Graham Corp. (GHM), one of my picks in Emerging Growth, is having a very strong day today. The company announced that its earnings more doubled to $1.11 per share. Yesterday, Graham said that it's raising its dividend by 33%, and it will split its stock 2-for-1 in October. We now have a 250% profit in Graham in less than a year.

The August issue of Emerging Growth will be available for subscribers after the market closes today.

No matter which way the price of oil goes, Americans will probably never buy millions of SUVs again, and that has hurt the global car market. I was in Michigan last week and I can tell you that folks there are deeply concerned about the Big 3's woes, but car company problems go far beyond the Big 3. Most global vehicle manufacturers experienced double-digit sales declines in July. Chrysler's July sales fell a shocking 28.8%, as its car sales fell 25.5% and truck sales fell 29.9%. GM had even worse results, with a 34.7% July sales decline in trucks and a 26.1% sales decline in cars. Ford fared a bit better, but its overall July sales declined 14.9%, mostly due to a 22.1% decline in truck sales. Toyota suffered from a 27.1% decline in U.S. truck sales and an overall July sales decline of 11.9%, despite increasing sales for its small cars. Even Honda, which had posted sales gains in previous months, experienced a 1.6% sales decline in July, while Nissan shocked everyone with an 8.5% sales increase in July and an amazing 18.3% increase in truck sales.

On Friday, it became very evident that the faltering economy is taking its toll on BMW, GM, Nissan and other manufacturers. BMW posted a 58% drop in operating earnings due to slumping U.S. sales, higher material costs and deep production cuts. GM posted a devastating $15.5 billion loss (or $27.33 per share), as sales slumped 18% in the second quarter. Nissan posted a 42% earnings decline due to a fall in value of leased vehicles and unfavorable exchange rates. All three companies were hurt by a glut of used SUVs and pick-up trucks in the U.S. Investors are now concerned about liquidity, since GM has been bleeding about $1 billion in cash each month this year. GM's cash reserves fell from $27.3 billion last December 31 to $21 billion on June 30.

One reason behind recent sales declines is that more companies are abandoning the leasing business, due to low resale values. On Friday, GMAC (owned by GM and Cerberus Capital Management LP) reported a $2.48 billion net loss for the second quarter. That dismal figure includes a write-down of $716 million related to unprofitable leases. GMAC said it recovered only 75% of the expected values from SUV leases in June. GMAC CFO Robert Hull suggested that ResCap, GMAC's home-mortgage unit, is likely to post further losses this year, adding that "I wouldn't hold your breath for (ResCap profitability in) 2008." At least, he was candid! Robert Hull probably won last week's candor award with his depressing report.

After GMAC released its weak second quarter earnings results, Standard & Poor's cut GMAC's credit rating. S&P also cut the ratings of GM, Ford and Chrysler, as well as Ford Motor Credit and Chrysler Financial. Additionally, S&P also said it would consider downgrading Ford and GM further if their cash levels dropped below $15 billion or total liquidity fell below $20 billion. Obviously, the automotive industry is following the housing industry into a very serious tailspin.

Here's the Fed's statement:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

More troubles for financials:

Freddie Mac, the U.S. mortgage-finance company hobbled by record foreclosures, will slash its dividend at least 80 percent after posting a quarterly loss that was three times wider than analysts' estimates.

Freddie dropped 11 percent in early New York Stock Exchange composite trading after reporting a second-quarter net loss of $821 million, or $1.63 a share, compared with the 54 cents a share average estimate of nine analysts in a Bloomberg survey. The common-share dividend will be reduced to 5 cents or less from 25 cents, the second cut in nine months, McLean, Virginia-based Freddie said today in a statement.

I said that the rally in financials would end badly, and it has. First Freddie reported awful numbers, now it's Fannie's turn:

Fannie Mae, the biggest U.S. buyer of home mortgages, reported Friday a wider-than-expected loss for the second quarter and cut its dividend as the company said the struggling housing market and credit expenses again hurt its performance.

Investors reacted negatively. Shares of Fannie Mae fell 16% at the open, dropping $1.68 to stand at $8.27.

Fannie Mae lost $2.3 billion, or $2.54 a share, a reversal from the $1.9 billion, or $1.86 a share, earned in the year-ago second quarter.

The company, following on the heels of smaller sibling Freddie Mac earlier this week, slashed its quarterly dividend, with the payout now set at five cents a share. Fannie's dividend had previously been 35 cents a share.

With the U.S. housing market under severe pressure, and with questions about the company's viability having dogged it in the past few weeks, markets eagerly awaited the details of Fannie Mae's financial results.

Grim conditions at Fannie and Freddie have prompted the government to ready a bailout, if it becomes needed.

Against this backdrop, Fannie's loss came in much worse than expected. Analysts surveyed by FactSet Research had been looking for a loss of 91 cents a share for the June quarter.

The company reported credit-related expenses of $5.3 billion in the quarter, which more than offset revenue of $4 billion.

I know you don't hear this on CNBC or the evening news, but the European economy is suffering more than the U.S. economy right now. Last Tuesday, it was announced that Germany, Europe's largest economy, contracted by about 1% in the second quarter. Also on Tuesday, it was announced that the euro-zone's service sector contracted in July and is now at a five-year low. Due to declines in both the manufacturing and services indices, the overall PMI index fell to 47.8, tying a seven-year low. On that same dismal Tuesday - right before the ECB meeting - Eurostat also announced that June retail sales in the euro-zone posted a larger than expected 0.6% decline compared to May, and a huge 3.1% decline from June of 2007.

Over in Japan, the Tokyo government said their economy was "deteriorating," thereby admitting that its economic expansion may have ended after more than a six-year run, the longest in postwar history. Japan's Cabinet Office said its leading coincident index, which tracks various economic data, fell to 101.7 in June from 103.3 in May. Its index of lagging indicators, which measures economic performance in the recent past, also fell to 102.3 in June from 103.4 in May. The moving average of the coincident index fell for a fourth straight month. The Cabinet Office is obligated to describe the economy as "deteriorating" if the three-month moving average declines for three or more months, but most analysts believe that Japan entered a recession late last year.

I'm always amazed at how irrational Wall Street can be. This is why I emphasize diversification so much, because one stock alone can often hop around without any good reason.

A perfect example is Gilead Sciences (GILD) which is one of my favorite Blue Chip Growth stocks. Last month, Gilead reported earnings that were two cents shy of Wall Street's expectations. The next day, Wall Street panicked and Gilead lost $5.67 a share which was a drop of over 10%. All that for a miss of just two cents. Think of it this way: A miss of two pennies caused a loss of 567 pennies. That loss valuation has a P/E ratio of over 280!

I saw no reason to panic because Gilead is an excellent stock. Here we are less than one month later and Gilead has made up everything it lost, and it's even a little higher than before the earnings report. All that panicking was a waste of time. In fact, as I write this post, the stock is inches away from another new high.

I first recommended Gilead in Blue Chip a little more than two years ago and we're currently sitting on an 80% profit.

Here's Mark Hulbert writing at MarketWatch:

I have some important investment advice for you in the event your favorite athlete or team loses in the Olympics:

Take a break.

Don't even consider making changes to your portfolio for at least a day or two.

Why?

Because, if you're like most investors, you are prone to act irrationally when your favorite sports team loses.

I arrived at this conclusion not by watching sports enthusiasts at the local bar. Instead, it was reached by a rigorous academic study that appeared in the August 2007 issue of the prestigious Journal of Finance. The study, "Sports Sentiment and Stock Returns," was conducted by Alex Edmans, an assistant professor of finance at the Wharton School of the University of Pennsylvania; Diego Garcia, an assistant professor of finance at the University of North Carolina (Chapel Hill); and Oyvind Norli, an associate professor of financial economics at the Norwegian School of Management.

To isolate the role that mood plays in investing, the researchers analyzed the returns of a given country's stock markets immediately following losses of its national teams in international competition. They focused primarily on soccer matches in the World Cup, but they also studied cricket, rugby and basketball matches as well.

The researchers found, on average, that if a country's team loses in the World Cup elimination stage, its stock market the next day produces a return that is 38 basis points lower than normal. To be sure, 38 basis points might not seem that big of a deal, but from a statistical point of view it is huge. It is equivalent to an annualized loss of more than 60%.

As the financial rally flames out, our fertilizer stocks are set to rally. The Department of Agriculture just raised its forecast in its August crop report:

• Corn production is forecast at 12.3 billion bushels, down 6 percent from last year but still the second-largest corn crop on record. Yields are expected to average 155 bushels per acre, up 3.9 bushels from last year.

• Soybean production is forecast at 2.97 billion bushels, up 15 percent from last year and the fourth-largest harvest on record. However, yields are expected to average 40.5 bushels per acre, down 0.7 bushel from 2007.

• Wheat production is forecast at 2.46 billion bushels, up 19 percent from 2007. The yield is forecast at 43.5 bushels per acre, up 3 bushels from last year.

This is despite the floods in the Midwest. My favorite stocks in this sector continue to be Mosanto (MON), Potash (POT) and Mosaic (MOS).

Great news for SunPower (SPWR):

Two Large Solar Power Plants Planned in California

Companies will build two solar power plants in California that together will put out more than 12 times as much electricity as the largest such plant today, the latest indication that solar energy is starting to achieve significant scale.

The plants will cover 12.5 square miles of central California with solar panels, and in the middle of a sunny day will generate about 800 megawatts of power, roughly equal to the size of a large coal-burning power plant or a small nuclear plant. A megawatt is enough power to run a large Wal-Mart store.

The power will be sold to Pacific Gas & Electric, which is under a state mandate to get 20 percent of its electricity from renewable sources by 2010. The utility said that it expected the new plants, which will use photovoltaic technology to turn sunlight directly into electricity, to be competitive with other renewable energy sources, including wind turbines and solar thermal plants, which use the sun's heat to boil water.

"These market-leading projects we have in California are something that can be extrapolated around the world," Jennifer Zerwer, a spokeswoman for the utility, said. "It's a milestone."

Though the California installations will generate 800 megawatts at times when the sun is shining brightly, they will operate for fewer hours of the year than a coal or nuclear plant would and so will produce a third or less as much total electricity.

OptiSolar, a company that has just begun making a type of solar panel with a thin film of active material, will install 550 megawatts in San Luis Obispo County. The SunPower Corporation, which uses silicon-crystal technology, will build about 250 megawatts at a different location in the same county.

The scale is a leap forward.

To ease the credit crunch, the Fed recently announced that it's implement steps it designed to enhance its emergency lending program for banks and primary dealers. For banks, the Fed said it would lengthen some of the credit it extended to 84 days. Previously, the loans were for only 28 days. The Fed also said it will officially extend its primary-dealer loan program to the end of January from mid-September. In addition, the Financial Accounting Standard Board (FASB) recently gave banks a one-year reprieve from having to mark up to $5 trillion of offshore debts to market prices on their balance sheets. FASB chairman Robert Herz said that he made the decision reluctantly after realizing there might not be enough time for all companies to account for their off-balance-sheet instruments. Gerz said it pained him "to allow something that has been abused by certain folks to go on for another year." The net effect is that the Fed and the FASB are helping banks to continue artificially boosting their capital and hiding their losses.

Obviously, the Fed, FASB and the SEC are all working together to resolve the credit crisis that's threatening to sink more major financial stocks, such as Citigroup. However, in the end, credit markets remain in shambles and the Fed, FASB and the SEC may be just postponing the day of reckoning. According to Alan Greenspan, the U.S. is now in the worst credit crisis in 100 years. Considering that there was a Great Depression about 75 years ago, Greenspan's comments are very eerie. But at least Greenspan did not mention the "D" word.

It's no wonder that Treasury Secretary Hank Paulson vowed to not return after President Bush leaves office on January 20, 2009. The fact that the Fed's looser capital requirements for banks are due to expire on January 30, 2009 is a clear example that Paulson and others want to get out of town before their "band-aid" is exposed.

Here's part of a great article from the Economist:

Fund managers and bank executives have learnt that investors are often more forgiving if their peers are losing money as well. That lesson applies to economies and their currencies too. The world's financial troubles may have been triggered by America's housing bust, but it is other rich countries that are hurting most. Figures released on August 14th show that the euro-area economy shrank in the second quarter (see article). Japan's GDP also fell in the spring quarter. The Bank of England's governor, Mervyn King, said this week that Britain's economy is likely to stagnate for the foreseeable future (see article).

The mess in America suddenly seems less awful. Indeed, a surge in export sales in June probably means that GDP growth for the most recent quarter will be revised up from 1.9% at an annualised rate, which is already respectable. The foreign-exchange markets have sensed a change in the weather. Over the past week, the dollar has swiftly gained ground against the euro and the pound. The thinking in the foreign exchanges is that it makes less sense to punish the dollar if other economies are doing so badly. The fear of a dollar rout, which has long stalked financial markets and even prompted the Federal Reserve chief, Ben Bernanke, to talk up the currency as recently as June, now seems to have evaporated.

If you're like me, you probably couldn't pry yourself away from watching swimming-phenom Michael Phelps claim an astounding eight gold medals at the Olympic Games. Not two, not five, but eight! I was absolutely transfixed watching him smash world records, one after another. If I didn't see it with my own eyes, I'm not sure I'd believe it.

Just imagine being 23-years old with the entire world watching and waiting to see if you have what it takes to make Olympic history. Talk about pressure! But Phelps had laser-like focus. He had a goal and knew what he had to do to make it happen. So despite the naysayers, Phelps moved from race to race with precision and never gave up on his dream.

As investors, we can all learn a lot from Michael Phelps. Phelps is a model for staying the course and remaining focused even during adverse conditions. During his fourth gold-metal attempt his goggles "malfunctioned" and filled with water, leaving him unable to see during the last 100 meters of the race. Even blind in the water, he didn't give up, he didn't veer off course and instead, he won the race while breaking a world record.

In today's market, you may feel like you're underwater with leaky goggles. But like Phelps, you need to remain focused and do what it takes to meet your investing goals. To that end, I'm going to lay out a three-step action plan for you in some Phelps-like terms:

1. Eat Right: Keep your portfolio healthy by avoiding industries like financials that will weigh your portfolio down. Only add companies with strong fundamentals stemming from robust demand. PortfolioGrader Pro is a great tool to help you weed through over 5,000 Wall Street stocks.

2. Get a Good Workout: Don't sit on the couch doing nothing with your money. Make sure you're buying the right growth companies and make your money work hard for you. Earning 2% in a savings account won't win any awards. My Blue Chip Growth portfolio, a portfolio of low-risk blue chip stocks, has beaten the market 3-to-1 for over 10 years.

3. Be Mentally Fit: In sports and investing, your mindset is key to success. Don't let emotions guide your investments! If you don't have what it takes to be objection, try using a stock-rating tool to help keep you unbiased. Yahoo and MSN have some great ones. And as I've said, I've created my own, PortfolioGrader Pro, which is one of the easiest to use, and more importantly, the A-rated stocks are proven to outpace the S&P 500.

So stay focused fellow investor. Even in this most turbulent of markets, it is possible to go for the gold in investing.

One of my favorite Emerging Growth stocks just reported an outstanding second quarter. This article is from the Dallas Morning News.

GameStop 2Q earnings blow away analysts' estimates

Grapevine-based GameStop Corp. announced second quarter results Thursday morning that easily surpassed what analysts had been expecting.

The video game retailer said revenue hit $1.8 billion in the quarter, up from $1.34 billion in the same time a year ago.

Profit jumped to $57.2 million, or 34 cents per share, compared to $21.8 million, or 13 cents per share, last year.

Analysts had been looking for GameStop to report revenue of $1.66 billion and a profit of 28 cents per share.

The company also raised its financial guidance for the full year.

"In the second quarter, we produced record revenues in each of the geographical regions where we operate," chairman and chief executive officer Richard Fontaine said in a news release.

"By prioritizing our investments and focusing our resources, GameStop continues to significantly outperform the specialty retail segment as a whole, when comparing top-line growth, comparable store sales, and net earnings growth."

The company also said that same store sales - a measure of sales at stores that have been open at least one year - jumped 20 percent in the quarter, thanks to new games like Grand Theft Auto IV and NCAA Football 09.

Business Week has a great article that looks at the new Activision Blizzard (ATVI). Here's a sample:

Blizzard Entertainment, of course, is the Irvine (Calif.)-based maker of the world's most popular and profitable online game, World of Warcraft (WoW), which boasts nearly 11 million monthly subscribers around the globe. The company is also at the heart of the recent $18.9 billion merger with Activision, primarily a maker of console titles such as Guitar Hero and Call of Duty. Born in early July, the newly combined entity, Activision Blizzard (ATVI), is now the industry's biggest player, with projected annual revenues of nearly $4.5 billion.

But Activision is acquiring much more than World of Warcraft. Blizzard is behind a string of best-selling, industry-shaping PC games including the StarCraft and Diablo series, which have sold nearly 10 million and 20 million copies, respectively. The new company is also tapping into a corporate culture that champions creativity, both productive and experimental, inspiring enduring devotion from paying players.

Now that the Olympics are over, China is also concerned about slower growth. On Tuesday, J.P. Morgan reported that Beijing is considering a stimulus package of up to $58 billion, in addition to other monetary-policy-easing measures. J.P. Morgan's head of Chinese Research, Frank Gong, wrote that "the top leadership is carefully considering an economic stimulus package of between 200 billion and 400 billion yuan" ($29 to $58 billion). That's in addition to 600 billion yuan ($87 billion) recently spent on rebuilding China's earthquake-affected areas.

In addition, China has increased its power prices for the second time in two months, by raising grid rates by about 5% to head off a looming power crisis. About 80% of China's electricity is generated from coal-fired plants, and the Beijing Summer Olympics has exacerbated China's growing power supply problems. To avoid electricity shortages in Beijing, coal stockpiles at major power plants in Beijing and Tianjin roughly tripled from their pre-game levels, according to Japanese business daily Nikkei. This caused electricity disruptions in Shandong Province.

Since China is pumping tons of coal ash into the air, it's possible that China may be helping to cool the entire planet, due to more particles in the air. In fact, the whole world cooled during the first half of 2008--the coolest six months in at least five years, according to the World Meteorological Organization (WMO). The WMO added that the rest of 2008 would almost certainly be cooler than recent years, although temperatures remain above historical averages.

From CNN:

With the housing market in turmoil and lending standards tougher than ever, you'd think that the kind of unscrupulous activity that helped plunge the industry into crisis would be a thing of the past.

You'd be wrong. Mortgage fraud is still soaring, according to a new report from the Mortgage Asset Research Institute (MARI), a division of ChoicePoint.

The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007.

The big jump was a surprise even to MARI. "We were stunned," said spokeswoman Jennifer Butts. "It shows that some folks [in the industry] are desperate."

This morning, Solarfun Power (SOLF) reported second-quarter earnings of 1.62 a share (that's in renminbi, the Chinese currency) which is 0.13 better than Wall Street's forecast. Net income rose 285% and sales nearly tripled to 1.35 billion which beat the Street's forecast of 1.25 billion. For comparison, the 1.62 per share translates to 24 U.S. cents per share. I was also very happy to see the company raise its guidance for next year. Solarfun sees shipments rising 50% from 2008's levels.

Harold Hoskens, Solarfun's CEO said, "We are pleased with the progress achieved during the second quarter as we continued to see healthy demand and firm pricing. The tight supply and higher costs for polysilicon and wafers constrained both our top and bottom line growth, and our gross margins. This is a temporary situation with visibility improving on both measures during the second half of 2008, most notably during the fourth quarter. A number of important initiatives were completed following the close of the quarter which position us for continued growth going forward."

The stock is down a bit today, but some profit-taking is natural since the shares are up 50% in the last two weeks. We've see that the company's business is booming and the stock remains an outstanding buy.

It looks like that recession still hasn't arrived. The government just revised its estimate of second-quarter GDP from 1.9% to 3.3%.

The revised G.D.P. figure suggests resilience in the economy, especially compared with the anemic 0.9 percent growth rate from January to March, and a contraction in the final three months of 2007. Still, spending by American consumers stayed relatively soft, despite the infusion of the government's tax stimulus program. Corporate profits remained weak.

The soft labor market and high commodity prices are likely to cause problems for the economy in the latter half of the year.

Thursday's upward revision came after the Commerce Department said that more exports were sold in the second quarter than originally estimated, providing a lift to domestic businesses that have seen demand dry up at home. Businesses also kept their product inventories higher than first thought, suggesting higher production rates.

Exports rose 13.2 percent in the second quarter, compared with the government's original estimate of 9.2 percent. (They were up 5.1 percent in the first quarter.)

This is very good news for our export-related stocks like agriculture, defense and railroads.