Register a mild, positive data point for the U.S. economy. In May, the U.S. service sector slowed at a pace less than economists had expected.

The Institute for Supply Management announced Wednesday that its non-manufacturing or service index nudged lower to 51.7% in May from 52.0 in April. Readings above 50 indicate an expansion; below 50, a contraction. Hence, because the index remained above 50 in May, the expansion in the service sector continued for a second straight month, the ISM said. Economists surveyed by Bloomberg News had expected the services index to decline to 51.0 in May.

Thirteen of the ISM's service industries grew in May. The ISM added that members' comments in May reflected concern about business conditions, including rising costs, and the overall sluggish U.S. economy.

Economic Analysis: Many economists tend to place less emphasis on the ISM services index, compared to the capital-intensive manufacturing index. Still, the services index does provide helpful clues regarding the economy and the May statistic further confirmed that the U.S. at mid-year is experiencing very sluggish, region-specific growth, but not a contraction -- at least not yet. Credit conditions are tight, but credit availability has not been totally shut down. Corporations large and small are tightening their belts, but some business-to-business spending is occurring. Lay-offs are occurring, but so far, there is no tidal wave of layoffs.

The U.S. economy grew at a modest pace in Q1 2008, the U.S. Commerce Department announced Thursday, weighed-down by the nation's worst housing slump in more than 15 years and slowing consumer spending.

U.S. Q1 2008 GDP increased 0.9%, slightly above the 0.6% preliminary Q1 2008 GDP estimate. The economy grew at a 0.6% rate in Q4 2007. It was the smallest two-consecutive-quarter GDP increase in five years. The U.S. economy has grown 2.5% in the past 12 months.

Economists surveyed by Bloomberg News had expected the economy to grow at a 1.0% rate in Q1 2008.

Also, the Q1 2008 core PCE price index -- a statistic the U.S. Federal Reserve monitors closely -- was revised lower to a 2.1% annualized rate, from the preliminary 2.2% rate. Equally significant, core prices have risen 2% in the past year, slightly above the Fed's so-called 'comfort zone' for core inflation.

Economists surveyed by Bloomberg News had expected the core PCE price index to increase 2.6% in Q1 2008. The overall consumer price index increased at a 3.5% annual rate in Q1.

The Q1 2008 GDP statistic was driven by an increase in exports and defense spending.

Fellow BloggingStocks contributor, Aaron Katsman, and I were discussing the pros and cons of investing in high-yield bonds this morning. You know, those types of risky bonds that pay a pretty good yield in return for investors lending a risky company their hard-earned cash. Inevitably, Washington Mutual's name came up.

Is it worth the risk of default to get some juicy yield?

Dunno, but just as we were discussing the troubled lender, some news rolled out over the wires.

Washington Mutual (NYSE: WM), the largest savings and loan in the U.S., announced it's taking an investment totaling $7 billion from an investor group led by private equity firm, TPG, or Texas Pacific Group.

Well, that helps provide some stability. At least for a while.

After yesterday's selloff, stocks opened higher in anticipation of additional rate cuts by the Fed later today. Better-than-expected quarterly earnings from Goldman Sachs Group Inc. (NYSE: GS) relieved investors who have been dealing with a lot of negative news lately in the financial sector.

The world's largest investment bank reported this morning that its first-quarter profit dropped 53% to $1.47 billion. The company's quarterly numbers were dragged down by higher writedowns and lower fees from investment banking. Deterioration in the credit markets came with $1 billion in losses related to residential mortgage loans and securities and nearly $1 billion in losses on credit activities.

But despite its deep losses, Goldman Sachs managed to beat analysts' predictions, helped by stronger asset management and commodities performance. The company posted first-quarter profit per share of $3.23 per share, down from $6.67 per share reported in the same period a year ago. Analysts, on average, expected the company show quarterly earnings of $2.58 per share.

Shares of Blackstone Group LP (NYSE: BX) have been dropping in early trading after the company reported this morning a plunge of 89% in its fourth-quarter profit. The company's quarterly numbers were dragged down by higher write-downs related to its holdings in bond insurer Financial Guaranty Insurance Co. Wall Street has reacted by pushing the stock down 3.4% to $14.08, and at one point, traded shares down to $13.82, which set a new all-time low for the stock since its debut last June.

Excluding compensation expenses, the manager of the world's largest leveraged-buyout fund announced that its quarterly profit dropped to $88 million, compared with $808.1 million a year ago. Blackstone's income declined through the quarter, hurt by its investment in Financial Guaranty Insurance.

Deterioration in the credit markets, which came with lower takeover fees and reduced the value of its new investments, made the company post adjusted earnings of 8 cents per share. As Trey Thoelcke discussed, analysts had been expecting Blackstone to show quarterly earnings of 19 cents per share. The company failed again to beat, or at least to match, analysts' predictions.

The Organization for Economic Cooperation and Development cut its forecast for 2008 growth in its 30-nation membership to "less than 2%" -- the lowest growth rate since 2003 -- due to fallout from the U.S. economic slowdown, Bloomberg News reported Wednesday.

Sixth months ago, the OCED predicted that 2008 growth in the 30-nation zone would total 2.3%, following 2.7% growth in 2007.

The growth revision marks a substantial shift in OECD expectations. Earlier, the OECD predicted that member economies would be to withstand the U.S. economic slowdown without considerable negative consequence. That outlook, along with economic analysis from other countries, helped form the basis for the so-called 'decoupling thesis' -- where Europe and other developed countries race along unscathed by the doldrums in the world's largest economy.

The U.S. economy expanded at an annual rate of 0.6% in Q4 2007, below the consensus estimate, as activity in construction and consumer spending declined, The U.S. Commerce Department announced Thursday, in a statement.

Economists surveyed by Bloomberg News had expected the economy to grow at a 0.7% annualized rate in Q4 2007. The economy grew at a 4.9% pace in Q3 2007, the Commerce Department said.

For 2007, the economy grew at its weakest pace in five years, with GDP increasing at an inflation-adjusted 2.2%. GDP increased 2.9% in 2006. In 2007 the nation's GDP totaled $13.84 trillion, not adjusted for inflation.

In Q4 2007, a stronger performance in trade offset sub-par performances in consumer spending, business investment, residential investment, and inventories.

I'm sure there will be millions of people watching and participating in the 2008 Olympics set to take place in Beijing, China. That got me thinking: everyone knows that the Chinese investment giant is just beginning to wake. Yes, things are frothy now and growth is almost never linear. There will be bumps along the way as China grows and some people will make a mint, while others lose their shirts.

I'm looking to make a mint. So, how to play China into 2008? I came up with two stocks to help vault investors into the 2008 Olympics.

Ctrip.com (NASDAQ: CTRP): China's leading online travel services provider, Ctrip is probably the most engaging pure play on the Chinese internet making a run at the traditional economy. With 57% marketshare, this company is poised to be the leader in any consolidation that occurs in the online travel space. Bear Stearns' analysts expect Ctrip to grow its revenues at an average of 40% over the next three years based upon:

• China online travel accounting for <1% of the total travel market in 2006
• The Olympics will naturally act as a showcase for inbound tourism into China
• Rising GDP and income levels should contribute to growing demand for both business and leisure travel
• The Chinese government is mandating a transition to e-ticketing

Historically, when the Fed has started cutting rates, investing in financial stocks has proven profitable for investors. Will the same hold true in today's easing cycle? Probably not.

The Bear Stearns (NYSE: BSC) model for its mortgage business might point to problems ahead for the financial industry in general. The financial services industry has done an outstanding job during the past twenty years developing new products and marketing them to institutions who specialize in buying these new instruments -- primarily hedge funds. With mortgage hedge funds, publicly traded vehicles such as mortgage REITs and other investors now shutting their doors to these products, who gets stuck with them? You guessed it! The investment firms and large commercial banks.

Now let's go to $300 billion of private equity debt that needs to be placed. Who is buying that up? While some institutions are, much of it is staying on the books of the investment firms and banks. Will funds be formed to invest in this debt? Yes, but it will take time.

iShares Trust FTSE/Xinhua China 25 Fund (NYSE: FXI) volatility up:

FXI rallied 6% to a record. FXI is an index fund that seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index. FXI was recently up $10.29 to $153.94. FXI September option implied volatility was at 53 above its 26-week average of 30 according to Track Data, suggesting larger risk.

China Mobile LTD (ADR) (NYSE: CHL) volatility elevated as CHL rallies 5% to record High.

CHL, a global wireless carrier with 301 million subscribers, was recently up $3.77 to $67.65. CHL September option implied volatility of 47 was above its 26-week average of 33 according to Track Data, suggesting larger price risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Goldman Sachs (NYSE: GS) volatility trending lower after last week's spike. GS closed at $177.89. GS September option implied volatility of 40 is below of level of 60 from last week but still above its 26-week average of 33 according to Track Data, suggesting larger price fluctuations.

Bear Stearns (NYSE: BSC) volatility trending lower after last week's spike. BSC closed at of $114.75. BSC September option implied volatility of 59 is below a level of 72 from last week and still above its 26-week average of 40 according to Track Data, suggesting large price movement.

Lehman Brothers (NYSE: LEH) volatility trending lower after last week's spike. LEH closed at $58.54. LEH announced the closure of its subprime brokerage unit, BNC Mortgage, on 8/22. LEH September option implied volatility of 54 is below a level of 75 from last week and still above its 26-week average of 38 according to Track Data, suggesting large risk.

Volatility Index S&P 500 Options-VIX at 22.88; 10-day moving average is 27.49.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MAJOR PAPERS:

• The Wall Street Journal reported that Sprint Nextel Corporation (NYSE: S) is reviewing its options to finance the building of WiMax, a wireless broadband network; a hook-up with Clearwire Corporation (NASDAQ: CLWR) is a possibility.
• The word is out that Liberty Media Corporation (NASDAQ: LCAPA) and EchoStar Communications Corporation (NASDAQ: DISH) will make a joint bid for the satellite communications provider Intelsat, Ltd, possibly somewhere in the $4.5B-$5.5B range, the Wall Street Journal reported.
  
• The Financial Times reported that Congress removed blocks on arms transfer requests by U.K. weapons manufacturer BAE Systems plc (OTC: BAESY), acting after BAE assured them that the transfer requests were unrelated to a defunct British investigation into bribery allegations involving Saudi Arabia and BAE.
• According to Barron's Online's "Weekday Trader," Sony Corporation (NYSE: SNE) is climbing its way back to electronic prominence, but more work remains, and it may be time to take profits.

WEBSITES:

• LiveMint.com reported that Citigroup Inc's (NYSE: C) emerging markets private-equity investment arm, Citigroup Venture Capital International, will reportedly invest $1.5B in India over the next three years, the largest investment by a single private-equity investor in the Indian markets.

I just read an interesting little blog post over on That's Fit by Rigel Gregg. It provides a link to an article at eDiets by Dr. Matthew Anderson regarding the proposition that "domestication" of our wild side can lead to being unfit. While the seed article itself is interesting and leaves plenty of room for debate, for me it re-opened the door to one of my core concepts of healthy living, which is: Health and happiness reside mostly in the mind.

Let us imagine that you just hit it big in the markets. That stock you put $1,000 into has just jumped 300%. You sold out quick and realized all your profit. After fees and taxes you will be sitting on a small fortune, providing that you follow the advice of a qualified CPA.

But answer me this: If you had spent the week prior to getting your stock market windfall beating yourself up about being 30 pounds too heavy, not having a partner, never having had the opportunity to go to college, or because your hair is getting thin, what makes anything any different now that you made a lucky pick that generated some cash? If you hang your happiness on anything that is truly beyond your own control, then that happiness shall never be found, and true health shall remain beyond your grasp.

So, as you make your stock picks and research all of your investment plans, please do me one small favor. I promise it won't hurt one bit. Remind yourself that regardless of what the markets do, your own personal happiness is kept mainly within your grasp. Yes, loads of cash can make life easier, and there are many health issues that shall be visited upon each of us that are beyond our own control. But within the framework of circumstances that create your existence, the intangible concept of happiness can be had without a price tag, and it shall always provide compounded returns when properly invested.

I may have mentioned previously that for some odd reason I often have the very daunting privilege of entertaining some deeply intriguing questions. The query put to me today was issued in form similar to this:

If I could virtually guarantee you that by following my instructions on when to buy and sell stocks you would reap a profit at least 70% of the time, would you listen to my instructions and follow them? The only catch is you have to be the first one to take action based on my advice.

This question was brought up in reference to Jim Cramer and the tone of the question was not nice. It was implied that something less than honorable might be taking place behind the scenes. I stand in Jim Cramer's defense (as if it's even required).

Although at times he annoys me with his on screen antics, I have never had cause to believe that Jim Cramer's prognostications encompassed anything less than good, solid business analysis, thorough historical trending and conservative (although sometimes very wrong) performance projections. I have never known Mr.Cramer to lie about anything and he backs up every claim he makes with experience and facts.

When people fail to make money from investing, it is because they do what feels good. Unfortunately to invest successfully, you have to do what feels bad. An old investment strategist once wrote, if your stomach isn't churning when you make an investment, it mostly means you are going to lose money.

Tom McManus, the very fine investment strategist from Bank Of America, wrote this to his clients this week:

Demand for open-end funds concentrating in Real Estate equities slowed a little in the latest week, but still set an all-time record for any week other than the previous two. Net inflows amounted to +$511M, down from the average of $686M seen over the prior two weeks, but sharply higher than the +$30M weekly average seen during February 2006. Total assets of open-end REIT funds have increased +50% in the past year to $77B, and represent about 20% of the equity market capitalization of the REIT sector. By contrast, technology sector mutual funds controlled about $170B of assets at the top in March 2000, less than 4% of the equity market capitalization of the sector.

As McManus writes, investor enthusiasm for real estate remains high despite horrible fundamentals in the residential business and investors are chasing the performance of the office building space.

Investors are following The Blackstone Group's lead, which paid a big price for Equity Office Properties a few weeks back.

It feels good to invest in what is going up and what is popular. But just remember, Sam Zell, Equity Office Properties owner, is selling out. When did he buy? When the real estate sector was in the dumps. Zell was thinking, not feeling.