Economist and president of a research firm that bears his name, Andrew Smithers (not related to the Smithers of Mr. Burns fame) is saying our on-fire stock market is set to burn itself out. The S&P 500 Index is overvalued by 40%, he believes, and we can expect a plunge thanks to central bankers restraining themselves on the securities purchases that have pushed the markets up so far so fast. Also, banks are going to need to sell more shares to raise capital and pump up their balance sheets.

If the S&P 500 were to take a 40% dive today, it would fall to 647.76 (based on the Friday close), below the low it recorded in March.

Remember that no politician in their right mind could try and jump in front of the pro-ethanol train. In doing so, they would risk losing the agricultural lobby, angering his constituents, and even being "less environmentally concerned" than the mighty George W. Bush. As a result of these factors, I'm going to leave the anti-ethanol arguments aside from here on and focus on how to profit from the seemingly imminent increase in the United States ethanol mandate. The pure-play on this is Pacific Ethanol (NASDAQ: PEIX).

Pacific Ethanol has certainly had its fair share of excitement. About a year and half ago, the ethanol frenzy was full-on and the stock quickly moved from $10 per share to $45 per share. However, like many irrational, bubble-like trading patterns, this move was proceeded by a fall back to the $12-20 range, a range the stock has been "stuck" in for the last year.

However, I think that an increase in the ethanol mandate is enough to send the stock out of its range, or at least to the top of its range. Due to the stock's significant short position at about 18% of the float, any piece of good news probably will cause a short squeeze, forcing shorts to cover their positions and run for the hills. When short squeezes occur, speculators tend to also buy the stock, thus forcing even more volatility upon the stock.

The job of Fed watching is getting much harder.

Federal Reserve Bank of Chicago president Michael Moskow today announced plans to retire in August, a departure that had been expected. Cathy Minehan, the president of the Federal Reserve Bank in Boston also plans to retire later this year. Jack Guynn of the Atlanta Fed retired in October and Bloomberg News points out that the Fed's board of governors still has one vacancy.

Minehan and Moskow and the other regional fed presidents are rotating members of the Federal Open Market Committee, which gives them a huge influence over policy. Moskow, in particular, had been adamant about keeping inflation under control, said

Those aren't the only vacancies the Fed needs to fill. Vincent Reinhart, the Fed's top monetary policy staffer, also is retiring, according to the Wall Street Journal.

What does all of this mean besides the fact that top economists are busily lobbying for the jobs? WIl the Fed be more likely to keep interest rates unchanged? I wish I knew.

For now, investors should expect more of the same, according to Reuters,

"The Fed next meets on January 30-31 and investors think it will hold rates at 5.25 percent for the fifth straight meeting since it halted a long rate hike campaign last summer," Reuters says.

During the third quarter of the year, Wal-Mart's stock went from $48.91 to $49.32, or 1.1%. In an unusual show of solidarity with WMT's investors, same-store sales rose only 1.8% in September. The company's customers must have called its investors on the phone.

Wal-Mart Stores, Inc. (NYSE:WMT) had all kinds of reasons why its store sales were not more robust. Comparisons with Katrina-related events were at the top of the list. But, the company had said that same-store figures would be up as much as 3%, so the news was not good.

The unavoidable truth for Wal-Mart is that sales in the US are, if the months are evened out, slowing sharply. The company is just too big with too many stores. The easy share is not longer there for the taking.

As investors combine the news in the US with the sale of Wal-Mart units in South Korea and Germany, the evidence is mounting that China has become an absolutely critical part of the company's ability to grow.

Microsoft Corporation (NASDAQ:MSFT) is now a bloated company. Naturally, not all of it is bad. But, at the company's current scale, there are issues to contend with that might be more easily resolved in leaner and meaner pieces. This is the first in a two-part story.

We all would love to be bloated by Microsoft's cash hoard, patents, growth history, depth of management, research & development strength, and certainly the company's potential to bring product to market.

Nevertheless it is time to consider Micro'soft' vs Micro'hard'. The development of the XBox, and now the Zune -- and with the possibility of Microsoft stores in the air -- make this a timely consideration. I am not promoting breaking up the company without very deep and measured analysis of the merits (Peter Cohan had some analysis of this very topic, in June), but given Microsoft's size and slower growth prospects it is worth considering.

The break-up of many of our largest corporations has been a topic of discussion as investors seek to maximize company potential.