If you combine the growth of a small company with the financial muscle of a large company and put them in a single syringe, you get Gilead Sciences (GILD), an emerging giant of the biotech world. Based in the Bay Area of California, GILD discovers, develops and markets drugs for patients suffering from HIV, Hepatitis B and other life-threatening illnesses. I like their current drug portfolio, but I am just as impressed with its pipeline of new therapies.

Way back in early March, as the market was suffering an 8% decline, I mentioned to my subscribers that part of the problem appeared to be an "unwinding" of a phenomenon known as the yen carry trade. For those of you who might not be familiar with this term, a carry trade involves borrowing money cheaply in a country that has very low interest rates and then investing it either in a country that has high interest rates, or in any asset class in which it can earn a high rate of return.

This was a massively popular trade for many years among U.S. and European hedge funds. They borrowed at close to 0% interest in Japan, and then invested the money in emerging markets and the West. This was the financial equivalent of running with scissors, because everyone knew that at some point it would get very dangerous if Japan ever lifted interest rates. And that is exactly what happened back in the late February, when Tokyo banking authorities signaled that they planned to raise rates. Hedge fund managers tumbled over each other trying to undo their carry trades, and a widespread sell-off of risky assets around the world was the result.

Before too long, however, the selling was over and calm crept back into the market. What happened? Well, it seems that Tokyo central banking authorities never actually followed through on their threat for a variety of reasons relating to Japanese politics. And just as confirmation, I saw a headline at the English language site of the Nikkei financial newspaper this week which said, "Record 22 Trillion Yen Sent Overseas by Foreign Banks in Japan." The article reported: "Foreign banks sent a record 21.92 trillion yen overseas through their Japanese branches as of March 31, 2007, as they acquired yen at low interest rates and took the funds offshore for investment and other purposes." A senior Finance Ministry official told the newspaper that he estimates the yen carry trade totals several tens of trillion yen a day.

Now you know where all the liquidity is coming from.

Now that the bulk of winter earnings season is over, it's easy to forget that there are some oddball companies that issue their reports way out of synch. One of those is Joy Global (JOYG), a coal mining equipment manufacturer. I guess when you spend all your time in a pit with heavy machinery running and diesel fumes in the air, you can't exactly be expected to act normally.

Well, it turns out that JOYG's second-fiscal-quarter report was worth waiting for. Before the opening bell today, executives reported the company earned 70 cents per share, which was a couple of pennies below consensus estimates. I realize that doesn't sound very good, and indeed shares traded lower in pre-market activity.

But you just had to wait for the conference call because that was where the company was able to explain that future quarters look a lot brighter. Helped by recovering U.S. coal prices and growing demand for coal-powered electricity, as well as tremendous demand overseas, executives lifted their 12-month earnings per share guidance to a range of $3.25 to $3.50 from the previous range of $2.85 to $3.25. Most analysts, including me, actually think JOYG is still being conservative.

As gasoline and natural gas prices have soared in recent months, a very interesting thing has happened. Or not happened, to be more specific. Consumption of these key sources of energy has not waned, much to the surprise of oil and gas producers.

The lack of much protest from consumers -- aside from the angry phone calls on talk radio -- has really shocked the folks who run the Organization of Petroleum Exporting Countries, more commonly known as OPEC, and led them to believe that there's no point in providing more supply to knock down prices. As a result, it looks to me as though we are probably never going to see oil move down below $40 per barrel again in our lifetimes.

If that's true, then analysts' and investors' view of the energy sector is going to undergo a radical upward reappraisal over the next few months and years. Energy companies' shares might seem high to you now, as big-caps like ExxonMobil (XOM) are trading at all-time highs, but you ain't seen nothin' yet. When investors collectively decide that the new "band" for oil prices is $50 to $65 rather than $35 to $50, then virtually all energy stocks are in for a major upward move.

In this scenario, every subsector of the energy industry will move higher: Oil and gas drillers, services providers, explorers, refiners, pipeline owners and the major integrators. We are just seeing the dawn of that move now, and it should continue to surprise people.

McDonald's (MCD) sure knows a thing or two about being big. More than 100 billion people have been served under its Golden Arches -- although I must admit, the company stopped counting in 1994. It's no wonder, since keeping track of hamburger sales across 31,000 restaurants in more than 120 countries is a rather large undertaking.

To keep its grills sizzling in all these restaurants, the company also runs a gigantic marketing budget of $2 billion, which for scale, is roughly equal in size to the total economic output of the Central American nation of Belize. In other words, there's a whole lot of "I'm Lovin' It" on the airwaves.

This kind of advertising firepower has been driving McDonald's efforts to rebrand itself -- recreate itself -- in a way not too dissimilar from what Madonna has successfully pulled off with each of her new albums. But here, instead of cone-shaped bras and risqué documentaries, McDonald's is firing both barrels at its Super Size Me reputation. Snazzy new restaurant décors and trendy menu items like gourmet salads, yogurt parfaits and premium coffees are the tangible signs of change.

I believe these efforts will gain traction, as the sheer number of McDonald's locations -- with the corresponding convenience created -- will instill a powerful urge to try out these new menu items. It's this combination of familiarity, fancy newness and accessibility that helped Madonna maintain a successful career, and it is helping McDonald's regain lost prominence.

The past couple of weeks have been pretty crazy in the market, with the broad indexes plunging, advancing, plunging and advancing again.

I grew up spending my summers at Zuma Beach, just north of Malibu near Los Angeles, and the past two weeks in the market have felt just like a really heavy set of waves at the beach. Those waves are a lot of fun while they're happening if you know how to ride them either with a surfboard or as a body-surfer, but they're scary and dangerous if you're a newcomer and are just getting tossed around.

Fortunately, we are no more a stranger to volatility waves than to ocean waves. And right now, there is no reason to worry. Sharp, fast declines that occur when a market is near a top are more likely to mark the end of a correction rather than the start of new bear market.
Corrections are absolutely normal and healthy during even the strongest markets. The greatest recent example that I can give you is 1999. That year, the NASDAQ 100 (NDX) rose 101% from January 1 to December 31. But also during that year, it suffered four separate 10% setbacks. It was wild and scary for many people, but each of those corrections proved to be a fantastic buying opportunity.

It's fascinating to me that the latest correction generated so much concern among investors. From top to bottom, it was just a 3% drop. But the McClellan Oscillator fell to a level that signals investors were in a total panic. The McClellan Oscillator essentially measures the intensity of changes in market liquidity through the prism of advance/decline statistics. When a lot more stocks are going down than going up, and that happens over a short period of time, the McClellan Oscillator falls materially. Any decline below -100 is something you should pay attention to, but when it falls below -250, it's typically a big event. The -259 registered recently was the third lowest of the past year.

Tom McClellan, whose parents invented the indicator back in the mid-1960s, says that oversold conditions as severe as this one "tend to be terminal," which means it establishes a floor for prices and should serve as a catapult for higher prices.

This suggests to me that the current phase of the bull market still has a lot of room to run, as investors are in anything but an overly euphoric mood.

Stocks have been trading sideways for the past week in what appeared on the surface to be some lackluster sessions. But beneath the surface, there have been some pretty interesting developments taking place.

The shocker for many observers was a $1.22 gain for General Electric (GE) on June 19. The General has been one of the weakest stocks in the Dow Jones Industrials for the past five years, and its torpor has been widely cited by bears as one reason that the big index's advance to new highs should not be trusted. So what do the bears have to say now, since GE's 3.2% move took the finance, entertainment and industrial conglomerate to a multi-year high? Well, they're arguing that it doesn't really count because the advance is speculated to have been derived from a big bet by foreign investors who were looking for a safe and stable place to stash petrodollars.

While their argument makes a modest amount of sense, considering that GE recently sold a big chunk of its plastics business to a major Saudi Arabian concern and an investment in the mother company might be considered a bit of payback, it really doesn't matter. What's important is that the latter -- and often most dynamic -- stages of a bull market always include a big boost for laggards. So the ardor for GE, whether foreign or domestic, should be considered a sign of strength and not a harbinger of doom.

A long list of related factors lie behind the latest rise in global interest rates, which has culminated in the frightful spike of U.S. Treasury yields last week. From central bank reserve reallocations to dead honey bees, the theories run the gamut. But don't worry about Chinese pork prices or moderating potential economic growth rates. Basically, all you need to keep in mind is that inflation expectations are on the rise again.

This is causing big-time investors in U.S. Treasuries, such as Japan, China and the petroleum exporters, to shorten up the duration, or time horizon, on their investments. As they shun 30-year bonds and pick up shorter-duration instruments instead, prices fall and long-term yields rise. This is causing the "spread" between the yield on Treasuries and other riskier, asset classes to narrow. With less incentive to hold riskier assets, investors will begin unwinding their positions, many of which are highly leveraged.

One of the sectors most vulnerable to this phenomenon are the real estate investment trusts. REITs were going gangbusters last year, because investors were frantically searching for investments with high dividend yields. Right now, unfortunately, REITs are getting hit by higher interest rates. This is affecting these companies in two ways. First, not only does higher interest rates raise the borrowing costs for real estate developers and buyers, but their dividend yields become less desirable compared to T-bonds. Plus, rising borrowing costs will crimp much of the buyout activity that has boosted valuations in the sector.

Back in 1999, roughly $7 billion in total assets were invested in open-ended real estate mutual funds, according to analysts Goldman Sachs. Now, it's more like $83 billion. The sheer volume of speculative inflows into the arena ensures that die-hard real estate investors are but a tiny minority. So, as the Treasury yields rise, investors who got on board for REITs' high dividend yields are now selling, sending share prices down dramatically.

Aggregated, REITs are currently yielding a little less than 4%, compared with the 5.25% on the 10-year Treasury note. One might be tempted into thinking 125 basis points isn't that significant, especially since commercial real estate vacancy rates are relatively low and stable, which could be a harbinger of capital appreciation. However, the last time REIT yields meaningfully fell below the 10-year Treasury yield was back in 1981, during a period of downright scary double-digit inflation rates. At the zenith, the deficit grew to more than 600 basis points, or six percentage points.

So with inflation expectations on the rise again, I think we're going to see the divergence between REITs and Treasury yields expand, and therefore, we will likely see the REIT sector tumble in the near future. In order to prepare for this and to protect the gains we've already accumulated in this sector, I'm going to recommend that you sell two of our holdings today.