,000. But I'll tell you a little secret Wall Street doesn't want you to know. The Dow has badly underperformed the real stock market.

Most people don't realize how bad it's been. The Dow just follows thirty mega-cap stocks and that's not where the best action has been. I'll give you a perfect example. If the Dow had merely kept pace with the S&P 600 Small-Cap Index, then the Dow would be around 23,500 today. Instead, it's more than 10,000 points lower.

Still, the Dow's closing number is reported by every newspaper and media outlet in the country. In fact, it's now reported all over the world. The problem is that investors don't know how poorly it's done. I get frustrated by the media's lack of interest in anything that's not a $100 per share stock.

At Emerging Growth, I have no such rules. For nearly 30 years, my team and I have pledged to look at every sector, every industry and every price range to find the very best stocks to own. I'm very proud of our track record. Since the beginning of 1985, the Emerging Growth Buy List is up over 5,500%. If the Dow had done that well, then it would be closing in on 70,000 today.

Some of our best investments have been in overlooked low-priced stocks. Three years ago, I recommended shares of Hansen Natural (HANS), the maker of the Monster Energy drink. The stock was going for just $20 a share. Let's just say that it wasn't getting a lot of media coverage back then. We sold it a few months ago for a gain of over 1,000%. Now that's exactly what Emerging Growth is all about!

This week, I want to focus on some of my favorite low-priced stocks. I know many new investors don't like putting down $10,000 or $15,000 for only 100 shares of stock. I don't blame you. The good news is that lower-priced stocks tend to come from some of the most innovative smaller companies. Larger organizations are often overly bureaucratic and slow to change (just look at Citigroup).

One low-priced stock I recommend right now in Emerging Growth is Simulations Plus (SLP). This is a very small outfit based in Lancaster, CA that makes computer programs that simulate absorption and pharmacokinetics for orally dosed drugs. Their programs are godsends for many medical professionals.

Yesterday, shares of SLP closed at just $4.62. Don't let this low price fool you. The stock is up 60% for the year. Best of all, the company is practically ignored by the major Wall Street brokerages. Some people think that's a bad thing. Not me--I love finding great stocks before the crowd. For the most recent fiscal year, revenues at SLP jumped 50% and the company is financially sound. There's zero debt and over $4 million cash. I rate Simulations Plus a strong buy up to $8 a share. But I should caution you that I also rate it as an aggressive stock which means that it's highly volatile. If you can stand the daily zigs and zags, then SLP is a great stock to own.

Another low-priced Emerging Growth favorite is Darling International (DAR). This company loves fat! By that, I mean Darling's business is to go around to restaurants, grocery stores and butchers to collect cooking grease, animal fat and bones. Gross, I know, but this waste is important because it also serves as biofuel. Darling is actually working to help the environment. Currently, most biofuel comes from ethanol, but more and more is coming from animal fats.

Darling's business has been red hot lately. The company recently announced that its quarterly earnings jumped from two cents a share to 15 cents a share. Wall Street was expecting just 12 cents a share. I'm expecting more great things for Darling. Yesterday, the shares closed at $9.83. I currently rate DAR a conservative buy up to $10 a share.

My last low-price recommendation is Methode Electronics (MEI), also recommended in my Emerging Growth newsletter. The company's shares currently go for about $12. Methode makes devices that use electronic and optical technologies to control and convey signals through sensors, interconnections and controls. Last quarter's results stunned Wall Street. On average, analysts were looking for a profit of 16 cents per share. Method earned 22 cents a share, thus providing us with a 37.5% earnings surprise! The next earnings report is due on December 5 and I'm expecting another earnings surprise. I rate Methode as a moderately aggressive buy up to $14 a share.

Obviously, many in the financial news media are clueless and deserve a lump of coal in their stockings for the gloomy attitude that all too often permeates their reports. This was further reinforced on Wednesday when the Commerce Department reported that October retail sales rose 0.2%, in-line with economists estimates and a sign that consumer spending is not in the tailspin that the financial media is forecasting. As a result, I predict that the financial news media is going to be shocked by the tremendous shopping that begins on the Friday after Thanksgiving!

Last Thursday, the Labor Department reported that the Consumer Price Index (CPI) rose 0.3% (a 3.6% annual rate) in October, which was in line with economists' expectations. The core CPI, excluding food and energy, rose just 0.159% (a 1.9% annual rate), which was also in-line with economists' expectations. Higher food and energy prices contributed heavily to the increase in the overall CPI, rising 0.3% and 1.4%, respectively. The best news in the October CPI was that housing costs rose just 0.2%, so the housing crunch appears to be keeping overall inflation low.

By contrast, food and energy increases were lower in the Producer Price Index (PPI), which rose just 0.1% in October (a 1.2% annual rate), while wholesale energy prices fell 0.8%! As a result, the core rate of wholesale inflation, excluding food and energy, was unchanged. Economists had expected a 0.1% increase in both the overall PPI and core PPI, so the fact that the core PPI was unchanged was very bullish and provides the Fed additional room to cut key interest rates.

Despite these positive October reports, economists believe that inflation is still brewing in the pipeline. Some economists now expect a whopping 2% increase in the November PPI. This may explain why Wall Street largely ignored October's positive PPI report. But I feel there is a problem with their perma-bear outlook. Oil prices are suddenly falling! Apparently, economists are now figuring this out: As oil prices rise, demand can drop. For example, last week the International Energy Agency (IEA), the industrialized world's energy watchdog, lowered its prediction for global demand growth for the fourth quarter, which helped to ease fears of a short-term supply crunch. Additionally, some officials at the Organization of Petroleum Exporting Countries (OPEC), especially Saudi Arabia, said that they may consider raising their production ceiling as soon as next month. Clearly, the world is not about to run out of oil any time soon.

To prove my point, Saudi Arabia's oil minister, Ali Naimi, the de facto leader of OPEC, argued strenuously against what he called "the pessimists," who have driven up prices by predicting supply shortages and skyrocketing demand in emerging markets. Specifically, Ali Naimi told reporters last week that "The oil price today is no reflection whatsoever of the fundamentals" of supply and demand. Clearly such statements have a political tilt, since Saudi Arabian officials are eager to deflect the notion that they bear the blame for higher oil prices. Oil producers have stressed other factors, such as the falling U.S. dollar, geopolitical jitters (e.g., Iran and Pakistan) and especially market speculation and oil hoarding by some of those speculators.

This last point is evident by reports from Wall Street traders who had sold options to investors, including hedge funds, to buy oil at $100 a barrel, according to a Lehman Brothers report. Apparently, many hedge funds were betting that crude oil would top $100 and they could realize a quick profit by exercising their options. However, as too many hedge funds learned this summer, if they are all doing the same trade at once, it won't work. Ironically, Lehman Brothers reported that the closer oil crept to $100 per barrel, the more investment banks had been buying oil to hedge the risk of losses on the contracts, and so it appears that market speculation has been largely responsible for crude oil's recent surge, and fall. In fact, nearly a third of all options to buy crude at $100 on the New York Mercantile Exchange expired on Thursday and are now worthless. As a result of the expiration of these options, suddenly Wall Street firms did not have to buy oil as a hedge, so crude oil prices suddenly softened when oil speculation moderated.

Let's turn from speculation back to supply and demand. The IEA's monthly report suggested the world's oil supply-demand balance may be softer than initially forecast. Specifically, the IEA said it was lowering its prediction for global demand growth for the fourth quarter by 500,000 barrels a day, due mainly to signs of weakening demand in the U.S. and the countries of the former Soviet Union. The IEA added that world oil supply rose in October by 1.4 million barrels a day. One surprise performer was Iraq, where output from its northern fields is expected to top 600,000 barrels a day this month, the highest level since 2003, when the U.S. entered Iraq.

The IEA also noted increased production from Angola, a new OPEC member, now emerging as an important supplier of crude to the U.S. And last week, I reported to you about Brazil's huge (eventually supplying 200,000 barrels a day) new offshore discovery. Overall, OPEC countries supply around 40% of the world's oil demand, which now runs at just over 85 million barrels a day. Demand for oil has continued to climb in the developing world, but it has actually fallen in some Europe countries and has barely increased in the U.S. As a result, the IEA says "strong indications are now emerging that high prices are depressing demand" in industrialized countries.

The other good news regarding the supply and demand situation is that last week, Russia's energy minister, Viktor Khristenko, stated that the Russian government is considering new tax breaks to stimulate investment and boost production. Russia is the world's second largest oil exporter after Saudi Arabia and is striving to boost its production to 10.4 million barrels a day, compared with 9.8 million barrels a day now. The country's new oil production will likely come from developing projects in Eastern Siberia, offshore Sakhalin Island and the Arctic north projects. The only stumbling block is that Russian leaders stole a controlling interest in its most successful fields and may have alienated major foreign oil companies. However, now that Russia needs major capital investments to explore vast areas in the Arctic and Western Siberia, it will meekly invite the big oil companies back in, with tax breaks and better guarantees for their property rights.

Under Bernanke, the Fed is trying to improve its transparency. Today was the first time the Fed issued economic projections for the next three years instead of two. The Fed will also start issuing its forecasts four times a year instead of just twice. Here's part of Bloomberg's report on today's forecast:

Federal Reserve policy makers lowered their growth forecast in October and expressed concern about credit-market losses, even as they described the interest- rate cut as a "close call."

"Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity," according to minutes of the Federal Open Market Committee's Oct. 30-31 meeting. "Many members noted that this policy decision was a close call."

Records of the gathering, which buttressed speculation that the Fed will reduce borrowing costs again next month, were accompanied by estimates and phrases that highlighted risks to growth. The language contrasted with the October statement, which said the dangers of a slower expansion and faster inflation were "roughly" equal.

"This does not sound like a close call to us, more of a no-brainer," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. "We can be pretty sure that if the outlook continues to deteriorate and markets remained distressed, they'll be easing again soon enough."

Federal funds futures quoted on the Chicago Board of Trade at 3:15 p.m. in New York indicated a 90 percent chance of a quarter-point rate cut on Dec. 11, and 67 percent odds of a further move on Jan. 30. The 10-year Treasury note yielded 4.09 percent, from 4.07 percent late yesterday, while the dollar remained lower.

Cooling Expansion

FOMC members predicted growth could slow next year to as low as 1.8 percent, according to the middle range of forecasts. The numbers are "notably below" the 2.5 percent to 2.75 percent anticipated in June, the Fed said.

Inflation, as measured by the personal consumption expenditures price index excluding food and energy, will be 1.7 percent to 1.9 percent, down from 1.75 percent to 2 percent.

"Most participants judged that the uncertainty attending their October projections for real gross domestic product growth was above typical levels seen in the past," the Fed said. "In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience."

Since today is Thanksgiving, I wanted to take this opportunity to answer some questions that many of my subscribers have been asking me. I love getting feedback from my readers and from investors I meet at my seminars. I want to remind you that you can sign up now for any of my four services: Blue Chip Growth, Emerging Growth, Global Growth or Quantum Growth.

Q. There is so much talk about the "crashing" of the U.S. economy in the media. I believe that inflation is actually far higher than the government says. What do you think is the truth given the weak dollar? Do you think a significant recession is nearly here?

Louis: Inflation is hideously high due to food and energy. The food inflation stems from the fact that we are putting corn in our gas tanks due to ethanol blending, so the costs for animal feed have risen and caused all food prices to rise. The energy inflation has not been as bad, since natural gas prices remain low. Furthermore, the prices at the gas pumps have not risen as much as the light/sweet crude oil quoted on CNBC, since North America runs predominately on cheaper heavy sour crude oil, and the price of ethanol has fallen in recent months. However, when the summer driving season approaches in March and demand picks up, gas prices could cross over $4 per gallon if oil prices remain high.

Our Fed ignores inflation from food and energy and tends to concentrate on "core" prices. Since core inflation is much better behaved, the Fed has plenty of room to cut interest rates. With the Fed aggressively easing, the risk of a recession is not high.

Just remember, the folks on CNBC like to scare people to boost their ratings. Frankly, I think that this is hurting their long-term viewership. The folks on Bloomberg and Fox Business News are much calmer and tend not to try to scare investors.

Q. Hi Louis, I know the end of the year is fast approaching. What is your forecast for 2008? Is there anything I should be doing to prepare my portfolio for the end of the year? I know in mutual fund investing, this period of time is known as distribution season. Is there anything I should watch out for as a stock investor? Love your newsletters--keep up the good work!

Louis: There is nothing that you have to worry about at the end of the year other than possibly doing some tax planning based on your unrealized gains and losses. Typically, investors try to defer their gains into the next year and realize any losses in the current year. The mutual fund tax year ended on October 31, so all the tax selling that mutual funds do every year has already happened.

Q. What is the GDP below which most economists define as a recession when it occurs for at least two consecutive quarters?

Louis: Two quarters of negative GDP growth defines a "recession." We are nowhere near a recession. The flash estimate of third-quarter GDP growth was 3.9% but will likely be revised up to approximately 5% annual growth due to the strongest productivity surge (to 4.9%) in 4 years, falling labor costs (down 0.2%) and booming September exports. The third-quarter GDP growth was the strongest in years. However, the GDP growth for the fourth, first and second quarters are expected to slow according to Fed Chairman Bernanke's testimony. This tells me that the Fed will likely be lowering interest rates for the next few months. I expect that by the time the November presidential elections near that the U.S. economy will be firing on all cylinders and growing at approximately a 5% annual pace.

Q. Louis, I'm in the process of reading your new book. You did an awesome job! It's very informative and has great real-life analogies that I truly appreciate. I'm bucketizing my stocks based on the 60/30/10 rule and have a question regarding the differences in PortfolioGrader Pro and your monthly Blue Chip Growth newsletter. For example, McDermott International (MDR) in the monthly newsletter is categorized in the aggressive area, yet in the stock picker it's moderately aggressive. Which one is right?

Louis: Great question. To answer your question, each newsletter sorts the stocks based on their underlying volatility. PortfolioGrader Pro rates stocks on the volatility of the up to 5,000 stocks in the database. As a result, a stock that is classified "Moderately Aggressive" in Blue Chip Growth might be classified as "Conservative" in PortfolioGrader Pro. In other words, the more volatile small-cap stocks in PortfolioGrader Pro tend to skew the risk classifications in the database.

Q. Hi Louis. Do you have a strategy on how to best expect or prepare for a market correction? Last year, we saw a correction around mid-May, and this year it started late-July, when the earnings season began. A lot of gains we had were wiped out. Every time, we wait for the earnings announcement to be the big catalyst, but this time earnings did not make any big movements. My question is, how do we protect profits? Should we start Dollar-Cost Averaging during corrections time?

Louis: In 2006, there was no doubt that many folks "sold in May and went away." This year, the market was hitting news highs through the spring, until it faltered in late-July. In August, the market repeatedly tried to "retest" its late July lows. All that is really happening is that the stock market is bouncing along the bottom.

Instead of Dollar-Cost Averaging, I believe the best way to protect your profits in turbulent markets is by making sure you're diversified and following my 60% Conservative, 30% Moderately Aggressive and 10% Aggressive recommended allocations.

The bottom line is, if I were a value manager with predominately financial stocks, I would be a wreck. But since I am a growth manager, I am not worried, since sales and earnings remain strong and P/E ratios remain at more than a decade low. Wall Street likes to shoot first and think second. This is not pleasant, but not uncommon. I expect that our stocks will recover very quickly since their earnings are far superior to the overall stock market.

Q. Can you explain why "value" stocks are getting hammered? What makes them so susceptible to downward movement in this market environment? Thank you.

Louis: Based on the Russell indices, value investing has outperformed growth investing for seven straight years (2000 through 2006), which has never happened before. Financial stocks, such as banks, led the value indices (e.g., Russell 1000 Value) higher in the past several years. However, in my opinion, value stocks, such as GM, peaked last year when many low-quality value stocks led the overall stock market higher in 2006.

So far in 2007, growth stocks have outperformed value stocks every month, and the financial stocks that dominate the value indices, such as banks, have "flamed out" due to the ongoing credit crisis in CMOs and CDOs. Some big banks, like Bank of America (BAC) now have dividend yields in excess of 5%, so the selling in financial stocks is getting overdone, but due to the overhanging crisis in subprime mortgages, mortgage companies and other financial stocks have been hit very hard and may continue to be hit with relentless selling pressure as Wall Street shifts its focus away from value investing to growth investing. I suspect that growth investing will outperform value investing for possibly two years or more.

Q. Why wouldn't the Fed want to cut rates again? Are there any sectors that could be hurt by a rate cut instead of helped?

Louis: The Fed cannot not fight market rates, so they will keep cutting as long as the Federal Funds rate remains substantially above market rates, based on short-term Treasury bills. The Fed's favorite inflation indicator is the Personal Consumption Expenditure (PCE) index, and it's currently within the Fed's official comfort zone of 1% to 2%. As inflation remains within the Fed's target range, the Fed will likely keep cutting interest rates. There really are no industries that are hurt by a Fed cut, since it helps bolster economic activity, which is good for all sectors.

Q. The technology and telecommunication sectors seem to be thriving; could this be more than just a trend? I'm new to your system. Do you have any particular tech recommendations for new investors?

Louis: You're right. We are in the midst of a new technology boom, but it's not centered around the personal computer. Instead, it's focused on your cell phone (e.g., touchscreen on iPhone), vehicle, home appliances and other gadgets that compose the "next generation" of technology. The booming aviation and defense industries are also driving the technology boom. Some of the most exciting stocks caught up in this boom are America Movil (AMX), Flir Systems (FLIR), FARO Technologies (FARO) and Synaptics (SYNA), all of which are recommended in my Emerging Growth newsletter.

Q. Louis, what are your current thoughts on the stocks related to the housing bubble? Are stocks like LEN and CFC on your radar at this time?

Louis: Both Lennar (LEN) and Countrywide Financial (CFC) receive a total grade of "F" on PortfolioGrader Pro. Every stock that trades 5,000 shares a day in the past 52 weeks is located in my database and is therefore on my radar. Rest assured, I have no intention of buying either Lennar or Countrywide Financial until their ratings improve to at least an "A" or "B" grade in PortfolioGrader Pro.

Well it looks like the U.S. consumer is not so dead after all! Despite dire predictions by CNBC and others in the financial media, the holiday shopping season started out with a bang! In fact, due to the weak dollar, a lot of foreigners flew into New York City and other major U.S. cities to do their Christmas shopping due to America's relatively low prices--and without any Value Added Tax (VAT). Thanks to an early Thanksgiving date this year, the holiday shopping season will also be longer than normal.

The pessimistic analyst community is notorious for underestimating corporate earnings and the U.S. consumer. Analysts had predicted that retail same-store sales would be up only about 4% this year. However, based on Friday's strong start to the holiday shopping season, it appears that the analyst community was dead wrong on their skepticism about consumer spending. Also, due to the "invasion" of foreign shoppers taking advantage of the weak U.S. dollar and the lack of a VAT, it looks like Friday's surge in retailing stocks will help lift investor sentiment this week.

According to the Case-Shiller index, home prices are down 4.5% over the past year. Prices dropped 1.7% in the third quarter, which was the largest drop in the index's 20-year history.

Former boom towns in Florida and Southern California have now passed Detroit for the dubious honor of having the largest declines in the past year. Prices are still up in the Pacific Northwest and in areas of the South, but they're rising at a slower pace.

Fifteen of the 20 cities tracked in the index have seen prices fall in the past year, led by Tampa, Fla., with an 11.1% decline, followed by Miami with a 10% loss and Detroit with a 9.3% loss. Indeed, eight of the 20 cities recorded their largest-ever year-over-year price declines in September.

On a year-over-year basis, prices were up in five cities, led by Seattle and Charlotte, N.C., with 4.7% increases. After adjusting for inflation of 3.7% in the past year, real prices were up in just two of 20 cities.

Here are the year-over-year nominal price changes for the 20 cities covered by the index:

Tampa, down 11.1%; Miami, down 10%; Detroit, down 9.6%: San Diego, down 9.6%; Las Vegas, down 9%; Phoenix, Ariz., down 8.8%; Los Angeles, down 7%; Washington, D.C., down 6.6%; San Francisco, down 4.6%; Minneapolis, down 4.5%; Cleveland, down 4%; New York, down 3.6%; Boston, down 3.2%; Chicago, down 2.5%; Denver, Colo., down 0.9%; Dallas, up 0.2%; Atlanta, up 0.4%; Portland, Ore., up 2.2%; Charlotte, up 4.7%; and Seattle, up 4.7%.

Donald Kohn, the vice-chairman of the Federal Reserve, made news today by saying that the Fed "should not hold the economy hostage" to teach a lesson to financial market speculators. I think this is a clear signal that the Fed is leaning towards lowering rates at its December meeting.

Kohn appeared to be defending the Fed against critics who argued that the Fed's rate cuts may ease the pain for some investors and speculators who took on too much risk and suggest the Fed is bailing out these investors.

"To be sure, lowering interest rates to keep the economy on an even keel when adverse financial market developments occur will reduce the penalty incurred by some people who exercised poor judgment," Kohn said.

"But these people are still bearing the costs of their decisions and we should not hold the economy hostage to teach a small segment of the population a lesson."

The Fed cut is federal funds rate October 31 a quarter-point to 4.5 percent following a half-point cut in September in an effort to ease stress in housing and markets and minimize the economic impact of the credit squeeze.

My Blue Chip Growth newsletter is wrapping up another stellar year. This looks to be the eighth time in the last ten years that we've beaten the market. All told, the stocks on our Buy List are up more than 240% since 1998, which is nearly three times better than the rest of the market.

One of the reasons we've been so successful at Blue Chip is that we've been able to spot important new technologies that have radically altered the business landscape. We made big profits in companies like Dell, Cisco and Microsoft right as these companies were hitting their stride.

When I look at the tech universe today, perhaps the most revolutionary company is Google (GOOG). I've recommend shares of the search engine giant in my Blue Chip service for over two years, and we've more than doubled our money. The good news is that I expect to see even more gains in the weeks and months ahead.

Now I know what you're thinking, "Big deal, Louie, everyone recommends Google!" And that's true. However, what I want to tell you about today is the effect that Google is having on the business environment. Most investors don't understand how important this is. Google is changing so much of what we do, from how we shop to how we communicate. It's what I like to call the Googleconomy, and understanding it will help you prosper in the years ahead.

I'll give you a perfect example. When Google decided to go public, the company ignored the traditional Wall Street path and instead decided on a Dutch auction style IPO. Lots of companies could have done this, but before Google, no one tried. Google simply changed the rules.

Now let's look at where we are. One of the most dynamic stocks on the market following in Google's footsteps is InterContinental Exchange (ICE), which is an online futures exchange also recommended in Blue Chip. You can trade everything from commodities like natural gas and electricity, to gold, silver and even the weather within this exchange. ICE's business has been red-hot lately. The company should earn about $3.40 a share this year which is a nice jump over the $2.40 it made last year. For 2008, I think ICE could easily make $5 a share. That's the kind of growth I like!

Even though Google and ICE are in different businesses, Google's ascendancy changed the rules, and that certainly helped ICE grow its business. I currently rate InterContinental Exchange a buy for moderately aggressive investors up to $191 a share.

Another example of Google's influence can certainly be seen in Apple's iPhone. Of course, Apple was first, and Google is countering with its own Google Phone. But Apple is moving to stay ahead of where the market is going, and that seems to be controlled by Google. Google is so important it's as if the company is looking over everyone's shoulder, and that helps innovation. Apple has been one of our most successful investments in the history of Blue Chip Growth. I recommended it three years ago, and we're sitting a nice profit of 560%. Apple is a great buy for moderately aggressive investors up to $179.

Google's impact is starting to be felt even in areas you wouldn't normally consider. Just this week, the company announced that it's going green. Google has a huge bank account, so a green acquisition is a very real possibility. Forbes notes:

Co-founder Sergey Brin hinted that Google might invest in or acquire other clean-tech companies. He said Google likely will license the technologies, but the goal is not to have huge margins. The goal is to replace dirty energy.

The company has already embarked on several clean-tech initiatives. It developed energy-saving technologies to power and cool its massive data centers around the world and erected a 1.6-megawatt solar panel at its headquarters. Google also supports plug-in hybrid vehicle technology and is part of a consortium of tech companies that advocates energy-efficient computers and servers.

One of my favorite green contenders, which is also recommended in my Blue Chip Growth Buy List, is SunPower Corporation (SPWR). The stock soared 15% yesterday after Hewlett-Packard awarded it a contract for 5,000 solar panels. The company also received $190 million from Morgan Stanley to implement its solar initiatives. I rate SPWR a moderately aggressive buy up to $126.

There's no denying that interest rate cuts have a positive effect on our economy. There really are no industries that are hurt by a Fed cut, since it helps bolster economic activity. Let me take a moment to explain this "ripple effect."

First and foremost, a rate cut will shore up some of the disparity between market rates and interest rates. Market rates, based on Treasury securities, have plummeted. For example, the 10-year Treasury bond recently broke through the 4% barrier and is currently at 3.93%. The 3-month Treasury bill has fallen to only 2.88%, which is a whopping 1.62% below the current Federal Funds rate at 4.5%. The Fed cannot fight market rates, and so the faster these rates fall, the more the Fed will have to cut.

Obviously, the Fed should continue to cut interest rates to shore up the housing sector, which remains a major drag on the economy. The fact that the Fed is lowering its inflation forecast is essentially an admission that core inflation is well within its unofficial "comfort zone," so it can continue to make rate cuts without worrying about increasing any inflationary risks. To prove this, the Fed recently lowered its forecast for the core Personal Consumption Expenditure (PCE) index to range between 1.7% and 1.9% from its previous forecast of between 1.75% to 2%.

The fact that Fed is setting itself up for a series of interest rate cuts should help to boost investor optimism. There has been some stunning economic news recently, but a lot of confusion as well. The third-quarter GDP was revised up a full percentage point to 4.9% due to the biggest surge in productivity in four years, falling unit labor costs and surging exports stemming from a weak U.S. dollar. However, the Fed now expects 2008 GDP growth to range between 1.8% and 2.5%, which is less than its previous forecast of 2.5% to 2.75%. This has raised concerns.

In the Fed's latest Beige Book survey, which details economic activity throughout the country, California, Nevada, Florida and Arizona are the areas hardest hit by the housing slump. And since housing accounts for as much as 11% of the jobs created in the United States, the housing sector's slowdown will have a definite impact on employment.

Perhaps this is the reason why the Fed raised its 2008 unemployment range by 0.1% to fall between 4.8% and 4.9%. This was a bit surprising considering that the current unemployment rate is already 4.7%, but they're probably erring on side of caution with that conservative estimate.

While the market was deciphering the Fed's latest statement, a lot of people missed the excellent news that came out from the oil patch. Oil prices fell by more than $6 a barrel this week due to rising inventories. Apparently economists are now figuring out that as oil prices rise, demand drops! The International Energy Agency (IEA), which is the industrialized world's energy watchdog, lowered its prediction for global demand growth for the fourth quarter, which eased fears of a short-term supply crunch. Additionally, some OPEC officials may consider raising the production ceiling at their December 5 meeting. Clearly, the world is not about to run out of oil anytime soon. Of course, having lower interest rates might make consumers a little more willing to fuel up their gas tanks.

Lower rates will certainly help boost investor confidence and keep consumers spending. And the good news is, that's already happening. My favorite Emerging Growth retailers started the holiday shopping season on a very strong note: Since Black Friday, Deckers Outdoor (DECK), which makes those popular UGG boots, is up 16.4%. Gamestop (GME) has added 11.5% on strong demand for electronic games.

Even if the broader market cools in the fourth quarter, our Emerging Growth stocks are sure to heat up this holiday season and well into the new year. The average Buy List stock is now posting 37.6% sales growth and 222.4% earnings growth, and our Buy List as a whole is heavily weighted in the economy's hottest sectors.