There are big headlines today about oil plunging to a 5-month low, losing more than $6 a barrel. Some news outlets are hyping an even bigger number, pointing to the $10 drop from the weekend high to an intraday low. Both these numbers lack an important element that is crucial to investing in this market: Perspective.

Sure, it's a 5-month low. But does anyone want to guess what the average price of oil was in 2007? About $65. Even if crude oil prices close out the year at today's level, they'll be 70% higher than last year. That's much better than if oil was still pushing $150 a barrel, but it's certainly not anything to throw a party about.

All of my four newsletters are still heavily invested in commodities because I'm confident that oil will bounce back. The dollar will weaken again, people will turn up their thermostats in the coming weeks to create a spike in demand, and crude oil will rebound.

One last note: The big sell-off today was because Gustav turned out to be not so bad a storm after all. But what about the two other storms swirling in the tropics right now? Those don't bother anyone? I'm sure we'll see a spike in prices as Hanna and Ike near shore, and another big selloff if they fail to create havoc. It's just the nature of the futures market during hurricane season.

Trust me, oil prices will bounce back from this big selloff today. Expensive crude oil is a reality, and this was just a temporary fluctuation. Don't place too much stock in the day-to-day gyrations of crude oil. You'll just get a heart attack! Commodity-related stocks like oil service or natural gas companies are still the best bet over the long term.

The August unemployment numbers were released today. In a word: Yikes! Here's what the Financial Times had to say:

"Fears about the health of the US economy were reignited on Friday after data showed that the unemployment rate spiked unexpectedly to 6.1 per cent - the highest in five years - as employers shed 84,000 positions in August, the eighth consecutive month of job losses.

The figures from the labor department were significantly worse than economists were expecting. Forecasts had on average predicted the unemployment rate would rise slightly to 5.8 per cent while the economy lost 75,000 jobs."

A subtler reminder that the labor market is deteriorating would have been enough to convince investors that the US economy faces a tough road ahead. The bottom line is we're nowhere near the end of the housing crisis, financials are still floundering, and consumer spending is likely to stay sluggish in the months to come...

It'll be interesting to see what the presidential contenders have to say about this. The Democrats have been trying to push a second stimulus package through Congress, so stay tuned! I'll keep you posted...

Shares of one of my favorite Blue Chip Growth stocks, Activision Blizzard (ATVI), just split 2-for-1. This means that shareholders now own twice as many shares and the share price has fallen in half. My Buy-Below price also splits to $19. ATVI is an excellent buy.

Over the weekend, the government announced plans to take over both Fannie Mae and Freddie Mac.

As part of the plan, the chief executives of both companies were replaced. Herbert M. Allison Jr., the former chairman of TIAA-CREF, the huge pension fund for teachers that also offers mutual funds, will take over Fannie Mae and succeed Daniel H. Mudd. At Freddie Mac, David M. Moffett, currently a senior adviser at the Carlyle Group private equity firm, succeeds Richard F. Syron. Mr. Mudd and Mr. Syron, however, will stay on during a transition period.

The plan also commits the government to provide as much as $100 billion to each company to backstop any shortfalls in capital. It enables the Treasury to ultimately buy the companies outright at little cost. It bans them from lobbying the government, putting an end to their ability to use their political machine on Capitol Hill.

It also eliminates dividend payments to current shareholders while protecting the principal and interest payments on the debt, now held by foreign central banks, financial institutions, pensions funds and others.

The Treasury will force both companies to shrink their portfolios over the long term; they now hold or guarantee about half of the country's mortgages. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market, beginning with the purchase of $5 billion worth this month. This step, never before undertaken by the government, could begin to restore some confidence in the credit markets and lead to lower interest rates for home mortgages.

The stock market responded this morning by soaring over 300 points.

Here I am on Bloomberg discussing fertilizer stocks:

Today, I wanted to try a very unscientific poll of my blog readers.

The minutes of the Federal Reserve's August 5 meeting were recently released and they were downright depressing: "labor markets had softened further, financial markets remained under considerable stress, and that these factors, in conjunction with still-elevated energy prices and the ongoing housing contraction, would likely weigh on economic growth in coming quarters." Cheery meeting, no?

What's worse, the minutes said there are "downside risks" to this already gloomy outlook. What worries the Fed the most is the toxic brew of weak growth and weak banks that could cause a downward spiral of growth, or as they say, an "adverse feedback loop." That's Fedspeak for "we can't see the light at the end of the tunnel!"

Another telling point in that all Fed members want the next move to be an interest rate hike. Another rate cut would signal that economic conditions are grave. In my view, any future rate hike is off table until Election Day passes. What's important for us is that the Fed is finished cutting rates. This means that energy and exports will continue to lead economic growth for the foreseeable future since the job market and housing market is extremely soft.

If you've ever visited the Big Apple, you've probably seen sidewalk vendors peddling knock-off Gucci and Prada purses. For most Western law experts, a folding table full of those imitation products is a perfect metaphor for China's rather lax business law. The emerging economy suffers from widespread piracy, corruption and downright shady business practices.

So the world is holding its breath as the iconic soft drink company Coca-Cola (KO) seeks approval from the Chinese government for a $2.5 billion buyout of juice maker Huiyuan. Investors, economists and lawyers are all closely watching the case, which is the first real test of "antitrust law" in China. Some people think outcry over losing a beloved domestic brand to a foreign company could cause some problems, but most experts are cautiously optimistic.

I'll also be closely watching these events, because China plays a very large role in my Global Growth investment strategy. I know firsthand how careful you have to be when investing in an emerging market like China, and have been very selective with the stocks I have bought there.

But being selective has paid big dividends! My current subscribers are sitting on a gain of almost 20% in the Chinese internet company Sohu.com (SOHU), and cashed out gains of more than 30% in the telecom firm China Mobile (CHL) earlier this year!

Read more about the importance of global investing in my investors library, or sign up for Global Growth today to experience profits that beat the market 10-to-1!

In May, we down graded Lehman Brothers (LEH) in PortfolioGrader Pro from a hold to a sell. Today, the company has finally reached the breaking point. In the last three days, the stock has lost 55% of its value:

At Lehman, the bank's embattled chief executive, Richard S. Fuld Jr., announced his plans in a conference call Wednesday with analysts and investors. Inside Lehman's Midtown headquarters, anxious employees huddled around trading screens to watch the reaction in the stock market.

Lehman, one of the nation's largest investment banks, said it expected to report a $3.9 billion loss for the third quarter, an even bigger deficit than analysts had forecast, and cut its dividend to shareholders. It also announced long-expected plans to sell most of its prized investment management division and, more radically, to split itself into a "good" bank and a "bad" one.

The split, a strategy employed with mixed success by several other banks in the 1980s and 1990s, would enable Lehman to isolate worrisome commercial mortgages and real estate.

Lehman plans to spin off about $30 billion of such problematical assets into a separate company -- the "bad" bank -- which would be owned by Lehman shareholders. The hope is that the holdings of the bad bank will eventually increase in value, yielding profits for its shareholders.

While shrinking the bank might improve Lehman's short-term prospects, this strategy could pose long-term issues. To remain viable in the future, analysts said Lehman might need to be part of a larger institution, perhaps a foreign entity like HSBC of London or Nomura of Japan.

"In the current market you have to be either really huge or you have to be dominant in one business or in a good niche," said Len Blum, a managing director at Westwood Capital, a financial advisory group. "They are not huge and they were dominant in fixed income, but that game is over in the near term."

The measures announced by Lehman Wednesday came as somewhat of a disappointment to Wall Street analysts and investors, because they were expected and because some of the moves could take months to complete.

I'm currently writing the October issue of Blue Chip Growth. I'm very excited for this new issue. I'm planning to have four new buys this issue, including--believe it or not--one financial stock! Here's a sneak preview of the October issue:

Like I said at the very beginning of this issue, a winning strategy doesn't amount to beans if you don't have the confidence to stick with it. I've shown you for weeks how fundamentally strong our Buy List is, and anytime you visit PortfolioGrader Pro you can see for yourself that our Buy List is full of the best stocks on the Street. Unfortunately, jittery investors haven't had the confidence to throw their money behind any stocks--even the obvious winners in our portfolio.

That all changed when the Treasury Department put both Freddie Mac and Fannie Mae into conservatorship. Wall Street no longer has to sit around and wonder about a worst-case scenario where the mortgage giants go belly-up and the market has to deal with the consequences. In one bold move, the federal government helped remove much of the uncertainty surrounding the credit crisis.

Both Freddie and Fannie will receive investments of up to $100 billion each to help shore up their mortgage insurance business. The plan also calls for the Treasury to purchase Fannie's and Freddie's mortgage-backed securities--the infamous items that started the credit crisis--on the open market. Everyone with their eyes on the companies' debts and the liquidity in the mortgage market can breathe a little easier.

This new investor confidence will pay off big-time for our Buy List because some investors were just too scared to buy our fundamentally superior stocks--despite our tremendous earnings reports last quarter. Timid traders looking for reasons not to invest had no trouble making excuses all summer long, and the mood of fear and uncertainty weighed on companies all across Wall Street. But now, the Treasury's buyout announcement has just erased many of those excuses.

The Wall Street Journal began an article today:

The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. said it would file for bankruptcy protection, and Merrill Lynch & Co. agreed to be sold to Bank of America Corp.

That's hard to top for drama. The dissolution of Lehman Brothers (LEH) follows on the heel of the governments take over of Fannie Mae (FNM) and Freddie Mac (FRE), and the government-aided acquisition of Bear Stearns in March. Last week, Lehman stunned Wall Street when it announced a quarterly loss of almost $4 billion and plans to break into two separate companies. That plan soon fell apart. Over the weekend, Bank of America considered buying Lehman but only if the Federal Reserve pitched in. The Fed refused. After some high stakes negotiations that could have come out of a Hollywood movie, it was finally decided that after 158 years of business, Lehman Brothers would be allowed to go bankrupt.

Ultimately, the problem for Lehman is that it was just too big for another firm to swallow. It also appears that the Fed has become uncomfortable with the perception that it will stand ready to bailout any major U.S. financial institution.

Remember this: When times are uncertain, investors revert back to fundamentals. This is especially true considering third-quarter earnings season is fast approaching. This favors my style of investing and I expect that my favorite stocks will continue to rally as institutional investors snap up those companies that will announced the strongest earnings.

We're now in the midst of quarter-end window dressing when the crème la crème rises to the top and institutional investors shun controversial stocks like AIG (AIG) and Lehman Brothers. Both stocks, along with Freddie Mac and Fannie Mae, were rated as Sells at PortfolioGrader Pro.

The Dow plunged over 500 points yesterday for its biggest one-day loss since 9/11. I want to assure all investors that my team and I are committed to bring you the best advice during this crisis.

For my subscribers, we just posted two new issues online. The October issue of Blue Chip Growth is now up, and the latest issue of Quantum Growth is online. If you're not a subscriber, you can sign up now to get our latest advice on how to navigate the current financial storm.

The vote was unanimous. Here's the statement from the FOMC:

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

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth 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. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

My take: This was a cop out by the Fed. I'm glad they didn't cut, and it wouldn't have helped anyway. Whenever the Fed panics, a panic on Wall Street follows.

While all eyes are focused on the takeover of AIG, one of my favorite stocks, Monsanto (MON), just raised estimates. The company now sees earnings for fiscal 2008 coming in at $3.58 to $3.60 a share, up from a prior forecast of about $3.37 a share.

"We continue to see strong adoption of our branded seed products, growing use of our trait technologies globally and remain focused on introducing new game-changing technologies for farmers" Chief Financial Officer Terry Crews said in a statement.

Monsanto expects its seeds and genomics segment to generate more than $3.8 billion in gross profits for fiscal 2008, while its Roundup and other glyphosate-based herbicides businesses are on track for more than $1.9 billion in gross profits.

BB&T Capital Markets analyst Frank Mitsch upgraded Monsanto to "buy" from "hold," citing recent weakness in the stock, which had traded above $145 just three months ago.

Monsanto rose as high as $113.98 on Tuesday, before closing up $7.93, or 7.55 percent, at $112.97 on the New York Stock Exchange.

St Louis-based Monsanto also raised its fiscal 2008 free cash flow outlook to about $750 million, compared with a prior forecast of about $550 million.

The improved outlook is driven by higher collections from accounts receivable and customer prepayments, the company said in a statement.

Monsanto is a strong buy.

Today is Capitulation Day for major financial stocks. Despite the Treasury Department's takeover of Fannie and Freddie, Lehman's bankruptcy and the Fed's $85 billion loan to AIG, financial stocks are plummeting. However, the best buying opportunity of our lifetimes is now at hand. Many of my agriculture and energy stocks are holding up well today. These stocks will emerge as an oasis amidst the financial chaos especially since they're on the verge of announcing strong earnings in a few weeks.

When all the dust settles, our fundamentally superior stocks will finish the third quarter strongly due to quarter-end window dressing. Then these same stocks will report outstanding earnings. Due to easy year-over-year comparisons, the third-quarter earnings will be up for the broad stock market and will be even strong in the fourth quarter. P/E Ratios are now approaching an 18-year low, and may soon be at a four-decade low.

Cash that's sitting on the sidelines is now close to $4 trillion which is about 30% of the stock market's value. There will soon be a positive event that causes this cash to pour into the stock market. I recommend that you jump in feet first in my A-rated stocks from PortfolioGrader Pro. Steer clear of the major financials with C, D or F grades.

Your best defense is a strong offense of fundamentally superior A-rated stocks that are on the verge of reporting blow-out third quarter earnings.

What do smart investors do when everyone else is scared?

Buffett company to buy Constellation Energy

A unit of Berkshire Hathaway, the conglomerate controlled by Warren Buffett, said Thursday that it would buy Constellation Energy Group for about $4.7 billion in cash.

Constellation put itself up for sale earlier this week as investors' fears about the liquidity of its trading business drove its shares down nearly 60 percent in three days.

In my stumblings across the internet, I found this stunning NY Times graphic of the shrinking market capitalization of financial companies. $1.86 trillion to $0.98 trillion in less than a year? Ouch!

But notice one of the bright spots on there—Northern Trust. I just recommended this stock to my Blue Chip Growth subscribers last issue, because it hasn't made the same risky investments other stocks in the financial industry have. This is perhaps the only stock in this entire industry worth owning...

Last week, New York Stock Exchange volume averaged over 9.3 billion shares a day, about double the normal 4-5 billion. The Dow's range was over 500 points up and down each day from Monday through Thursday, and there was a major selling panic each day, until Friday. The subsequent flight to quality drove the yield on the three-month Treasury bill down to 0.03% at the end of Wednesday! To illustrate how stressed the banking industry is, the London Interbank Offered Rate (or LIBOR), which is the overnight rate that banks lend money to each other, posted its biggest one-day rise since September 1999 on Tuesday when it soared 3.33% and hit a seven-year high of 6.44%. Just last June, the LIBOR rate was only 2.07%. Since many business loans and mortgages are tied to a LIBOR index, rising LIBOR rates can have major implications. LIBOR spreads soared last week because banks did not trust each other. As a result, chaos reigned in the commercial paper market.

The Structured Investment Vehicles (or SIVs, which Citigroup and Lehman Brothers promoted and packaged in offshore commercial paper) now seems to have tainted the overall market for commercial paper. In fact, the Reserve Primary Fund became the first money market fund in 14 years to lose money for investors after writing off $785 million in debt issued by Lehman Brothers. The commercial paper chaos caused problems with other money market funds and by the end of the week, the U.S. government announced a blanket guarantee on all money market mutual funds, which amount to about $3.5 trillion in assets.

On Thursday, the world major central banks injected $180 billion in liquidity in an attempt to halt the financial crisis. In addition to the European Central Bank (ECB) and the Fed, the Bank of England, the Bank of Japan, Bank of Canada and Swiss National Bank all pledged they would "continue to work closely together and take appropriate steps to address the ongoing pressures."

The U.S. federal government apparently took Alan Greenspan's advice to create a new Resolution Trust Corporation (RTC) type of vehicle to handle bad loans and foreclosed properties. How much this will cost taxpayer is controversial. On Sunday, Treasury Secretary Hank Paulson announced that the Bush administration would like Congress to approve a sweeping rescue plan that would allow the Treasury Department to buy $700 billion in toxic mortgage debt. If approved by Congress, this unprecedented bailout plan would give Treasury Secretary Paulson broad powers to buy and sell these assets without the approval of Congress. I expect members of Congress will try to attach another economic stimulus program to the rescue bill. This could potentially increase the cost of the proposed rescue plan to $800 billion or more.

Turning to banks, now that the U.S. government owns 80% of AIG, we hear talk of rescue plans for the big banks from New York by its influential Senators Hillary Clinton and Charles Schumer. This raises speculation that a big New York bank (like Citigroup?) may be lobbying for a cash infusion to survive. So far, with the exception of trading AIG stock for $85 billion cash by the Fed, there has been no talk of the U.S. government taking major bank stock positions. Although the Fed is the lender of last resort, it has never bought shares in a bank before. Instead, the Fed is structured to seize banks when their capital is depleted and then broker their assets to other banks. Now, it appears that the government now wants an RTC-type vehicle to liquidate bank assets

It was a wild week in commodity and currency markets, too. The U.S. dollar fell to $1.45 per euro last Friday. Gold rose over $80 in a few hours on Wednesday, rising $119 for the week. Between Wednesday and Friday, oil rose $13 as investors returned to commodities as a safe haven.

I think last week marks a capitulation low. You can tell it from the headlines you see each day. In Germany, Der Spiegel featured a Thursday article describing the U.S. financial crisis as "The World as We Know It Is Going Down," concluding that "the foundations of U.S. capitalism have shattered." Also on Thursday, The Wall Street Journal featured a big Page One article with the headline "Worst Crisis Since '30s, With No End Yet in Sight." When headlines like these come out, they usually mark a great buying opportunity. In fact, the financial crisis was so intense last week that any other news was crowded off the financial pages. For instance, news that the Fed's Open Market Committee (FOMC) unanimously voted to leave key interest rates unchanged and the Consumer Price Index (CPI) fell for the first time in two years, was largely overlooked.

From Bloomberg:

The U.S. Securities and Exchange Commission and the U.K. Financial Services Authority spurred the "mother of all bear squeezes" with their ban on short sales of financial stocks, according to Ashburton Ltd.'s Peter Lucas.

The SEC halted short selling today in shares of 799 companies through Oct. 2, and the FSA enacted a similar ban yesterday until Jan. 16. The Standard & Poor's 500 Financials Index climbed 12 percent yesterday on expectations the SEC would announce a ban and Congress would take steps to shore up markets. U.K. banks including Barclays Plc, Royal Bank of Scotland Group Plc and Lloyds TSB Group Plc rose more than 50 percent today.

The CHART OF THE DAY shows the jump in short interest this year in the six worst-performing financial shares in the S&P 500 -- American International Group Inc., Washington Mutual Inc., National City Corp., Genworth Financial Inc., XL Capital Ltd. and Wachovia Corp. -- along with the percentage of each company's shares available for trading that were sold short at the end of August. Short interest is set at 100 on Dec. 31.

This is great news for our oil and oil-service stocks.

Crude oil climbed more than $25 a barrel, the biggest gain ever, as the dollar weakened the most against the euro since January 2001, boosting the appeal of commodities as a hedge.

The October contract, which expires today, rose almost $12 more than the contract for November delivery, as traders rushed to close positions. Oil, gold, corn and other commodities climbed as the dollar dropped on concern that a U.S. proposal to buy $700 billion of troubled assets from financial firms will deepen the budget deficit.

One of my favorite Emerging Growth stocks, Illumina (ILMN), split 2-for-1 today. I rate the company a strong buy up to $46 a share. The stock is appropriate for all types of investors.

The New York Times is following today's hearings on the financial bailout. When Treasury Secretary Paulson said, "This is all about the American taxpayer," it was met with snide laughter.

9 p.m. ET tonight.

President Bush will deliver a prime-time speech Wednesday night to put pressure on Congress to pass a $700 billion plan to bail out Wall Street, the White House announced.

Federal Reserve chief Ben Bernanke warned Wednesday that the current Wall Street crisis is the worst the country has faced since the end of World War II and urged Congress to take action on a proposed bailout package.

But members of Congress - including members of Bush's own Republican Party - have expressed skepticism about the plan drafted by Bernanke and Treasury Secretary Henry Paulson.

Here's the full text of the speech.

Bad news today from General Electric (GE). The company is cutting its third-quarter earnings forecast down to 43 to 48 cents per share from its previous forecast of 50 to 54 cents a share. GE Capital is also cutting the dividend it pays to GE, but the dividend paid to shareholders will stay the same. GE is currently rated as "D - Sell" in PortfolioGrader Pro.

Last week, most eyes in Washington were focused on Wall Street. Today, Wall Street is watching events in Washington. The latest news is that after a closed-door meeting, Republicans and Democrats have agreed on the principles of a plan.

Sen. Christopher J. Dodd...said the principles include protection for taxpayers, effective oversight, help for homeowners facing foreclosure and limits on the compensation of executives whose firms take bailout money.

I'm guessing that the president will get the money he wants, but Congress may issue it in installments. The market so far likes the news and at one point, it was up over 300 points. In my Blue Chip Growth service, Owens-Illinois (OI) is up 17% today.

In the February 28, 2008 issue of my free weekly eletter, What's Working on Wall Street Now, I listed ten major financial stocks that investors need to sell immediately. Already, three of those stocks have gone under; Bear Stearns, Freddie Mac and Countrywide Financial. Yesterday, Washington Mutual (WM) became the fourth.

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation's largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

At the time of my warning, shares of WM were going for about $15. Today, they're going for about 15 cents.

Courtesy of the New York Times, you can read the bailout bill in its entirety, though I'll be honest, it's fairly dry reading. The House is scheduled to vote today, and the Senate may vote on Wednesday.

The bailout package fails by a vote of 205 to 228. Now, who will bail out the bailout?

Apparently, members of Congress don't like being talked down to by Nancy Pelosi.

Mark Hulbert wrote a pretty insightful column about the big drop on Monday. While a number in the 700's was pretty startling, the Dow's decline was only 7%—an amount that doesn't prompt quite as gut-wrenching a response. Here's the gist of Mr. Hulbert's column:

"...there have been 16 other occasions since the Dow was created in 1896 in which the Dow's percentage drop was greater than it was Monday. That works out to an average of every seven years. It furthermore has been almost exactly seven years -- Sept. 17, 2001 -- since the last time the Dow dropped by a greater amount than it did on Monday."

I'm not trying to imply we should be happy to see such declines, but it does help to have a little perspective amid all the doom and gloom talk on your television.

Banks still don't trust each other.

The rate banks charge each other for overnight loans surged to an all-time high of 6.88% on Tuesday after the U.S. government voted to reject a US$700-billion bailout plan for financial firms.

The London interbank offered rate, or Libor, which is set by 16 banks, rose the most ever, jumping 431 basis points. The Libor-OIS spread, which is considered a gauge of the scarcity of cash, also hit a record, widening to 246 basis points

"The money markets have completely broken down, with no trading taking place at all," Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort told Bloomberg. "There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending."

Here's a podcast of me on the Chuck Jaffe Show. I come on about 15 minutes in.