As expected, the Fed has cut rates by 25 points to 2%. It is also signalling to the markets that they are pretty much done with their current cycle of lowering rates. Fighting off a recession and holding inflation at bay are both priorities. The stock markets can no longer rely on the Fed to bail them out. At this point, better profit results are what will drive the market up. The headwinds to a better profit outlook remains the extremely weak housing market and a weakened consumer. The financial sector will likely be busy deleveraging and recapitalizing their balance sheets.

There are bright spots within the equity markets. The weak US dollar means companies that do the bulk of their business overseas are doing well. Surging prices for energy and agriculture products means that producers have pricing power. Companies with strong balance sheets are in the position to make acquisitions at attractive prices. Unless the general economy begins to recover, this will remain a stock picker’s market. 

The talk of gold hitting $1,500 or even $2,000 looks remote. The US dollar is bottoming out particularly against the Euro. With the stock markets recovering, a lot of the money that was in gold is now shifitng back to equities. The worst of the bad loans writedowns seems to be behind us. Given the huge run up on gold, a lot of investors are taking profits. From a contrarian point of view, too many people were bullish on gold. The smart money went to the beaten down sectors such as techs, financials and even retailers.

Whether it is a correction or the start of a reversal for gold, the yellow metal could go back to below $800. Buying at the $750 level would be indeed attractive, especially if one believes that the US dollar is going lower longer term. The catalyst for the spike down is the Fed signalling this week that the cut in interest rates are over. Given the huge damage in the financial and housing sector, the Fed will likley stay put for a while. Gold will likely consolidate their gains. For the gold bulls, patience is needed. 

The headlines of food shortages and riots over surging food prices started a couple of weeks ago. Haiti’s president had to resign over high food prices. People in poorer countries are in an uproar where more than half of the income is spent on food. To stave off a possible food crisis, countries such as India and Vietnam are curbing rice exports. Now, people in the United States are taking a run on rice on worries of even higher prices and even a possible shortage. The worry is that rice hoarding is making the situation worse.

There are columns suggesting that consumers should start building up food supplies now to protect themselves against unavoidable higher prices. Looking beyond the headlines, the real issue for most people is surging food prices and not shortages. When it comes to commodities, the cure for high prices is high prices. With prices going through the roof, production will eventually go up to profit from the demand supply imbalance.

Higher food prices are the result of the perfect storm. Decades of low prices for agriculture goods meant there were little incentives for investing in new production. A bigger and more affluent world population and the introduction of biofuels translated to explosive demand. Within a very short period, demand is quickly catching up with supply, leaving world food inventories dangerously low.

Because farming is energy intensive, food prices will stay high as long as oil stays high. The underlying food consumption trends are unlikely to reverse itself. The best one can hope for in the immediate term is that the rate food prices are climbing will slow down. For central bankers, they will soon have to deal with inflation.

For the investor looking to profit from this situation, look to buy the companies that supply the farmers. They include the seed makers, fertilizer companies and equipment manufacturers. The long term fundamental outlook remains strong. Buy these stocks on dips.

Ford Motor Company delivered a surprised earnings of $100 million during its first quarter. Months ago, this company was getting hammered from all sides. Along with Chrysler and GM, this company was berated by the Democratic presidential candidates and are dealing with a weak economy and surging energy prices. For a company where most of the profits come from gas guzzling trucks, the news is not good at all.

The positive news for Ford is that their recent offerings are resonating with the markets. Their crossovers and the recently redesigned sub compact are selling strongly. Their overseas operation, notably Europe and Latin America, are doing well. For Ford to maintain their upward momentum, they must continue to come up with new offerings that appeal to their target markets, particularly in North America. This means coming out with attractively designed, fuel efficient vehicles.

As a stock, it is not the time to invest in this sector. The domestic auto industry is facing many head winds. Higher material costs, intense competition, a weak economy and surging energy prices. There are simply better stock places elsewhere. Go for the companies that enjoy pricing power. That would be in the energy and agriculture sector. For the sake of the American economy, Ford needs to claw its way back.

Dennis Gartman, the widely followed writer of the Gartman Letter, likes homebuilder stocks and is going neutral on gold. This long time bear on the housing sector and bull on gold did a 180 degree turn. Referring to the charts, housing stocks are bouncing off its lows and are going up on higher volumes. As for gold, they violated their bullish trend lines on Friday. He is essentially out of his gold positions.

For stock bulls, this is wonderful news. Gartman has been bearish on the U.S. equity markets for some time. For him to reverse his stance says a lot. We are still early in the recovery stage for equities. It is still not the time to start buying indiscriminately. The smart money is focusing on sectors that are outperforming the rest of the markets. This means yes, even the housing sector, energy and soft commodities. Even the tech sector is showing signs of strength.

Despite the massive drop in prices over the last 6 months, it is still too early to buy financial stocks. A lot of these institutions have issued equity to replenish their beaten down balance sheets. The massive amount of stocks means that earnings per share will be diluted. This sector will recover but the upside potential is limited.

Today, the price of oil hit a record high of $119.90 on New York. The usual culprits are at play. The US dollar closed at a record low against the Euro. There are supply disruptions in Nigeria. It seems that each trading brings a new high for the price of oil. Given the rapid ascent of petroleum, when will we see relieve at the pumps? The unfortunate answer is not anytime soon. Even with weaker demand from the U.S. and the fact that we are in the shoulder season, oil prices did not come down.

The slack in US demand is being absorbed by the developing countries. Thanks to robust economies in Asia, the Middle East and South America, oil demand has been steadily going up. Production is barely keeping up with demand. With most of the recoverable oil held by government state oil companies, production is not going up as projected.

Many of these oil companies lack the funds and know how to extract more oil. Money are being siphoned off to finance government programs or by corrupt officials. This explains why oil production in oil rich nations such as Nigeria and Russia actually dropped. With there very high royalty formulas, it’s simply not worth risking billions of dollars to ramp up production for the private oil companies.

Don’t be surprised to see oil going to $150 or even $180 very soon. Some of the best oil plays are in companies involved in the Canadian oil sands. Reserves are proven and is located in a politically stable country. Buy them on dips.

Ever since the start of earnings season, it has been pretty decent. The major companies such as Intel, Google, Caterpillar and Johnson and Johnson had delivered good results and a stronger outlook. Even the beaten down financial institutions did well such as JP Morgan and even Citicorp. The good news for investors is that earnings were not that bad given the US recession and the expectation that the second half will get better. Over the past two weeks, the stock markets have appreciated noticeably.

At this point, the big question is whether this a bear market rally or a start of a new bull market? The answer depends on whether there is another credit shoe to drop and that most of the deleveraging by various investment funds have occurred. The key still remains with the housing sector. Housing prices and foreclosures need to stabilize. Banks and brokers need to stop taking massive write-downs on bad debts. A sign of the bottom in the financial sector is financial institutions going under and announcements of a dividend cut.

Though the stock markets are clearly recovering, it is still not the time to be a hero. This is still a stock picker’s market. Stick with quality, strong balance sheets and the likelihood that they will surprise on the upside. In this market, stick with the winners. They are in energy, infrastructure and agriculture.

Since mid October of last year, technology stocks have been taking a beating. Investors believe that their major clients’, the financial institutions, troubles will be a major drag on their sales and profits. As a result, the shares of major technology companies have been trending down. They include Oracle, Microsoft, Intel, Cisco and even Apple. Looking at the tech ETF, the Powershares QQQ, it is currently trading at just 19 times trailing earnings. Given the long-term growth rate for tech is 15%, you are paying a very small premium for technology companies.

The need for technology is not going to diminish. To improve efficiencies and competitiveness, more hardware and software is needed. Each day, more and more people are using the Internet. With the weak US dollar, many of these companies are winning new business. Furthermore, most of the big tech titans are cash flow positive. They have very little debt on their balance sheets.

Unlike the financial sector, they are unlike to have any surprising major write downs. You know what you are buying. Tech stocks are actually trading like value stocks. Don’t be  shy and start buying these stocks up while they’re still cheap.

Despite all the protests of China’s treatment of Tibetans going into the Olympics, it’s pretty much business as usual with China. Sure the western politicians are trying to be politically correct by denouncing the actions of the Chinese on human rights, but in the end, it’s just all talk. China represents a tremendous business opportunity that cannot be passed up. For foreign companies, the rapidly developing country of 1.5 billion people is where the big action is.

Whether it’s infrastructure, industrial goods or commodities, China will be needing more to keep its economy going. You can bet that Western nations are lining up to meet that demand. Take France for an example. Even with talks of boycotting the opening ceremonies of the Olympics, they are still selling weapons to the Chinese. Britain is actively courting the Chinese to invest their billions in their country. Don’t forget that many Western companies were part of the group that had built a railroad connecting China and Tibet.

For the western governments, if human rights was really an issue, they would have never done business with China. As usual, the mighty dollar trumps human rights. To play into this theme, invest in the stocks of commodity producers and multinationals. The need for oil, agricultural goods and roads is only going to grow.

It did not take a genius to figure out that using food for fuel is one of the dumbest idea ever. Politicians eager to score some political points and come across as being pro-environment were falling all over themselves to announce new biofuel programs. Critics pointed out that these type of subsidized programs will do more harm than good. Higher food prices meant that the poor risks not being able to eat. More forests and jungles would be razed to plant more profitable crops.

What surprised many of these critics was how fast their predictions came true. Food riots are occurring in poorer countries. In many of these countries, people devote more than 70% of their income to food. In the west, that number drops to 15%. The food situation was so dire in Haiti that their president was ousted. Many countries are halting their rice and grain exports to keep food for their own population. Governments know that they will lose power if they cannot feed their people.

The situation cannot be easily solved. There is a finite supply of suitable land for farming, water, fertilizers and equipment. Once people enjoyed the good life, they do not want to go back to their old ways. This means consumption for meat will continue to grow in developing countries like China and India. The world population is still growing. Governments are reluctant to halt their biofuel programs for fear of losing votes in the agriculture regions.

Either way, the situation will not be solved for years to come. To profit from this, look at the companies that cater to the agriculture sector. They include fertilizer makers, farming equipment manufacturers and seed makers. Invest in those companies that have pricing power. It’s a way for the investor to hedge against higher energy and food costs.