FTSE Dives 2.6%. But There Are Still Good Investments Out There...

It was the biggest one-day fall since the collapse of Bear Stearns in March. Yesterday the FTSE 100 tumbled 2.6%.

It’s hardly surprising. There was a lot of bad news flying about.

Our manufacturing sector has contracted for two months in a row now. There was the Nationwide report I told you about yesterday, which showed that house prices are falling at their fastest rate in 16 years. Oil touched a new record high at $143.

And as if that weren’t enough, a YouGov/Citigroup survey revealed that the ‘Man in the Street’ believes inflation last month was 4.6%. If it’s to stand any chance of getting inflation expectations down, the Bank of England will have to raise rates - which will be a further blow to an economy that’s already on the ropes. So... is this a time for panic? Well that depends how you look at it!

I’ll talk you through the two dominant schools of thought. Then I’ll tell you what we think - and what we believe is the best action to take.

School of Thought Number One - We’re all doomed and there’s nothing we can do about it!

All the macroeconomic indicators point to the same thing. Big trouble ahead for Mr and Mrs UK. Confidence is down, house prices are down. Inflation is up. More and more people are packing sandwiches for work to save money.

You get the idea.

There’s a very good reason why the FTSE fell on the back of yesterday’s bleak macro news. To make money, companies need customers. And customers in the UK are cutting back - which hits corporate profits.

Marks and Spencer yesterday issued a trading statement stating sales were down. Its share price fell 21% as a result.

More pain on the high street means more pain on the stock market. But does that mean you should just pack up, go home and stick all your money in a biscuit tin? Are stocks a total waste of time right now?

We’re not convinced by this argument. I’ll explain why in a moment, after we’ve dealt with the second school of thought...

School of Thought Number Two - The FTSE’s plunge has uncovered value. Let’s grab some bargains!

This is the contrarian school. As the old adage goes, the best time to buy something is when everyone else says don’t. You pick up a bargain... then, once all the nonsense has passed, you ride the market back up when sentiment turns.

Ideally you do this right at the bottom of the market. Then you start seeing profit straight away! But trying to precisely time the market is, to put it bluntly, foolish.

Nevertheless, a contrarian outlook has traditionally served investors well. Warren Buffett is famous for eschewing popular sentiment. If he likes a company, and he sees good value, he’ll buy it. Let the herd do what it wants.

Of the two, we at Fleet Street lean towards the second approach. But that’s not to say Argument One is without merit. Britain’s economy is in trouble. Only politicians deny that now.

That’s why you can’t just rush in and grab any old stock, assuming that because it’s cheap, it’s "a bargain".

Remember last Wednesday we looked at Barratt Developments? It looked eye-catchingly cheap if you compare its share price to historic earnings. But from around 73p last week, it was down to 42.5p this morning. And the prevailing economic winds suggest this one’s not coming back up any time soon.

So you have to tread carefully. But there is genuine value out there. Firms with good, growing businesses. If you’re looking for a way to grow your money, the FTSE offers that. You just need to be very selective.

Next week we’ll be publishing a report that identifies three investments that, despite the gloom, offer great potential if you invest today. More details to follow...

But if you want to get cracking now - and there’s no reason why you shouldn’t - check out the brand new recommendations from Garry and Manraaj below...

An iron ore producer that’s right in the sweet spot...

"Thank you Rio Tinto!" said Garry White when he came in this morning.

Rio, he explained, has just renegotiated their iron ore contracts with Asian steelmakers. And it’s secured a whopping 97% price increase!

That’s fantastic news for iron ore producers every where. And it’s especially good news for Garry’s latest find. Because this ore producer’s best customer is China. It sits right on the Chinese border, meaning transport costs are a fraction of those from other suppliers.

In fact, it’s currently in the process of cutting those costs even further - by up to 50%.

So... transport costs are low, and coming down, while the price of what it sells is going up.

No wonder Garry expects big profits. How much does he think you could make?

Find out in today’s free edition of Smart Commodities...

Manraaj’s best profit play of the year just got even better!

Happy days for Manraaj Singh! Last Friday he unveiled his latest recommendation - a mining firm in Congo.

Less than 24 hours later, and Manraaj’s most exciting profit play of 2008 received one heck of a shot in the arm!

Chinese mining giant Western Mining - itself already invested in Congo - is looking for partners to invest in the country.

"With the riches on offer here, I don’t think there’s any doubt that they’ll attract them!" says Manraaj.

It’s yet more evidence of just how much money investors could make from Congo. And Manraaj will show you how YOU can grab some.

Follow Manraaj into Africa, and discover the sheer scale of the wealth that’s on offer!

Until tomorrow,

Ben Traynor

Today’s Daily Reckoning - The dollar’s collapse hasn’t even started...

Today, we’ll keep it short and sweet.

The Dow managed only a piddling 32 point rise yesterday; still no recovery from last week’s big losses.

Oil rose another $1.30 - to close over $141. Gold jumped $16; it will now cost you $944 to buy an ounce.

"Caught between a fragile economy and banking system and rising inflation," writes James Saft, "Bernanke and other Fed policy makers seem to have arrived on a strategy of jawboning the dollar higher and inflation lower.

"But talk is only effective if your audience judges that you have the means and willingness to follow through."

Based on the last few days’ trading results, Team Bernanke might as well have kept their mouths shut. Gold and oil are acting as though they expect higher rates of inflation, not lower rates. And the dollar loses value daily - though it still has not collapsed completely.

You can read today’s Daily Reckoning in full HERE

P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.

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FTSE Dives 2.6%. But There Are Still Good Investments Out There...

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FTSE Dives 2.6%. But There Are Still Good Investments Out There...