*** The markets have shut down for Good Friday, making this short week quite interesting for us. In particular, the small-cap benchmark Russell 2000 Index proved its resiliency in the wake of the Fed’s quarter-point short-term rate increase on Tuesday –once again demonstrating to the rest of the world what we already knew: that small caps are among the best equity investments on the planet.

If you buy into common wisdom, the Russell 2000 should have tanked on the rate-hike news compared to other major indexes. That’s because small companies generally rely on borrowed funds more than their blue-chip counterparts. When the interest rate rises, that can take a bite out of a small-cap’s bottom line.

With that in mind, the Russell 2000 held up rather well compared to the large-cap Dow Jones Industrial Average and S&P 500. For the week, the Dow ended down 1.8% — its biggest weekly fall in six months. The S&P 500 slipped 1.5%. And the Russell 2000 closed out the week only 1% lower. Relatively speaking, that’s an impressive accomplishment within the context of the Fed announcement.

Honing in on Thursday, we see the Russell 2000 scoring big time, up 3.21% over the previous day. That’s in stark contrast to the Dow, which took a 13.15% hit, and the S&P 500′s one-day decline of 1.11%.

Super-heated oil prices and shrinking greenbacks against the euro have so far hammered all the major indexes. But for the greatest potential return, we’re still huge small-cap believers.

*** For those of you who like to think really small when it comes to stocks, I just wanted to give you a heads up that Russell Investment Group, the folks who brought us the Russell 2000, is launching a microcap index in June.

The median market cap for the new index is expected to be $175.8 million, versus $496.4 million for the Russell 2000. It will have a 17.3% tech-sector representation, compared with 13.7% for the Russell 2000. And the health sector will comprise 17.2% of the microcap index, against 12.6% for the Russell 2000. So with a higher share of volatile tech and biotech ventures, you adrenaline junkies may want to examine the new index this summer…

Or visit www.the-gripper.com for one of the most profitable microcap services anywhere. Carl (The GRIPPER) Waynberg has managed to tame the OTC Bulletin Board by adopting a contrarian blue chip, buy-and-hold strategy that has fattened the wallets of his subscribers with gains of 270.83%, 52.94% and 61.53%. So why wait till June?

In the meantime…

*** On Wednesday, we had our monthly editorial meeting in the company’s Victorian mansion headquarters. I always look forward to getting into that beautifully restored conference room with Carl, James Boric, Addison Wiggin, Kevin Kerr, Eric Fry, Dan Denning, Angela Roberts, Sala Kannan, Tom Dyson, Justice Litle, Byron King, Jonathan Kolber and other writers who fly in from all over the U.S. and Europe. It’s a total blast discussing the hottest topics in the financial world and pitching stories to each other.

Of course, also in attendance was Fleet Street Letter editor Chris Mayer. Chris just started a new service called CrisisPoint Trader. During a break, he was telling me how he wrapped up his first CrisisPoint trade for a 32% profit in only 14 days on Whirlpool calls. Chris’ system was spot on in finding the underlying strength in this company’s shares, even while the market was down.

I asked Chris to send me more information, and this morning I received an e-mail from him telling me what he had written CrisisPoint subscribers:

“The catalyst here will be price increases and the resulting better earnings. In a Reuters release on Monday, Maytag reported that profits would be up due to price increases. Whirlpool, too, is raising prices. ‘We are finding that we have pricing power,’ Whirlpool CEO Jeff Fettig said. Analysts have been raising Whirlpool’s estimates for the year, and currently, Whirlpool is projecting 2005 earnings to be between $5.90 and $6.10. Last year, Whirlpool paid down about $1 billion worth of debt, and its financial profile is improving with each passing quarter.

“Days later, Reuters carried the following about a new buy from Longbow Research: ‘In a research note, Longbow said a second round of price increases was likely to be announced in early April in the 5-10% range, with the increases to take effect in June. Whirlpool, Maytag and other appliance makers have already raised U.S. prices at least 5% this year to offset rising raw-material costs.’”

And one day after Longbow’s buy, CrisisPoint subscribers nabbed that 32% profit.

*** This week’s essay comes from Angela Roberts, who tells you the most profitable way to a girl’s heart…

Diamonds Are a Girl’s Best Friend

For half the world, it’s an eternal question. For the other half of the world, it’s a moot point. Why do women love diamonds so much? Men just can’t figure it out, and women — well, we don’t care. We just love them.

Having, in fact, never asked myself why, I pondered the question for the first time this past Sunday as I stood in front of a glass case, gazing into the brilliant blue depths of the triumphant, 45-carat Hope Diamond.

It’s in Washington, D.C., at the Museum of Natural History. Hordes of 10-year-olds pushed past display cases as their dads and granddads directed them along. But the women…they lingered and hesitated in front of each case. Their fingertips gently pressed against the glass that separates us, forever and completely, from those beautiful, glittering objects.

And I was one of them. I silently surveyed that big, brilliant blue diamond. I watched it sparkle under the small spotlight fixed above it. I held my breath as it slowly spun on its rotating pedestal. I was mesmerized. And I wondered why.

Let’s face it: It’s only a piece of concentrated carbon. It’s almost obscene in its size and audacity. But it sparkles. It shines. It transfixed me and every other woman standing motionless next to me. This single stone has hypnotized women for centuries, and I’m convinced it will continue to do so for many more.

And though they aren’t quite sure why, men will continue to drop large chunks of change on smaller, more attainable versions. Last month, U.S. online diamond sales totaled $1.6 million in the two weeks preceding Valentine’s Day. Two weeks. Online sales. $1.6 million.

I queried my male friends. Why do women love diamonds, or things that sparkle in general? Most just shook their heads with hopeless wonderment, their countenance taking on the look of a sad, despondent victim. The response was unanimous: “I don’t know. I just don’t know.” The most insightful, and honest, reply came from my good friend Jim, a research analyst at one of the top brokerage firms in town. He makes a lot of money, but is very particular with how he spends it. “That’s a good question,” he sighed. “They are ridiculously expensive and have very little value.”

Little value? What on earth…?

Jim’s mother just died. She left a 4-carat, pear-shaped diamond — which she paid $15,000 for — to Jim’s wife. Jim had the diamond appraised and was understandably happy when it scored a $25,000 price tag. And then he was mortified when he had it appraised for insurance purposes and the appraiser valued it at $6,000. And then Jim told me a joke: An ad for a diamond should say, “Because you thought an hour in a woman’s arms was worth $50 a minute.”

Very funny, indeed, but when I polled a few women, they weren’t as amused, or amusing. In fact, they took the question quite seriously. Eyes slowly glazed, and contemplative reverie set in. One woman compared it to looking at stars at night or the reflection of sunlight on a river. Another told me it’s calming. Maybe it’s genetic, she added. I think she’s right: We must have a diamond gene.

In any case, women love them, and men buy them. Does it matter that you’re spending thousands of dollars on a tiny chunk of polished-up compressed carbon molecules? Nope. What matters is that there is a demand and, as it happens, a very diverse supply. And thanks to our diamond gene, it will probably be like that forever.

And women’s eternal love for shiny objects bodes well for all the small-cap jewelry companies out there. Right now, the global market for jewelry is over $110 billion. Small-cap companies like last month’s Penny Stock Fortunes’ Special Report pick, LJ Intl., Inc. are set to profit from that demand. The Hong Kong retail jewelry company raked in over $70 million in jewelry sales in the last 12 months, with a positive net income.

Charles & Colvard, Ltd. is a small-cap American company that manufactures, markets and distributes jewels made out of moissanite — a rare, naturally occurring mineral found in meteorites. The company cuts the almost-colorless gems into round, princess, radiant, oval, marquise, heart, cushion, square-brilliant, pear and trillion shapes, in sizes ranging from 0.03 to 3.1 carats. The company brought in $20 million in sales in the past year, has a positive net profit margin and is growing sales year over year.

Movado Group, Inc., a small-cap U.S. watch maker, designs, manufactures and distributes watches in almost every price category in the watch industry. It also markets watches with Movado, Concord, ESQ, Coach and Tommy Hilfiger brand names. The company’s watches have Swiss movements made with solid 18-karat or 14-karat gold, stainless steel, titanium, 18-karat gold finish and quartz. Sales for the past year totaled over $390 million, with net profits of over $25 million.

A third small-cap jeweler, DGSE Cos., Inc., is one of the largest precious-metals and jewelry companies in the United States. It sells jewelry through online auctions, having launched its first online site back in 1995. It also provides consulting and liquidation services through its wholly owned subsidiary, Silverman Consultants, Inc. It even operates a pawnshop in Carrollton, Texas. Its sales topped $28 million in the past year, and it’s been growing revenues steadily for the past three years.

For the most part, these companies are tiny. But while market caps are small, revenue growth is huge, and thanks to women’s love of diamonds and all things shiny, their futures look bright. So while I never found an answer to the question of why we women love diamonds so much, I have discovered a small-cap sector that provides great investment opportunities.

And for all you fellows out there who still feel the need to understand our attraction before you can plunk down the bucks for your wife’s next set of solitaire studs, think of it this way: The sparkle of a diamond catches our eye, and our breath, the same way a gorgeous woman walking down the street might catch yours. For whatever reason, you just can’t take your eyes off her, and you don’t spend too much time trying to figure out why.

Best regards,

Angela Roberts

March 25, 2005

Diamonds Are a Girl’s Best Friend was originally featured in the Penny Sleuth.