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General Electric Company (NYSE: GE) is scheduled to report second quarter earnings this Friday. Ten analysts that Zacks surveys expect GE to make 53 cents a share, the same as it did in 2007. Given that 0% growth rate, GE's forward Price/Earnings ratio of 12.1 seems a bit on the high side.

But after the spanking that CEO Jeff Immelt took after missing in the first quarter by 13.7%, he could be guiding analysts lower only to surprise them on the upside. This makes me wonder whether analysts have a higher, whisper number in mind. GE stock is down 32% since Immelt took over on September 7, 2001, but with the exception of the first quarter, over the last five years GE has increased earnings at an 8.1% annual rate.

If it got back on that track in the second quarter, then investors would expect GE to earn 57 cents a share, instead of the official 53 cents. In that case, GE stock would fall unless it exceeded 57 cents a share. I have not been able to determine whether there is such a whisper number floating around Wall Street, but there's no question in my mind that Immelt cannot afford to report a number less than 53 cents a share if he wants to keep his job.

The New York Times reports that global stock markets are tumbling. Nobody really knows why but the latest theory is that investors are concerned about the capital problems at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) about which I posted yesterday.

Here's a survey of some of the global market damage:

• Nikkei 225 stock average fell 2.5%
• The Hang Seng index in Hong Kong down 3.3%
• S&P/ASX 200 index in Sydney declined 1.4%
• In London morning trading, the FTSE 100 index was down 2.7%
• DJ Euro Stoxx 50 index, of euro zone blue chips, fell 2.3%
• DAX in Frankfurt fell 2.4%
• CAC 40 in Paris sank 2.4%

Bloomberg News reports that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are down significantly and their credit default swaps are up. What gives? Rumors abound that these two government-sponsored mortgage bundlers will need to raise $75 billion as they take write-downs.

Thanks to a new accounting rule -- FAS 140 that seeks to stop companies keeping assets in off-balance sheet entities -- Fannie and Freddie may need to bring mortgages back onto their books, requiring them to put up capital. Fannie has raised $6 billion in capital to offset writedowns and Freddie raised $13.5 billion since December and said last week that it plans to raise $5.5 billion more.

But these stocks have not done so well this year. Today's declines extend Fannie's 2007 drop to 62% and Freddie's to 66%. I am not surprised that those fears are out there. I posted that these two could be the subject of a $1 trillion government bailout. So a $75 billion capital infusion sounds like chump change compared to the bailout. I am a bit surprised that this comes as a surprise to investors. But I would not be trying to catch these falling knives either.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned

Bloomberg News reports that hedge fund Bridgewater Associates has estimated that the total write-downs from the current credit crisis will total $1.6 trillion. With $400 billion in write-downs taken so far, this $1.6 trillion estimate would put us about a quarter of the way through the crisis. So far, banks have raised $321 billion in capital to buffer those write-downs.

And Teddy Forstmann, a private equity veteran, agrees with this assessment. In an interview from Saturday's Wall Street Journal, he said the current credit crisis is the worst he's seen. As he said, the problem started after 9/11 with the Fed giving away money at negative real interest rates. This created so much cash that banks could not find ways to lend it out where risk and reward were in balance.

So they created new ones which mis-priced risk. These include loan syndication -- in which banks originate loans and take a fee for selling them to someone else -- and securitization -- in which banks packages lots of loans as securities and sell those to hedge funds and other institutional investors. Unfortunately, these only work when the prices of the underlying assets are going up.

Bloomberg News reports that vacancies are rising fast. It notes that the average vacancy rate at neighborhood and community malls rose to 8.2%, up from 7.3% in 2007 and the highest level since 1995. And at regional and super-regional malls, vacancies increased to 6.3%, up from 5.6 % in 2007.

Sam Chandan, chief economist of research firm, Reis Inc., told Bloomberg that the amount of retail space being abandoned, "consistent with store closures, is at its highest level in almost 28 years." What's going on? Retailers --such as Linens 'n Things, Sharper Image, Lillian Vernon, Bombay and Levitz Furniture -- have filed for bankruptcy.

Why so many bankruptcies? It could be that with housing prices down 15% and 3 million mortgages in foreclosure people can't borrow the money they formerly used to purchase the goods that these malls sell. With consumer demand dropping and vacancies on the rise, it's surprising that rents are increasing at all.

In a quarterly dance routine that's becoming quite familiar -- call it the write-down, capital raising dance -- the Wall Street Journal reports that Merrill Lynch & Co. (NYSE: MER) is planning to sell a $5 billion stake in Bloomberg, the media company, and to cash out of its 49% stake, estimated at $12 billion, in Blackrock (NYSE: BLK).

Why is Merrill doing this? As we've seen over and over again in the last year, banks must maintain specific levels of capital to assets in order to meet regulatory requirements. When a bank reduces the value of its assets, as accounting rules require, the bank writes off the decline in asset values against its capital. In order to maintain a sufficiently high ratio of capital to assets, banks seek to raise capital equal to the amount of the write-down.

Merrill anticipates taking $6 billion in write-downs for the quarter. These could come from its $41 billion in Level 3 assets -- assets valued based on computer models since there is no active market that prices them. Merrill is fortunate to have these stakes available to sell because it will be able to raise capital without diluting current shareholders. Unfortunately, once it sells these stakes, Merrill shareholders will no longer get the earnings stream they generated.

The New York Times reports that the European Central Bank raised its equivalent of the Fed Funds rate to 4.25%. Meanwhile, Bernanke's economic wrecking crew has kept the U.S. rate at 2%. Investors will sell dollars and buy Euros. That will cause the dollar to lose even more of the 72% it's lost since January 2001. But none of this is really happening because AFP reports that President George Bush has declared that "we're strong dollar people."

The key to U.S. policy is repeated denials of the obvious -- which is that U.S. policy is consistently intended to weaken the dollar. The reason is that a weak dollar makes the goods of big U.S. corporate exporters relatively cheap when they sell overseas. And of course, since oil is traded in dollars, a weak one causes the price of oil to spike. It now resides at a comfortable $146 a barrel, up 508% since January 2001.

But Reuters reports that Treasury Secretary Hank Paulson -- who last year brought us "subprime is contained" -- now says that the weak dollar is not to blame for high oil prices. With apologies to the old E.F. Hutton advertisements -- which said "When E.F. Hutton talks, people listen" -- when Hank Paulson talks, people snicker.

If you are fortunate enough to have the money to invest in stocks, you may have made some money doing so. But you may also have made your share of money-losing investment mistakes. I know I have made plenty of such mistakes. Based on my experience, here are three that I would guess are pretty common:

• Not reading the prospectus. Too many investors buy stocks on tips from a broker or a TV stock promoter. They do not read the financial statements of a company. If they did, they would know about financial challenges, legal problems, industry uncertainties and other problems which could hammer their investments. But people don't read these financial statements, in many cases because they lack the financial education to make sense of the information.
• Not setting stop losses. People fall in love with a stock once they've invested. If the stock goes down, they hold on because they don't want to admit that they were wrong. Investors should set stop losses – if the stock falls 2% to 5% from the original price, they should sell. Most investors do not have the discipline to do this. But if they did, they would limit their portfolio risk tremendously. Would they also miss out on some opportunities? Probably, but more often than not, they'd save themselves losses.

In the first half of 2008, the S&P 500 fell 12%. June's stock market was the worst since 1930. So are stocks now a screaming buy or are they poised to plunge further? Nobody knows. But my guess is that stocks will move based on how well they perform compared with expectations. And the risk of negative surprises in most industries exceeds the chance of positive ones. So stocks will probably keep falling.

Here's a quick review of six negatives:

• Oil prices. With oil at $142, up 492% since January 2001, consumers are paying about $4.10 a gallon for gas and companies that use oil are getting squeezed while trying to raise prices. An attack on Iran, a big oil supplier, looms on the horizon. This and other geopolitical uncertainties could put further pressure on oil.
• Housing. Three million people are expected to face foreclosure on their homes. And prices have dropped 15%. Since people were using home equity to finance their purchasing, their negative equity is sucking the wind out of the economy.

Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.

Yet Blockbuster (NYSE: BBI), the struggling video store chain, decided to buy. I don't know what got into Blockbuster's head to make it think that combining two struggling companies would make an agile competitor. The Richmond Times reports that it wanted to create a one-stop shop for movies, games, and electronic equipment. But that dream died when Blockbuster pulled its $1.3 billion offer after reviewing Circuit City's books.

Carl Icahn has said he would buy Circuit City. But it's losing money -- $164.8 million, or $1 a share, in its fiscal first quarter. This was $100 million more than its Q1 2007 loss. And Blockbuster's conclusion after a closer look at its financial statements does not bode well for Circuit City's future. Circuit City stock is down 7.8% in pre-market. Let's see whether any new bidders emerge.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

MSNBC reports that Starbucks (NASDAQ: SBUX) is closing 600 stores. The closings could eliminate as many as 12,000 jobs -- this is 7 percent of Starbucks' global workforce.

The move isn't that surprising given Starbucks' recent weaker-than-hoped sales. But, still, it is a big change from its famous strategy of opening stores lots of stores, many in close proximity to each other. "Starbucks, known for sometimes going so far as to open stores across the street from one another, has recently acknowledged that it may have lost some of its luster during a long period of rapid store openings and expansion into everything from breakfast sandwiches to movie promotions," writes senior writer Allison Linn.

Starbucks will take an after tax write-down of between $328 million and $348 million related to the store closings. But because of tax benefits, it expects to see total cash outflow of about $100 million. Starbucks stock is up 6.5% in after hours trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Starbucks securities.

The Wall Street Journal reports that the stock market finished the second quarter just above Bear market territory. Does that mean everything's great or that things are going to get worse from here? I think the worst is yet to come and that investors should hold onto their stocks unless they and/or the companies they've bought are going bankrupt. And they might look to buy stocks in the coal and fertilizer industries.

The Journal reports that the Dow Jones Industrial Average (DJIA) began its march downward, ending the quarter (including Monday's slim 3.50-point gain) with an overall loss of 912.88 points, or 7.4%, at 11350.01 -- and perilously slightly less than the 20% decline from a recent high that is considered the start of a bear market. It was the third straight quarterly decline and the worst second quarter since 2002.

I think the 20% decline that designates a Bear market is pretty arbitrary. People know that the market has been a disaster. And if earnings matter, it's likely to get worse. The Journal notes that analysts expect earnings at S&P 500 companies to be down 11% for the second period, led by a 60% plunge in financial-sector earnings. Estimates fell sharply as the quarter progressed. On April 1, analysts were expecting a 2% drop in S&P earnings and a 31% decline in the financial sector.

If an enemy sworn to the destruction of the global economy was given free reign, it would follow the strategies of its current leaders.

One key to destroying an economy is to break its pricing mechanism. What does an effectively functioning pricing system do? It creates a market of buyers and sellers who can meet, agree on a price, conduct the transaction, and create an information trail that permits future market participants to judge what might be a fair price for their transactions.

Another key to destroying an economy is to put too low a price on risky behavior. Why is it important to price risk accurately? Because if decision-makers do not assess the risk at the time of their decision, the economy will end up paying for the under-priced risk long after those decision-makers have left office.

So how have current leaders broken the pricing mechanism and under-priced risk? Here are three ways:

The S&P 500 is down 12% this year. But some stocks are doing spectacularly well.

My newsletter, which has been picking three stocks a month for the last five and a half years, has found several of them. This year, it's up 29% so far. That increase is the rise in the average stock mentioned in the newsletter since its initial mention through the end of June. And it uses a 2% stop loss rule which automatically sells any stock that has declined by 2% and charges that decline against the returns.

Here are the three biggest winners:

• Walter Industry (NYSE: WLT) +156%
• Southwestern Energy (NYSE: SWN) +44%
• Chart Industries (NYSE: GTLS) +43%

With oil prices on the rise, these three are likely to benefit. But at some point, their valuations will exceed their earnings growth. So keep a close eye on them.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Things are not working out so well for those at the Fed who deny that inflation exists. After all, its job is to keep the currency strong by putting out brush fires of inflationary expectations before they can become a firestorm of price spike fears. And if current consumers' expectations of inflation are any measure, the Fed is not doing its job.

That's according to the Associated Press, which reports that 90% of those it polled expect ballooning costs to squeeze them financially over the next half-year. Consumers have less money than they used to -- the median income is down since 2000 from $61,000 to $60,500. And prices have risen -- food has tripled in many cases and gasoline prices are up to around $4.20 a gallon. But the Fed does not see this -- it measures inflation excluding food and fuel -- and has kept rates at 2%.

And with housing in the tank and lenders in trouble, they can't borrow their way to balancing their budgets. Since the Fed is not controlling inflation, people are coping by cutting back. They are driving less, easing off the air conditioning and heating at home and cutting corners elsewhere. Half are curtailing vacation plans; nearly as many are considering buying cars that burn less gas.