AIA Advocate for Absolute Returns

In This Issue:

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week

There's nothing like the start of a new year to shake investors out of a funk. It happened again a few days ago when the market rallied as the first of January approached. The week the calendar turned over, the Dow and the Nasdaq went up an impressive 6.1% and 6.7% respectively. It was an encouraging end to a dismal year that saw the two indices plunge 33.8% and 40.5% - the third worst performance in recent memory.

Alas, it is far too early to declare an end to the bear market. With manufacturing and home sales dropping to very low levels, it is clear that the economy is still sinking. But as we will discuss later, that doesn't mean that a recovery is off the table for late 2009.

In This Issue:

The Economy Is Bad, But Stocks Are Priced For Worse
Stocks Outshine Their Competition
Behold The Halo Effect
A January Bounce Seems Likely
Energy And Foreign Growth Are Positives
We May Be Halfway Through The Economic Downturn
What Everybody Knows...
The Bottom Line This Week

Last week we received additional signals that a bear rally is probably in the works. During the five day period, investors were treated to a smorgasbord of bad news. Congress turned thumbs down on bailing out the Big Three automakers. Unemployment surged to a 26 year high. T-Bill returns dropped to essentially zero. Many bellwether companies issued earnings warnings. Several firms cut their dividends, and investors were shocked by a $50 billion hedge fund collapse.

So what did the market do? It barely budged. The Dow eased down less than 0.1%. The Nasdaq actually rose 2.1%. The market was also strong during the first three days of the current week. In our opinion, such resilience in the face of disturbing economic events indicates that investors are probably getting ready to do some buying.

In This Issue

Black Friday May Suggest A More Optimistic Outlook
Most Insiders Are Not Selling
Bear Market History: How We Compare
Get Paid While You Wait
The Bottom Line This Week

Last week when everyone was stuffing themselves with turkey and other goodies, the urge to consume in abundance spilled over to Wall Street. By the time the market closed on Friday, the Dow and the Nasdaq were up an impressive 9.7% and 10.9% respectively. It was the first five day rally we've seen in over a year.

The enthusiasm for stocks wasn't completely due to holiday cheer. Investors got wind of the fact that Black Friday sales were likely to be better than was first expected. As it turned out, instead of a miniscule 0.9% sales increase, Joe and Sally MidAmerica gave the retail industry a 3% boost. Shoppers were so eager to spend money, they trampled several people who got in their way, one of whom died.

As we are sure you know by now, the enthusiasm didn't survive the weekend. The terrorist attack in Mumbai plus a dismal economic report sent the market down 680 points on Monday. Stocks recovered 442 points on Tuesday and Wednesday but the rebound seems unlikely to last very long.

In This Issue:

Stocks Search For A Bottom
High Energy Prices Will Return
Commodities Will Also Rebound
Infrastructure Spending Is Likely To Soar
The Bottom Line This Week

Stocks stumbled badly again last week as deteriorating economic news caused another round of investors to throw in the towel. By Friday afternoon, the Dow and the Nasdaq were down an additional 5.0% and 7.9%. The declines left the two indices down 35.9% and 42.8% for the year. Ouch!

This week got off to an equally bad start. Although we had a 151 point gain on Tuesday, it was overshadowed by a 651 point slide on Monday and Wednesday.

In This Issue:

The Rally May Have Legs – Or Not!
A Banquet For Value Investors
Dividends Shine In This Market
A Yield Bonus That Few Investors Consider
The Bluest Of The Blue Chips
Love Those Dividend Aristocrats
The Bottom Line This Week

The mid-cycle rebound we have been expecting showed up last week with a spectacular opening. Even though the market on Monday showed a 203 point loss, huge gains over the remaining four days pushed the Dow and the Nasdaq up 11.3% and 10.9% respectively.

This time the gains survived the weekend, but not for long. Monday was a yawn, but the market jumped 305 points on Tuesday as excitement about the presidential election boosted spirits. On Wednesday, however, America suffered a post-election hangover and stocks dropped a whopping 486 points. It looks like Wall Street plans to give President-elect Obama a very short honeymoon.

In This Issue:

It's Too Early For A Sustained Rebound
But, There Are Finally Some Signs Of Relief
What Everybody Knows Is Often Wrong
Another Contrary Economic Outlook
Cheaper Energy: The World's Biggest "Tax" Cut
This High Yield Investment Looks Good
The Bottom Line This Week

Mother Market took pity on investors last week when she tossed a few points our way. Actually, it was more than just a few. The total for Monday and Thursday came to a whopping 1338. Since she took back "only" 937 points, the Dow and the Nasdaq ended the period up a welcome 4.8% and 3.8% respectively.

When the closing bell finally rang on Friday and the week's gains were locked safely away, some of us let out a happy little "hurray." However, our killjoy number cruncher pointed out that with so many wild swings happening every week it was inevitable that the market would occasionally end on a high point. In other words, the bounce could have just been a random event. Rats!

On Monday of this week the market jumped another 413 points, but it gave back 746 points on the following two days. Oh well, the mini-rally was fun while it lasted.

Bargains Are Starting To Appear
A Bottom Fishing Check List
The Bear Isn't Finished Yet
Big Drops Lead To Big Rebounds
Financial Stocks Attract More Attention
There Is One More Shoe To Fall
The Biggest Question: Will The Bailout Work?
The Bottom Line This Week

Wall Street's thrill ride continued over the past week as investors made king-sized moves after every drop in the economic outlook. By the time the closing bell rang on Friday, the Dow and the Nasdaq were down 7.3% and 10.8% respectively. A good time was definitely not enjoyed by all.

Once again, investors saved their biggest gyrations for the following Monday when the market plunged some 800 points. Fortunately, the market regained 430 points before the end of the day. Stocks resumed their slide on Tuesday and Wednesday when they fell a total of 689 points.

In This Issue:

Most Economists Believe The Rescue Plan Will Work
Others Say It Will Only Postpone The Inevitable
We Think The Optimists Are Right
Meanwhile, Here's An All-Weather Investment Plan
The Bottom Line This Week

We've been suspicious for several weeks that Mother Market was not happy about taking a back seat to the recent Olympic games in China. To gain back some of the limelight she has been making bigger swings, jumps, and dives than anything we saw in Beijing. Her efforts are clearly working because nothing else has been able to push financial news off the front pages.

Last week, the market made yet another volatility record, not that anybody wanted to see it. On four of the five days, prices changed over 300 points. Nevertheless, when the dust settled, and the bodies were swept up, the Dow was only down a miniscule 0.3%. The Nasdaq actually managed to rise 0.6%. If you happened to be in Transylvania during the festivities, you might not have known how much fun the rest of us had.

The race for new records continued when the market opened on Monday of this week, and stocks dropped 373 points. Prices started to settle down on Tuesday and Wednesday when stocks fell 162 points and 29 points respectively. Given the circumstances, it is too much to hope that the high volatility will end anytime soon.