Obama Smoking

Israeli Attacks Gaza

Late Saturday morning 80 Israeli fighter planes and Apache helicopters launched the first wave of several air attacks over the Gaza strip. Dozens of sorties dropped over a hundred bombs on 150 Hamas targets, destroying 40, including police stations and military installations in a matter of minutes.

Early Sunday morning a second wave of Israeli military strikes bombed a mosque and the Hamas-run Al-Aqsa TV station.

Simultaneously, the Israeli Defence Forces (IDF) amassed hundreds of infantry and armoured corps troops on the Gaza border in preparation for a possible ground invasion.

Israeli Defence Minister Ehud Barak rejected calls by the UN and the EU for a ceasefire, and told the international media that Israel would not rule out widening the offensive to include a ground operation.

"For us to be asked to have a ceasefire with Hamas is like asking you to have a ceasefire with Al-Qaeda," Barak said in an interview with Fox News.

It's something we cannot really accept. Our intention is to totally change the rules of the game," he added.

Most of those killed and wounded were Hamas military and police personnel. However, dozens of Palestinian civilians are reported to be among the dead.

The civilian casualties are expected to rise. Many of Hamas's installations are in densely populated civilian neighbourhoods. School children in several surrounding schools were on their way home as the first wave of bombs hit Gaza city.

Grim scenes of carnage fill the corridors of Gaza's hospitals and morgues as the dead and dying, and mutilated bodies lie on the ground due to a shortage of hospital beds and morgue space.

Medical staff are treating the wounded under severe pressure, as Gaza has limited supplies of electricity, medicine, medical equipment, and fuel to operate emergency generators due to the Israeli-imposed blockade of the coastal territory. Only very limited amounts of humanitarian aid is allowed in.

Egypt, in a rare display of solidarity with the beleaguered Gazans, has opened its Rafah border crossing to allow the wounded to be evacuated to Sinai hospitals to receive medical treatment.

"It is madness and people are in a state of shock," Elena Eqleibo, a former Costa Rican diplomat and hardened aid worker who has lived in Gaza city for several years told IPS.

"I had just finished a meeting in the municipality when suddenly there were massive booms and plumes of smoke surrounding the entire area," said Eqleibo, whose apartment is located near a major Hamas headquarters.

"I visited some neighbours at the local supermarket and grocery store, and everybody is in a state of shock. Nobody can believe the scale of the attack.

" Abdallah Al-Agha, who lives near the former presidential palace of the late president Yasser Arafat, which was then taken over by Hamas and subsequently targeted by the Israelis, said there were scenes of chaos outside his apartment when the first bombs hit.

"The thunderous explosions went on for what seemed ages. People were panicking, ambulances and fire trucks were tearing down the streets and trying to help the wounded and put out fires which had broken out amongst the crumbled buildings. "Children were screaming and crying and mothers were hysterically looking for their kids coming home from school," Agha told IPS.

Israel had been threatening a large-scale military incursion following an increasing number of rockets fired by Palestinian resistance groups at Israeli towns bordering Gaza.

The rocket attacks followed the end of a fragile six-month ceasefire between Israel and Hamas and ten days of intensive fighting last month following an Israeli cross-border military incursion into Gaza.

The Islamic resistance organisation accused Israel of breaching the terms of the truce by refusing to lift the hermetic sealing of Gaza's borders.

But the timing of Israel's attacks caught Hamas by surprise. Israel had temporarily opened the borders for a few hours on Friday to allow in several convoys of humanitarian aid.

This was done as the Israeli government simultaneously launched a massive diplomatic campaign to explain its case for a military operation to the international community.

Israeli intelligence timed the operation to coincide with a meeting of Hamas's leadership, several of whom were killed, as well as a graduation ceremony of hundreds of new Hamas police cadets.

But the Israelis are aware that the attacks will not cow Hamas, and that retaliatory rocket fire can now plague Israeli border towns on an even larger scale.

Following the initial Israeli sorties, Hamas and smaller resistance groups rained rockets down on Sderot, Ashkelon and other border towns, killing an Israeli and wounding others.

Israel has declared a state of emergency. Israelis within a 10-kilometre radius of Gaza were ordered to enter bomb shelters within 15 seconds of a siren warning.

Residents within a 20-30 kilometre radius were ordered to enter shelters within 45 seconds of siren warnings.

Meanwhile, the IDF is expecting an increased daily rocket barrage of up to 100 missiles, some of which are expected to reach cities and towns located further away as Hamas uses upgraded projectiles with a 40-kilometre range as opposed to the current range of only 20 kilometres.

Analysts on both sides of the Israeli-Palestinian divide are arguing that the current military invasion is not about deterrence but more about the upcoming Israeli elections in February where Barak is a candidate for the prime minister's seat.

Yahoo!

Yahoo! is getting closer to picking a new chief executive to replace Jerry Yang and investors are abuzz about who might be on top. While two names are riding the rumor circuit, Yahoo! might need something that neither of the named candidates has: youth.

On Friday speculation began circulating about possible CEO picks after a report said the Internet company narrowed its search to Carol Bartz, the current chairwoman of Autodesk (nasdaq: ADSK ), Susan Decker, Yahoo! (nasdaq: YHOO )’s president, and one other candidate.

Yahoo! is expected to make a decision before its earnings report on Jan. 27. Yahoo’s shares rose 0.5% to $13.13, at the close on Friday.

Global Equities Research analyst Trip Chowdhry said that the ideal candidate is neither Bratz nor Decker, but a 25 to 30 year-old Steve-Jobs-like-wunderkind who is brash and product savvy. The problem with Yahoo! he said is products, technology, and motivation, and the new leader will have to be able to deal with all three. “If Bartz becomes CEO, investors should run the other way,” said Chowdhry.

“Autodesk is a prehistoric company when it comes to technology. We want someone who can cut through the generation gap and who can take the company to the next level.”

Chowdhry doesn’t see an outside candidate taking the reins of Yahoo! and said that any internal promotion would probably come from the engineering ranks. “If someone is super bright Yahoo! is not going to be their first choice, it’s not going to be their second choice and it’s not going to be their third choice,” said Chowdhry. “I haven’t seen any person externally who can change the fortunes of Yahoo!”

Chowdhry isn’t happy with Decker as a pick either. “She oversaw three failed CEO’s and under her leadership the stock has gone down more than 80.0%,” he said.

Fool Awards

Talk about a tough Fool Awards category. Coming up with candidates for the biggest opportunity of 2008 isn't easy when it felt like the only opportunity investors had was to lose money.
But throughout the year, we've looked for silver linings in the bear market. And while the vast majority of stocks fell in 2008, there were a few bright spots. So, without further ado, here are five nominees for your voting pleasure.

Discount retailers For companies that offer low-cost alternatives on necessities like food and clothing, a struggling economy is actually a good thing. Discounters like McDonald's (NYSE: MCD), Wal-Mart (NYSE: WMT), and Family Dollar (NYSE: FDO) all posted gains in a losing market thanks to a growing base of budget-conscious customers. Investors who foresaw the recession got a nice reward.

Short selling After years of taking it in the shorts, short-sellers finally got their revenge in 2008. Popular bear-market ETFs delivered amazing returns as stock markets tanked. And for those who bet against stocks like Sirius XM (Nasdaq: SIRI) and General Motors (NYSE: GM), the profits were especially sweet.

Cash With interest rates at historic lows during much of the decade, cash got a reputation for being a waste of investment capital. Not so during 2008, though, as the credit crunch made having money on hand attractive again. While liquidity-starved companies suffered to raise capital, cash-rich giants like Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) swooped in to pick up assets on the cheap.

Tax-loss selling No one ever said losing money was fun. But at least it'll give you a break on your tax return come April. Yes, in portfolios full of red ink, the best many investors could do to salvage something amid the carnage was to sell and grab valuable capital losses to offset past gains and other income.

Stocks Wait a minute -- stocks did terribly in 2008! Yes, but for those still looking to buy stocks both now and in the future, lower share prices meant more bargains for value-conscious investors. Although you may not see quick gains on shares you bought last year, cheap stocks may prove to be the most valuable long-term opportunity you could find in 2008.

Profit in 2009

If, after 2008, you're still

looking at the stock market as a way to fund your retirement, most people probably consider you a few congressmen short of a bailout. (Zing!) It's probably progressed far beyond the point of people refusing to make eye contact with you. In all likelihood, your dog is, too.

Yes, it's tough proclaiming yourself a bull after a year in which every bull became a steer.
But there are a few perks. Like getting the profits that come from buying stocks at what could be some of the best prices you'll ever see.

A brief history of 2008 Last year was a fantastic demonstration of what happens when, in a highly leveraged world, everyone needs liquidity at the same time.

Anyone who borrowed to buy mortgage-backed securities needed cash as mortgage values plummeted. Ambac (NYSE: ABK) and the other bond insurers needed cash as the mortgage-backed securities they were guaranteeing fell. Banks needed cash to maintain their capital ratios as defaults escalated. AIG (NYSE: AIG) needed cash to balance its losses in credit default swaps. Hedge funds needed cash to fund redemptions and reduce leverage as assets declined.

The problem is, when everyone needs cash, the only way to get it is to sell off assets. And that's what investors did, dumping almost every asset class with the exception of ultra-safe Treasuries. The stock market took it on the chin.

An overreaction That's not to say that the market collapsed simply because everyone cashed out. The problems in our economy are real. We've seen huge bankruptcies, the unemployment rate has spiked to almost 7%, and consumer confidence is low. Companies that need cash are finding it tough raising money at reasonable costs.

But the carnage in the market isn't limited to the shaky companies that are likely to suffer the most. The S&P 500 contains the biggest, most successful, and most stable businesses in America. Yet more than 94% of the companies in the S&P 500 fell during 2008. Over 30% lost more than half their value! Certainly, deteriorating business prospects are responsible for some of that drop. But based on valuations, it seems likely that stock investors are selling because they must. Like everyone else, they need the cash.

And that's a really great thing if you're not one of Wall Street's forced sellers.
The sweet spot Large-cap value stocks could be the best way to exploit this opportunity. I'm not just talking about slow-growing companies trading at low single-digit earnings multiples, but also compellingly cheap growth stocks.

For instance, these days, the universe of large-cap value stocks includes Google (Nasdaq: GOOG). Google has huge barriers to competition, $14 billion of cash on its balance sheet, an innovative culture, a 21% estimated annual growth rate going forward, and is trading for about 19 times earnings. At these prices, Google is a large-cap value stock.

So why are large-cap value stocks a great investment these days? Not because these stocks are certain to outperform the other categories under all circumstances, but because they present the ideal trade-off between risk and reward in these troubling times.

While there's a good chance that the economy will start showing signs of life sometime in 2009, there's a possibility that things will get even worse. When you're betting your retirement, you should own businesses that can survive the worst-case scenario.

Low risk, high reward Generally, large-cap stocks fit that criterion. They have the most stable cash flows, the most well known brands, the greatest economies of scale, and the best chance of recovering from mistakes.

Would you put your money on McDonald's (NYSE: MCD) to withstand a depression, or Krispy Kreme (NYSE: KKD)? Would you bet on Wal-Mart (NYSE: WMT), or Dillard's (NYSE: DDS)? These two examples may be somewhat hyperbolic, but it's absolutely true that powerhouses like McDonald's and Wal-Mart are far more likely to survive than companies with smaller moats because they have the financial clout, the economies of scale, and the proven, winning business models.

In normal times, you'd really have to pay up for these sorts of dominant companies. But thanks to forced selling from investors struggling to raise cash, right now you can buy some excellent businesses extremely cheaply. The S&P 500 is trading at just over 12 times 2009 earnings estimates, its lowest earnings multiple since the 1980s. What's more, due to the poor economy, the earnings of these powerhouse companies will be depressed in 2009, which means that the normalized earnings multiple is even more compelling. Large-cap stocks are extremely cheap, and I believe will offer superior returns over the next few years.

The Foolish bottom line Of course, you still have to be careful -- as 2008 has shown us, you can't just throw a dart at the S&P 500 and expect to avoid a blow-up. You still need to pay attention to balance sheets and how much cash companies are bringing in during these troubling times.

unemployment rate

Investors sent stocks sharply lower Friday after the U.S. unemployment rate shot above 7 percent -- a sign that Americans will be sticking to their tightened budgets for a while.

The Labor Department said employers cut 524,000 jobs in December, a smaller decline than economists' forecast for a loss of 550,000 jobs. But the unemployment rate jumped to a 16-year high of 7.2 percent -- more than the 7 percent economists predicted -- from 6.8 percent in November.

"If you look at the number objectively, it's a bearish number. It's going to elicit some selling," said Nick Kalivas, vice president of financial research at the brokerage MF Global. "The unemployment rate at 7.2 percent is pretty ugly.

Rising unemployment tends to erode consumer spending, which accounts for more than two-thirds of U.S. economic activity. For all of 2008, the economy lost 2.6 million jobs -- the most since 1945. Retailers have been reporting dismal holiday sales figures, and Wall Street is concerned about how long the economy will be suffering a pullback in consumer spending.

President-elect Barack Obama on Friday called December's jobs loss "a stark reminder of how urgently action is needed" to revive the nation's staggering economy. Obama is planning on a stimulus package costing about $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.

MF Global's Kalivas said he believes investors will start buying back into the market, but slowly and cautiously. Bad economic data do not come as a shock to investors, but "there's nothing in the short-term that's going to give people real satisfaction," he said.
In late morning trading, the Dow Jones industrial average fell 99.00, or 1.13 percent, to 8,643.46.

Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 13.41, or 1.47 percent, to 896.32, and the Nasdaq composite index fell 34.15, or 2.11 percent, to 1,582.86.

The Russell 2000 index of smaller companies dropped 14.65, or 2.92 percent, to 487.36.

In other economic data, the Commerce Department reported that businesses cut wholesale inventories for a third straight month in November, while sales continued to plunge. Wholesale inventories dropped 0.6 percent, and sales were down a record 7.1 percent.

Bond prices rose after Friday's grim economic data. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.41 percent from 2.44 percent late Thursday. The yield on the three-month T-bill, considered one of the safest short-term investments, slipped to 0.07 percent from 0.08 percent compared with late Thursday.