Those failures followed a decade of easy borrowing whose collapse left wounds to U.S. household net worth of some $13 trillion. Those will take years to heal but the GM failure seems analogous to the first step in a “Twelve Step” recovery program in which an addict admits an unmanageable life.

One immediate short-term impact will come from the substitution of Cisco Systems (CSCO-$19 on 6/2) and Travelers (TRV-$42) for GM and the almost equally hapless Citigroup (C-$4) in the much-watched Dow Jones Industrial Average. Unlike the weighted S&P 500 average, the Dow is an arithmetic average, thus the more probable higher numerical gains in the newcomers will assist the Dow in upward moves.

The Dow has a long history, begun by Charles Dow in 1896 with a list of 12 stocks of which only General Electric (GE-$14) remains as a member of the original cast. The Wall Street Journal makes these calls, having blackballed through the years such lost souls as National Lead and the U.S Leather Company.
As I write, the Dow still needs only about 40 more points to join the S&P 500 in positive ground for 2009. That should come soon along with the predictable jabbering on the financial channels. Momentum is important and I would not be surprised to see this wave continue through 10,000 by yearend.

With Gross National Product contracting to a negative 6% only a few months ago, it seems questionable that GNP can recover to positive figures by yearend. That would leave stocks ahead of the economic recovery but a pause rather than another panic seems the more probable outcome.

One highly probable outcome is an increase in energy prices. The energy stocks recommended in last week’s column are all up as oil prices moved above $65 a barrel.  Although the global economic recovery will continue to be irregular, it is rebuilding demand for energy, particularly from the developing world. Oil prices are still pegged in dollars and U.S. deficits will inevitably soften the dollar, further boosting oil prices.

The supply of more easily recoverable oil and gas is finite and exploration companies will prosper, particularly once the big producers hasten to revive their outputs. Noble (NE-$37), the offshore driller recommended last week at $31 is still reasonably valued with a forward P/E ratio of only 6. XTO (XTO-$44), Occidental (OXY-$59), Statoil (STO-$22) and Permian Basin (PBT-$12, among others, continue their growth.

Oil seems headed for $75 a barrel, a move that would take pump prices back to three dollars. This will not help struggling retailers. Stock of Wal-Mart (WMT-$51) is old merchandise with only minor growth ahead this year. Target (TGT-$42) looks just a bit better and Costco (COST-$50) is always pinched on its gas sales when oil prices go up.

Amazon.com (AMZN-$84) has a 5-year 29% sales growth rate, more than the combined rates of all three of those much larger traditional retail chains. It’s an expensive stock with a P/E ratio nearly 50 on estimated 2009 earnings of $1.63. But it’s unique. In an age where everyone seems to seek individuality at all costs, its very active customer reviews draw millions of participants.

Having gone well beyond books, Amazon offers the world’s largest selection of electronic and general merchandise. It is innovative and strives to be the most customer-centered company in the world. These concepts were foreign to the old General Motors and we must hope that new GM may profit from its example. After all, as taxpayers, we own 60% of GM. That rescue cost $50 billion and the other stocks listed here are better bets. Still, it helped save an economy.
I plan to skip this column next week while I’m on the East Coast.

Declining production coupled with a prospective return to increasing demand guarantees higher energy prices. Priced in dollars, these will get an extra boost whenever the dollar begins to weaken. Alternative energy and related stock prices will also regain support. The Saudi oil minister noted recently that lower oil prices always lead to subsequent price jumps after a period of underinvestment. He also predicted a price rise in the $75-$80 range.
The timing of these increases is more uncertain than their inevitability. For portfolio management, it seems sensible to build and hold a solid core of stocks keyed to a continuing long-term increase in energy costs. My top recommendations for several weeks have been XTO Energy (XTO-$41) in domestic natural gas and Flowserve (FLS-$71) in oil service equipment.
Occidental (OXY-$63), Statoil (STO-$20) and Petrobras (PBR-$42) have proven their ability to find and extract oil and gas in difficult places. Transocean (RIG-$75) and Schlumberger (SLB-$54) are the leaders in oilfield service although the current downturn in investment will subdue their earnings for a couple of quarters.
Noble Energy (NE-$31) is an exceptionally well-priced addition. This Texas-based offshore driller currently has 63 rigs working in the Gulf of Mexico, the Arabian Gulf, the North Sea and Asia. Analysts forecast 2009 earnings in excess of $6.00 a share, a P/E ratio of only 5. Management is conservative by industry standards with a relatively restrained long-term indebtedness of $750 million and sales of  $3.5 billion, growing at 28%.
Petrochina (PTR-$109), which we sold two years ago at over twice its current price, deserves a renewed look. Backed by the Chinese government, it is expanding aggressively. This accounts for its somewhat pricey valuation, as its 2009 earnings will be about the same as Noble’s. It is an interesting play on both China and energy prices as is CNOOC (CEO-$124). Both have 4% yields.
Income investors should continue to consider Permian Basin Royalty Trust (PBT-$10). This provides monthly payments from established fields in western Texas. They vary widely with the price of oil but currently yield 6% with prospects of price increases. Nordic American (NAT-$33) is a well-run owner of 16 modern supertankers, up from 3 in 2004. It has an even more variable yield that usually ends up in double digits. It just completed another public offering that further strengthens its finances.

Market gains are not coming with the increased volume that brings strong rallies. That may reflect an inability among institutions and their mutual fund customers to make decisions after the beating of last fall. They will eventually tire of the almost invisible yields offered to the fearful by money market funds but their absence leaves the markets still fragile.

The impact of stimulus legislation is still in the early stages with the stock market already playing its traditional role of anticipation. After months when it seemed each week, if not each day, brought news of the failure of another major company, time is now beginning to be again on the side of investors.

The tide is still coming in for stocks. An ebb tide is inevitable so investors should add stocks that can withstand exposure as the level drops. Despite all the publicity about big bank stocks, I am still wary of a sector led by beggars in corporate jets, elbowing for room at the government trough. There are plenty of well run smaller banks but this country still has more banks than in probably needs.

Overcapacity is a persisting problem for any business sector, one reason the auto industry is in difficulty, as global auto manufacturing capacity has exceeded global vehicular sales for years. Banks have little competitive edge for anything other than rate competition and their stocks are presently selling on hopes for revival. Regional banks like USB (USB-$19 on 5/19) or PNC (PNC-$45) are well priced to participate.

For very basic consumer banking needs, Global Cash Access (GCA-$8) is a better gamble. The company is the largest cash access provider on the floors of casinos in this country and abroad. Sales are over $700 billion, growing at 13%. It went public in 2005 and has continued to augment its position during global financial swings. It forecasts 2009 earnings around $.72, up slightly, reasonable odds at a P/E ratio of 11.

Investors may feel that stock market swings make casino gambling seem almost restful. Similar principles of risk analysis apply to both fields although the continuing disparity between the low yields from Treasury bonds and those from a bit more daring investments indicate less acute analysis. One almost sure thing seems to be a return of inflation.

Governments everywhere are fighting the deflationary black hole that accompanied the fiscal crises. Their stimulus packages are inherently inflationary as are the inevitable pressures of population growth with increasing demand for resources. Gold is the traditional investment beneficiary of inflation and gambling gold bugs may want to consider Northgate Minerals (NXG-$1.75), a Canadian miner of gold and copper. Freeport Copper (FCX-$50) has 30 times its sales and is a safer bet.

Gold tends to attract emotional “Goldfinger” trading and is sensitive to political fiscal decisions. Energy and agriculture prices respond more directly to global demand and should be core holdings in any stock portfolio. Oil prices are beginning to move up as confidence builds on the world’s economic recovery. So are energy stock prices but they still present good and deeply grounded values.

XTO Energy (XTO-$42) continues its growth in natural gas; Occidental (OXY-$62) and Statoil (STO-$21) are among the successful international exploration oil firms. Endeavour (END-$1.35) is a low-priced speculation on its success in the North Sea fields.

Mosaic (MOS-$57) and Potash Corp. (POT-$114) continue their fertilizer-related growth. Food producer Bunge (BG-$59) is coming back strongly from trying times. The best all round is probably Monsanto (MON-$90), which provides seeds, biotech products and herbicides for a wide range of crops. Debt is modest and fiscal 2009 earnings will be around $4.65, up 26%, making it an excellent bet as is Swiss-based Syngenta (SYT-$49).