The past few days have exposed how absurd our market can get. And I don’t see that going away … only getting worse … as we face the next two days of endless discussions on what the Fed will do tomorrow as Ben Bernanke ends his first FOMC meeting. According to the experts who know exactly why the market moves the way it does, we had the market down on Existing Home Sales data on Thursday and up on New Home Sales data on Friday. The effect of housing on consumer behavior and therefore, interest rates, may be the one thing that the market focused on last week, but the last time I checked, it is not the one (and only) thing the Fed looks at. As Ben said last Monday night in his “clear as mud” speech(wasn’t he credited with being blunt and clear?), “The bottom line for [Fed] policy appears ambiguous.” The market seems to be 100% “unambigous” about economic data and what it should mean for Ben - at least for one day at a time. The next day, the reverse is true. One thing I know for sure is that the guessing game of “One and Done” will not end with the decision on interest rates tomorrow and I expect to hear a few more “One and Undones” with the next set of conflicting economic data. So I am going to ignore all of this as much as I can, let Ben do his job, and stay focused on all the other things that go into the signals at Hedgefolios.

The ANALYZE - STOCKS section allows you to review the fundamental and technical statistics of stocks in the Hedgefolios universe. Throughout the rest of the site, Hedgefolios focuses on generic terms for the criteria that most investors use to define their investing preferences. However, many investors want to know what those terms mean in numeric values so I provide this section to help you better understand the averages and ranges for the size, style, and income categories. For example, if you are wondering what a typical mid cap stock looks like, just view the data in the second last column to the right. You will see the range of market capitalizations in dollars, the averages of key valuation metrics such as Price-to-Earnings ratio, dividend information, and the distribution of stocks within economic sectors. By scrolling down the page, you are able to evaluate similar data for Value, Blend, Growth and Income stocks. If you are curious whether a particular size or style has an upward or downward bias in the signals, the last portion of each column shows the technical statistics.

Periodically, I take a look at the stats for combined NYSE and NASD margin debt to get a feel for how investors are handling risk. In bull markets, those that are not debt averse cannot get enough margin debt to fuel their purchases and brokerage firms love the extra revenue. It’s a happy time at the party for everyone involved. Unfortunately, the history is not very impressive when it comes to investors knowing how to anticipate when they have had too much and how to scale back. Next to an actual crash, I can think of nothing more painful for investors and their advisors than margin calls and forced selling.

So, where are we today? The most recent stats through January 2006 give me mixed signals. On the negative side, January 2006 Margin Debt totals are $256 Billion versus the March 2000 high of $300 Billion. We’re not quite at the historical high-water mark, but it’s close and it’s increasing at a rate of about $30 Billion each year since bottoming at the end of 2002. Following that trend absent any intervening event and we could be at new Margin Debt highs some time in 2007.

The other side of the balance sheet “Free Credit Balances” - aka “Cash” in the accounts is much better than it was in March 2000 and it gives me more reason to believe that we are not yet at unsustainable levels. January 2006 Free Credit was a combined $256 Billion compared to the $167 Billion that sat in the accounts in March 2000. One last statistic that I looked at was the Margin Debt to Cash ratio. At the peak, it was 1.8 (300/167) and currently, we have a ratio of 1.0 (256/256) so things aren’t quite as extreme today. On the other hand, 1:1 isn’t the most solvent scenario either.

Clearly, the market is not as relatively overleveraged as it was at the the start of the last slide, but then again, Margin Debt doesn’t look like it normally does near bottoms. It is tough to know when to say when, but I suspect we are approaching the last call at the party.

To me, a lot of talk about the housing bubble is just fearmongering hype. I am not saying that it’s not a threat, but I don’t believe it’s an imminent danger that will precipitate a sudden decline in the market. Sometimes I see the discussion as a partial confusion of cause and effect. I worry more about economic problems that will hurt homeowners and home prices in the short term than I worry about changes in home prices that will hurt the economy in the longer term.

I am not in denial. I agree that there are housing bubbles but not that there is “a” housing bubble. Anyone that tries to argue that 100% price increases in Las Vegas homes are “normal” is not normal to me. The same can be said for people that suggest a $600,000 2-bedroom fixer-upper in California is a bargain that you just cannot pass up because it will be $800,000 next year. As for Miami’s condo flippers - “duh” is all I have to say. And while there is similar anecdotal evidence of bubbles in other glamorous metropolitan markets - they are not indicative of most real estate in the US. Historically, we have seen crazy real estate prices that get readjusted such as San Diego in the 80’s, but those situations did not create far-reaching problems for the rest of the country. Going forward, I don’t expect the bursting of any local bubbles to burst a national bubble that doesn’t exist.

One of the frustrating things about the housing bubble debate is the spinning of data for “Pro Bubble” or “No Bubble” purposes. Foremost among these is the housing starts statistic which is not evidence of a lot and gets far too much attention. Homebuilders are notorious for going bankrupt because they didn’t know when to stop building and I refuse to rely upon faulty predictors. Housing starts just measures how many homes they are building (supply), NOT how many homes they should be building (where demand equals supply).

So let’s look at the demand side of the home price equation. Whenever I see new housing developments popping up, I just have to wonder “where are all these homebuyers coming from?” Were they living in tents or sharing a house with 20 other people? Are people leaving apartments empty to move into houses? Seriously, our population is growing by about 2.9 million people per year and February 2006 housing starts were 2.1 million. Just do the math and you should be at least a little concerned about unsustainable demand and oversupply.

On the leverage issue, my concerns are about what is potentially coming in the future - not the conditions we have today. Rates are getting higher but historically, we are still near 30-40 year lows. Clearly, the refi boom and high percentage of cash-out mortgages have supported our economy and particularly, consumer spending. That spigot is not closed but it’s going to decline as we move forward to higher rates. I do look at the level and increase in foreclosures but similar to housing price bubbles, this is largely a localized concern. Foreclosure rates are rising in some parts of the country and not in others. The biggest worry I have is that over $1 Trillion in Adjustable Rate Mortgages (ARMs) will be converting to higher rates in 2006 and 2007. That’s equivalent to 12% of all mortgage debt and I suspect that those borrowers were disproportionately sensitive to interest rates in the first place. All these preceding concerns could become very problematic if the economy falters and real wages needed to pay the mortgage don’t keep pace with the increase in rates.

But until there is clear evidence one way or the other, I expect that the debate will go back and forth. We will be “toiling” and “troubling” with it for years. Even if the “Pro Bubble” side is correct - my usual complaint applies - I haven’t heard what they want us to do about it. In the worst case, legitimate housing bubble issues will be a headwind to the economy / market until we work out the excesses that do exist. But I take comfort in knowing that a headwind is not the same as a hurricane.

I don’t like being wrong, but it’s part of investing reality. Being wrong is easy, but admitting when you are wrong is tough. I’ll get this out of the way - my signals are wrong some of the time. Over the three years that I have been doing Hedgefolios, 33% of almost 15,000 completed signals were losers.

Not only am I admitting my lack of perfection, but I proudly keep it on display for everyone to see. Transparency is important to me. I am not a fan of anyone that makes a bunch of predictions and then hopes that no one remembers the bad ones or that no one can find evidence of them. I would expect you to feel the same way.

Whenever you visit PROFILE, you get a history of my performance on each stock since it was added to the Hedgefolios universe. If you want to see more detailed performance for past signals, just click on ANALYZE - PERFORMANCE and scroll down to the second half of the page. This section summarizes statistics for losing and winning signals inclusive of the average gain or loss, average length of signal and the dispersion of gains and losses.

Last week, I didn’t want to come off sounding like Chicken Little, but there was some serious damage done to a lot of stocks, and it was very broad-based. It spanned all sectors, caps and styles, and it really looked like the market was running out of gas. Then….last Friday came and we had a very significant reversal with accumulating momentum throughout this week from Merger Monday and a tame CPI that is once again fueling speculation on the number of Fed moves in our short term world. That’s all good - BUT I am not that impressed and have not joined the “all clear” camp. I don’t get too excited about moves that are largely based upon economic data releases whether it’s last Friday’s job report or Thursday’s CPI and housing starts. They are points in time that are often confused with trends and usually don’t survive one-month restatements.

On another matter - would somebody please PUMP UP THE VOLUME?! If it wouldn’t be for quadruple-witching-inspired-trading, volume would have been anemic this week despite all the supposed good news. What really concerns me is seeing the composition of the volume which is less due to institutional block trading and more due to retail investor funds. Seems that we have seen this before and it didn’t turn out so well.

On the positive side…”The Sky is Falling” will not be a theme for me this weekend as I do my analysis. I took a peak at some key stocks last night and for the most part, it was characterized by strong stocks getting stronger and weak stocks getting stronger. However, it was more from a reduction in selling pressure rather than a big increase in buying power. It’s this missing buying power that concerns me whether we are heading higher or lower.

If you want to study an individual stock or ETF, go to the PROFILE section or from anywhere else on the site, just click on a symbol and it will automatically take you to PROFILE. For your convenience, you’ll find all the Hedgefolios information on that stock without having to go to multiple sections of the site.

The first row of data shows the information from EVALUATE and gives you the definitions of fundamental criteria. The second row provides the current signal and technical data that normally appears in the MANAGE section. The third section lists the historical performance of signals since that stock has been covered by Hedgefolios. If you are looking to find other stocks in the same industry, just look at the last section of PROFILE.

Given that the Hedgefolios database is updated weekly, the price data is NOT real time. I recognize the importance of current information, so I have added a link to Moneycentral’s site. In my opinion, Moneycentral is a superior site for comprehensive and timely financial information inclusive of quotes, charts, news, filings, financials, stock screens, etc. For that type of help, just click on the link below historical signals that says “Click here for more information” and a new browser window will appear with data for the active symbol.

In light of Capital One’s (COF) $14.6 billion purchase of North Fork Bancorp (NFB), I took a look at the small and mid cap regional banks today to see what ripple effects the acquisition was having. Note that Hedgefolios had both COF and NFB as Up signals before the announcement, and they will not change this week given that the news came out after I finished my weekly analysis. As I mentioned in my post entitled “Ring Me Up,” I tend to shy away from M&A activity and certainly don’t look to speculate on it. Unlike the telecom services sector which has few plays and has become a relatively small component of the market, there are hundreds of regional banks in the Hedgefolios universe. Due to their number and substantial combined market cap, I thought it was worth a further look and discussion because it emphasized several of my concerns with M&A speculation and why I ask - “Can You Bank On It?”

First of all, for months many of these stocks have been pushed down over the impact of increasing rates and credit quality / loan loss provisions. Last time I checked, those threats were still in place and yet today, there was a suspension of this reality. Of course, the financial media had to round up the analysts and pundits to discuss who else is likely to be in play, and I don’t blame them. It makes good entertainment, but does it make for good investment decisions to listen to this speculation and take action on it? Maybe for one or two days, but in my opinion that’s about all it will last.

One of the funniest but saddest commentaries I heard on tv was the usual line that comes out on merger days. It goes something like this - “Acquisitions are always positive because this clearly suggests that somebody thinks this market or sector is undervalued.” Who is this “somebody” and how smart is he / she given that they got it right and the entire market that has been pricing these securities is so stupid? “Can You Bank On It” that it’s not the same person that thought the media sector was undervalued when AOL bid for Time Warner?

With so many of these bank stocks getting a bump today, I just have to wonder how many big banks are available to take on these regional targets. Seems to me that to justify the speculative moves that almost affected the entire sector, each possible acquirer is lining up to buy about 10 regionals, all at the same time. I am just kidding here but I hope you get my point. Not every regional bank is going to get a buyout premium in the foreseeable future. A few probably will get offers, but picking the right one requires a crystal ball and since my crystal ball is small and cloudy, I am just going to stick to the longer term fundamentals and technicals that smooth out speculative moves like today. Hopefully you will do the same.

If your time for portfolio management is limited, use the MY FOLIO section of Hedgefolios to rapidly make sure your stocks are moving in the right direction. Similar to a portfolio tracker, MY FOLIO allows you to watch up to 30 stocks that are on your trading radar or in your portfolio. Rather than the time-consuming process of typing the symbols individually in other parts of the site, MY FOLIO puts them all on one page for your convenience.

On the MY FOLIO section, you can add new stocks or ETFs by typing in the symbol or the name. Note that symbols must be exact, but if you only know the beginning few letters of the name, you can type them in and hit add. For example, if you type in “Mic” in the “Name” box and hit add, you will get a list of 10 stocks with names that all begin with the letters “mic.” From that list, all you need to do is click on the one you want, and it will be added.

Building MY FOLIO is easily done throughout the rest of the site during your research. In EVALUATE, MANAGE or PROFILE, the left column of any search result has a box titled “Watch.” Whenever you find a stock that you want to follow, all you need to do is check that “Watch” box, and the next time you visit MY FOLIO, it will be on your list.

Deleting a stock from MY FOLIO is even easier - just click on any ‘’Watch” box that is checked and it will be unchecked and removed from MY FOLIO. If you want to clear all the symbols in MY FOLIO, click on the “Clear” button and it will prompt you to make sure you really want to do that.

Note that MY FOLIO will be cookies-based until membership is required on Hedgefolios, and your list will only be retained on the hardware you are using. If you use Hedgefolios at work and at home, you will need to build MY FOLIO on both of the computers. Sorry for that inconvenience. It will be improved shortly so that no matter where you log in to Hedgefolios, MY FOLIO will reflect your current preferences.

The Hedgefolios fundamental and price data are updated periodically, but not always on the same date. On the top right corner of search results in EVALAUATE and MANAGE you will see “data current as of:” and then a date. Whenever you switch between the Fundamental View and Technical View, these dates will change accordingly. Fundamental data is updated monthly, so you will typically see a date at the beginning of the month, plus or minus a few days. Technical data is updated weekly and I use the open price of the week to document Hedgefolios’ performance. So typically, the Technical View will show “data current as of” the date representing Monday of this week. On weeks when the market is closed on Monday, the data will be current as of Tuesday’s open.