Jim Cramer was on the Chris Matthews Show this week and mentioned that he expects the Dow to rise an additional 10% within the next 6 months.

That would put the Dow at almost 14,500 by year’s end, which seems like a pipe dream to those of us who’ve been watching the US economy flounder in comparison to overseas investments.
Or is it?

Cramer’s assertation that it is the BRICs that are leading the world is right on target, and it’s important to point out that the Dow 30 is heavily weighted with companies that do a lot of business overseas. By some estimates, 40% of revenues from companies in the Dow come from Europe, Asia and Emerging Markets.

For that reason alone, it’s reasonable to assume that the Dow will break away from the S&P 500 in performance this year, and in the years to come. Big hitters like Alcoa and Boeing can expect big numbers from developing economies that will need their products.

The Dow Jones Industrial Average closed above 13,000 and nearly breached 13,100 in late trading Wednesday.

Exxon Mobile (XOM) announced an incread of its quarterly dividend to $0.35 from $0.32, and Alcoa (AA) announced that it is exploring the sale of its packaging and consumer units.

Outside the Dow, the tech sector also showed strength, with shares of Amazon (AMZN) rising over 25% to $56.81 after announcing profits doubled on strong sales growth. Sun Microsystems (SUNW), however, fell short of analyst expectations and dropped over 11%.

The Commerce Department announced that demand for durable goods rose 3.4% in March, paving the way for the rally.

Recent weakness in the US Dollar has also helped many of the Dow components, which collectively gross 40% of their revenues from overseas.

U.S. retail sales excluding autos came in .3% lower than expectations in February, and the dollar’s recent fall against the yen is also contributing to a volatile market. Monday ended slightly higher, though we are likely to have down days in the near future.

New Century Financial (NEW), recently rated 5-stars by Morningstar, has gone from bad to worse. Bankruptcy is likely imminent, it has stopped accepting loan applications, and Tuesday’s announcement of an SEC probe and a grand jury subpoena are not going to help investors.

The company revealed that it owes Credit-Suisse $500 million more than previously stated.

The stock has been halted since Monday’s opening bell. It is not likely that the stock will recover any of its losses, considering the high likelihood of bankruptcy. YTD losses are nearly 95%, with the stock currently valued under $1.70.

The Shanghai Composite Index was down 2.91%. Tuesday’s 8.8% drop was followed by a slight recovery, but precipitated strong declines worldwide, and it appears that China is leading the way, bullish or bearish.

While the Chinese market has a long way to go before one can call it truly “overvalued,” skepticism and the specter of stricter taxes and regulations are warning signs of a rocky road ahead.

For now, it seems that world markets are likely to follow the lead of the Chinese stocks. Japan’s Nikkei ended Thursday down for its third straight day (-1.2%), and Hong Kong’s Hang Seng index was down 0.5%.

U.S. stock markets notched their poorest performance since September 2001, right after the terrorist attacks on the World Trade Center and Pentagon.
The Dow fell 416.02, or 3.29%; the Nasdaq dropped 3.9%; the S&P 500 index fell by 3.5%. Earlier in the day the Dow had dropped over 500 points. All thirty stocks in the average were down for the day.
This fall comes on the heels of the worst day in ten years for China’s Shanghai Composite Index, which fell 8.8% yesterday.

The U.S. Equity selloff was greater than any other market, except for China, though the effect was global.
Weakness in Asia has spread global, as Japan’s Nikkei and Topix notched losses of 0.5% and 0.3%, respectively.

The United Kingdom’s FTSE and the German DAX were both down 2.3%, and the French CAC-40 dropped 2.6%.

It is possible that the bloodletting is not over, with U.S. equities, typically less volatile than emerging and developed global markets, being hit so hard. Such a selloff on Wall Street is likely to shake European and Asian markets during the coming trading sessions.

Bonds posted strong gains throughout the day, and, along with dividend-paying stocks that have been hit significantly, are expected to provide stability in the coming trading days.

Stocks are sharply down Tuesday, with the Dow down 1.6% and the Nasdaq down 2.5%.

While this is being called a correction, it certainly has many investors concerned, but the main concern is the damage done to emerging markets and, in particular China, which appears to have quite a way to go before hitting bottom.

Risk-averse investors should take note, however, that volatile times are among us, and there are safer bets than the current buying opportunities presented by the recent declines.

According to the New York Times Online edition, the SEC has sent letters of inquiry to four major investment banks: UBS, Merrill Lynch, Morgan Stanley, and Deutsche Bank. The letters apparently request all stock and options trading activity for the last two weeks of September, the close of the third quarter.

Presumably, the SEC is looking into large block trades to try to determine if certain traders or hedge funds were able to access this data before trades were executed. Prior knowledge of large market-moving trades would put an individual trader at an advantage by knowing how the market will react before it is actually affected.

The investigation seems to be focusing on whether large brokers are tipping off preferred clients (or insiders at the bank who may be trading independently) before executing large orders.

In unrelated news, RenaissanceRe has settled securities fraud charges with the SEC by agreeing to retain an independent consultant and pay a fine of $15 million. RenRe’s fraud involved a phantom transaction for $26 million that allowed the company to defer revenues from 2001 to 2002 and 2003. You can read the whole article at the SEC’s website.

Buy-write describes a hedging strategy in which a security is simultaneously bought and call options are written for the same security. Options are considered to be extremely risky, and used with caution and professional advice.
A recent study at the Center for International Securities and Derivatives Markets at the University of Massachusetts’ Isenberg School of Management determined that a buy-write strategy consistently improved risk-adjusted performance over a ten-year period (Jan. 18, 1996 to Nov. 16, 2006).

The study compared the Russell 2000 Index with one-month on-the-money buy-write strategy as well as a 2% out-of-the-money strategy and a 2% in-the money strategy.

The index overall performed better than the buy-write strategies over the ten-year period, returning 10.67% annualized, while the buy-write strategies performed similarly on a risk-adjusted basis, particularly the on-the money strategy, ranging from 9.21% (ATM) to 10.60% annualized (OTM).

During the unfavorable market conditions (January 1996-Febryary 2003), however, the buy-write strategies handily outperformed the index.

Significantly, the buy-write strategy lowered volatility enough to show that the strategy can outperform the index by neutralizing the effects of market fluctuations, while not sacrificing the gains of an up market.

The study does, however note that returns for the buy-write strategy are less normalized than those of the index, and, therefore, risk measures other than volatility may be more appropriate. Further, the study suggests that a more active approach, based on valuations and call selection, may significantly boost returns, both absolute and risk-adjusted.

The complete study can be found at the center for Institutional investors at the Options Industry Council.

Crude oil rose over 5% and Natural Gas was up as high as 12% on news that the winter in the United States is about to get colder, and talk that Saudi Arabia may curb oil production. It is likely that this surge is not over, and many economists feel it may develop into a long-term trend toward $60-plus per barrel, considering not only consumer demand during the summer, but also investor demand during the hurricane season.

The Federal Reserve began its policy meeting today and is expected to keep interest rates stable. Numerous statements have indicated that core inflation is at an acceptable level and a recession is not likely. Fed officials have recently stated that rates are “well-positioned” for any unexpected events in the near future.

The Census Bureau released a report today that 2.1 million homes were vacant at the end of 2006, representing 2.7% of all owned units. That is the highest vacancy rate in over 50 years.

2006 will not be remembered the year of the bust, as the median home price came in well above $150,000 for the first time ever.

Rental prices also had a record year, topping $700 per month on average across the United States for the first time ever in the fourth quarter.

The report is further evidence that the housing bubble has not yet reached its trough, as supply is clearly outstripping demand. It is highly likely that this kind of vacancy rate will lead to fewer housing starts and lower bottom lines for homebuilders nationwide, as a buyers market opens regionally.

Details of the report can be found at census.gov.