"Do you have to be so negative all the time?" a number of my recent emails have asked. "You're so pessimistic that I can't stand to put any money in the stock market."

Although I've written recently about the dangers of higher inflation, slower economic growth and, the worst of all worlds, stagflation, I'm not particularly pessimistic at the moment.

It's just that I believe any investment strategy has to begin with a close-up look at the dangers ahead. Only by taking the most objective look at potential bad news can you figure out where to put your money, decide what sectors and stocks to avoid and make a judgment on whether to own stocks at all at the moment.

Fear and hope are the two drivers of stock prices in the near and intermediate terms, and you can't consistently make money if you look only at half of what motivates investors.

So what does looking at the market's fears tell me about where to put my money now? Here are my five lessons from the market's fears.

Fear No. 1: Goldilocks vs. the Three Bears

The Goldilocks economy could be about to come face to face with the Three Bears (inflation, higher interest rates and slower growth).

It's possible that the Federal Reserve will get the economy just right: not too hot, because that would encourage inflation, and not too cold, because that would crimp growth and send earnings into a tailspin. But the market is worried that there is very little room between too hot and too cold.

Look at the July 7 reaction to June's employment numbers. June payrolls climbed by just 121,000, way below the 175,000 the stock market had expected. That was good news for investors who were worried that fast job growth -- something north of 200,000, for instance -- would persuade the Federal Reserve that it needed to raise interest rates again in August.

The jobs number is consistent with economic growth of 2% to 3% once you add in productivity growth -- almost exactly the noninflationary range that the Federal Reserve would like to see.

But instead of rallying, stocks sold off and sent the Dow Jones Industrial Average down 135 points, because hourly wages climbed by 0.5%, bringing the annual rate of wage growth to 3.9%. That was more than the monthly increase of 0.3% that Wall Street had expected and a big jump from the 2.7% rate of increase in June 2005. An almost 4% jump in hourly wages is exactly the kind of inflationary sign that would lead the Federal Reserve to stomp down hard on the brakes.

Implication for stocks: Now isn't the time to take risks. Just as higher volatility is good in a rising market (it means your stock is going up faster than most), it's bad in a down market (it means your stock is going down faster than most).

So forget about speculative plays in emerging markets, commodities and high price-to-earnings-ratio stocks in general. Instead, advises Wall Street, own "quality," a term with a very squishy definition but one that is often synonymous with large, less volatile and financially solid stocks.

Fear No. 2: Economy Will Actually Grow

Maybe the Three Bears won't eat Goldilocks after all, and the economy will actually grow by 2% to 3%.

Then won't all the money managers who ran for cover look silly when their portfolios trail the indices? It's important to realize that professional money managers are judged on relative performance. If your portfolio stumbles, but the major stock indices such as the S&P 500 tumble more, hey, you just had a good year. But woe to the manager who trails the index or peer group. Do it often enough, and you get fired. So there's as much danger right now in going too defensive and giving up on growth as there is in holding too much risk.

Implication for stocks: Wall Street wants to own 'safe' growth. Although it's not entirely clear where investors might find this ideal equity, a "safe" growth stock will deliver 8% to 12% earnings growth even if the economy falters, the dollar tumbles, energy prices climb, inflation flares and interest rates rise.

A growing number of Wall Street pros are looking for safe growth in a group that they call the Big Uglies: stocks such as PepsiCo ( PEP) and Procter & Gamble ( PG). Best of all, of course, are stocks that are likely to deliver earnings growth and that pay an attractive dividend. The dividend is an extra insurance policy that makes "safe" growth even safer.

Fear No. 3: Pressure on the Dollar

The end of Federal Reserve interest rate hikes and a slowing U.S. economy will put downward pressure on the U.S. dollar.

Remember how the dollar strengthened in May and June when investors decided that the Federal Reserve wasn't done raising interest rates? High U.S. interest rates make dollar-denominated investments such as U.S. Treasury bills more attractive to investors and support the price of the dollar, in general.

Before this dollar rally, we saw exactly the other side of the coin. The dollar had slumped for months against the euro and the yen because of the belief that although the Federal Reserve was done hiking interest rates, the Bank of Japan and the European Central Bank were near the beginning of a series of interest rate increases that would cut the gap between U.S. rates and rates in Japan and Europe. The financial markets expect a replay of the earlier dollar weakness when the Federal Reserve finally does stop raising rates -- whether in August or later.

Implication for stocks: Hedge on the dollar. Wall Street is looking to hedge on its dollar exposure -- and to profit from a falling dollar -- with three strategies. First, by buying overseas stocks priced in a currency likely to appreciate if the dollar tumbles. Second, by buying shares of U.S.-based multinationals that derive substantial portions of their revenue from overseas sales. At the moment, at least, Wall Street seems to be steering away from gold stocks as a hedge on the falling dollar out of a belief that these stocks are too speculative. (See Fear No. 1.)

Fear No. 4: Inflation Out of Control

Inflation is out of control, and even interest rate increases by the world's central banks can't do anything to stop it.

The culprits vary, depending upon whom on Wall Street you speak to, but they include higher energy and commodity prices (thanks to China); vast and continuing increases in the money supply in the U.S., China, Japan and Europe; and an end to China's ability to export deflation in the form of lower prices for manufactured goods.

Implication for stocks: The return of gold. Although there's not much overt talk about this possibility on Wall Street, I think you can detect the effects of this anxiety in the recovery of prices for gold and such commodities as copper in recent weeks.

Fear No. 5: Rest of World Will Falter, Too

Growth in the rest of the world won't hold up when the U.S. economy starts to slow.

The U.S. consumer has been the world's buyer of last resort as the economies of Japan and Europe sputtered during recent years. The hope now is that growth in Japan and Europe has revived enough so those countries can pick up the global slack in consumption if the U.S. economy slows.

The big worry, of course, is that a slowdown in the U.S. that isn't counterbalanced by growth in Japan and Europe could lead to a slowdown in the Chinese economy. That, in turn, would ripple out across world markets for commodities, infrastructure equipment and services.

Implication for stocks: Commodity stocks stay weak. I think investors can see the effects of this worry in the weak performance of energy stocks despite a surge in the price of oil to a record $75.78 a barrel on July 7. The fear holding the sector back is that global growth won't be strong enough to keep prices climbing or even to support them at the current peak.

What should you do about these worries? I think you have three strategies to choose from. How you mix them depends on your read of the reality behind each of these current Wall Street worries and your own investing time horizons.

Strategy 1: Go With the Flow

Fear No. 1 and Fear No. 2 do put a considerable wind at the back of "safe" growth stocks (especially those with dividends and that tap into Fear No. 3 as well). I think it's worth adding stocks of this description to your portfolio for the last half of 2006 and into 2007.

And while it's likely in my opinion that the market will move lower in the last half of July and in August, these stocks aren't likely to drop much in such a correction.

Strategy 2: Invest in 'Blind Spots'

For example, I think the correction in gold stocks left Wall Street unjustifiably leery of the sector. The correction washed out a lot of speculative money and sent gold down 22% from its high on May 12 at $726 an ounce to a low of $567 an ounce on June 14. (The metal has since bounced back 10.4% to $626.10 an ounce as of July 10.)

Once Wall Street gets over its queasiness about the sector, the financial markets are likely to rediscover that gold is the best way to hedge against both a weaker dollar and higher inflation, Fears No. 3 and No. 4. Yet another example: The focus on interest rates, the Fed, inflation and growth is causing some investors to overlook earnings season and seasonal opportunities.

Strategy 3: Stick to Your Long-Term Strategy

Use these current near- and intermediate-term worries to add shares that further your strategy. I've laid out my arguments for keeping your eye on building the portfolio that you'd like to own in the long run in my May 31 column, " Turn Short-Term Fear Into Long-Term Profit ." I'd like to see these stocks get cheaper before I buy them for the long term, so I think it's worth waiting until later in the summer on these shares.

New Developments on Past Columns

" Central Banks' Tight Fit ": Good news and bad news out of Japan. Good news: The country's economy is growing faster than projected. Bad news: The good news makes an interest rate hike more likely.

On July 7, the Japanese government raised its forecast for economic growth to 2.1% for the fiscal year that ends in March 2007. The previous forecast had been for 1.9%. Inflation at the consumer level is expected to run at an annual rate of 0.6%. Japanese financial markets are anticipating an interest rate increase out of the Bank of Japan's two-day meeting on July 15 and 16.

Meanwhile, a world away, the European Central Bank held interest rates steady at its July 6 meeting but raised the odds of an increase at the bank's Aug. 3 meeting. That meeting had been scheduled as a telephone conference call and has now been rescheduled as a face-to-face meeting. The European Central Bank has historically been extremely reluctant to raise interest rates at anything other than a face-to-face meeting.

" Three Ways to Invest in Europe's Revival ": Shares of Tele Atlas have taken a hit lately on problems at competitor Navteq ( NVT) that don't seem to have much to do with the health of Tele Atlas.

Navteq missed first-quarter 2006 estimates by about 30% on April 26 on continued weakness in the company's in-car navigation business, which makes up 70% of sales at Navteq. On the other hand, Tele Atlas reported a 93% increase in sales in its key personal navigation-device business (37% of Tele Atlas sales) when it reported for the quarter on April 27. In-car revenue climbed 15% year to year. Revenue for the company as a whole climbed 40%.

I'm trimming my target price slightly -- to $31 a share from $33.50 a share because of an inventory clearance of older models at suppliers, now over, that had depressed selling prices -- and stretching out the schedule to March 2007 from December 2006. (Please note, these shares don't trade as ADRs on the U.S. market. To buy a piece of Tele Atlas, you'll have to buy the European shares and pay an extra fee, probably around $50, to your broker.) Full disclosure: I own shares of Tele Atlas in my personal account.

At the time of publication, Jim Jubak owned or controlled shares of the following equities mentioned in this column: Navteq and Tele Atlas. He does not own short positions in any stock mentioned in this column.
Jim Jubak is senior markets editor for MSN Money. He is a former senior financial editor at Worth magazine and editor of Venture magazine. Jubak was a Bagehot Business Journalism Fellow at Columbia University and has written two books: "The Worth Guide to Electronic Investing" and "In the Image of the Brain: Breaking the Barrier Between the Human Mind and Intelligent Machines." As an investor, he says he believes the conventional wisdom is always wrong -- but that he will nonetheless go with the herd if he believes there's a profit to be made. He lives in New York. While Jubak cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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