AIA Advocate for Absolute Returns : Bailout

Association of Investor Awareness - Week of 06/25/2009

Research & Editorial Staff — Thu, 25 Jun 2009 14:32:00 GMT

In This Issue:

Mixed Economic Signals Worry Investors
Another Kind Of Bailout Is Also A Concern
A New Economic Reality Is Emerging
For Efficient Companies, Slow Growth Can Be Profitable
Your Best Strategy Now
Three Analysts And A Fool Have Recommended This Stock
The Bottom Line This Week

In our last issue we remarked that "the rally may be getting short of breath." Shortly thereafter, the huffing and puffing began in earnest. On Monday of this week, definite wheezing sounds were heard as the bull dropped to its knees just short of pushing the market into positive territory for the year. Perhaps the old boy was out of shape after letting the bear take over for six months.

In any event, since May 28 the Dow dropped 0.8% while the Nasdaq managed to squeak ahead a miniscule 0.8%. More importantly, both measures slipped 3.0% and 1.7% last week – and they are even lower now.

Mixed Economic Signals Worry Investors

It is not possible at this early juncture to know if the bear has returned. However, we can say that many of the economic "green shoots" that have attracted so much attention of late are beginning to look a bit wilted.

Sales of existing homes are typical of the economic signals that are making investors nervous. Sales increased 2.4% in May, which suggests that the housing market is finally turning around. At the same time, however, home prices dropped again and are now 16.8% lower than they were a year ago. Economists can't decide if the increasing sales offset the negative consequences of declining prices. Until the matter is settled, many investors are taking a time out.

There are also mixed signals about inflation and interest rates. On the one hand, rising oil and commodity prices are clearly inflationary. Ditto for the money supply that is shooting up due to all the king-sized bailouts from Uncle Sugar.

But at the same time, wages are dropping, layoffs are increasing, household wealth is plummeting, and several states are on the edge of bankruptcy – all of which point to continued deflation. Since the tug of war between inflationary and deflationary forces could go either way, many investors are sitting on their money.

Lastly, investors were counting on a solid global turnaround in the coming months. Those hopes were put in question when the World Bank reported that growth would contract 2.9% this year instead of expanding 1.7% as previously predicted. Oops! Even if the numbers are not spot on, the reversal in the outlook is disconcerting.

Another Kind Of Bailout Is Also A Concern

It's not just investors who are nervous about the economy. The grand poobahs at America's largest companies are also moving their chairs closer to the door. In fact, many company officers are leaving the party altogether.

According to TrimTabs, a respected group of investment analysts, in June insiders at S&P 500 companies unloaded $2.6 billion worth of shares, vs a paltry $120 million purchases – and the month isn't even over yet. That lopsided ratio indicates that many executives believe the business outlook is not very good. Although company insiders are not always right, their track records are much better than from Wall Street number crunchers who aren't on the front lines.

A New Economic Reality Is Emerging

Of course, the disappointing green shoots news is no surprise to our readers. We have been arguing for months that "a recovery will probably be more modest" than most analysts and investors expect. Instead, the economy is probably just settling into a lower pace of activity where it may remain for years.

The biggest impediment to a strong rebound is this recession isn't just another contraction in the business cycle. Instead, the economy is adjusting to major structural changes in banking, credit, trade, manufacturing, consumer credit, and many other conditions – all of which are scaling down.

For example, many homeowners and realtors think that rising home sales indicate that the housing market will soon be moving up again. That may be true in many markets. However, rebounds to anywhere near pre-collapse levels are almost certainly out of the question for several years.

Likewise, manufacturers will probably need to rehire some workers to replace inventories that have been drawn down over the past year or so. But another all-out production boom is very unlikely. The outlooks are similar for the other engines of growth.

The biggest change is occurring on the social front. The madcap spending binge of a few years ago is being replaced by the desire to be frugal and put money away for the future. Even people with good incomes are changing their spending habits. The old phrase "He who dies with the most toys wins," is being replaced with "A penny saved is a penny earned." Since consumer spending is two thirds of the economy, the new thrift indicates that growth will be very modest for some time to come.

For Efficient Companies, Slow Growth Can Be Profitable

Some readers may wonder how any companies can possibly prosper given the big economic problems that dominate the news.

The answer is that the front pages don't tell the whole story of what is happening in America. The economy has a lot more going for it than banking, housing, and auto making. Although earnings are down in nearly every industry, most companies are still in the black.

That's especially true for multinational firms that do a substantial amount of business in countries with stronger growth rates than in the U.S.

Your Best Strategy Now

Thanks to the rally, we have seen excellent gains in our blue chip stocks. Although the upturn may have a second wind and continue for another few weeks, we think the possible rewards are not worth the risk. Accordingly, this would appear to be a good time to take some profits off the table.

Stocks that you intend to keep for the long haul you should protect with stop loss orders. If you are a conservative investor, using a tight stop of 10% might be in order, although choosing 15% would give prices more wiggle room.

More aggressive investors should consider using a 20% or a 25% stop to protect against a large loss in case the market is blindsided by an unforeseen event.

All investors who use stop loss orders should make them trailing stops that will follow any additional price rises every step of the way. The most effective trailing stops are based upon a percent of the price, but you can also choose fixed prices if they suit your needs better.

We also think you should make use of a correction to buy high quality stocks that fall significantly in price. All the high quality stocks that we have been recommending of late should be on your list including: ConAgra Foods (CAG) http://finance.yahoo.com/q/bc?s=CAG, ExxonMobil (XOM), http://finance.yahoo.com/q/bc?s=XOM, Hormel Foods (HRL) http://finance.yahoo.com/q/bc?s=HRL, Colgate Palmolive (CL) http://finance.yahoo.com/q/bc?s=CL, and Procter & Gamble (PG) http://finance.yahoo.com/q/bc?s=PG. We think the blue chip group is as close to being a sure long term bet as Wall Street ever offers.

A bit more aggressive, but with prospects to match, are Alcoa (AA) http://finance.yahoo.com/q/bc?s=AA, Deere (DE) http://finance.yahoo.com/q/bc?s=DE, General Electric (GE) http://finance.yahoo.com/q/bc?s=GE, and Caterpillar (CAT http://finance.yahoo.com/q/bc?s=CAT. All the companies are tied to the global economy, they are very efficient, and they can prosper even in a slow growth environment.

A new investment that we believe has excellent prospects is the iShares MSCI Emerging Markets Index ETF (EEM) http://finance.yahoo.com/q/bc?s=EEM. Emerging nations are growing much more strongly than in the U.S., and they should continue to do so. The BRIC countries in particular (Brazil, Russia, India, and China), are developing their large internal markets and are becoming less dependent upon exports to Europe and the U.S. The BRIC countries are also signing currency exchange agreements with each other to reduce their dependence on the U.S. dollar – but that's a story and an opportunity we must leave for next time.

THREE ANALYSTS AND A FOOL HAVE RECOMMENDED THIS STOCK

Last month we reported on a significantly undervalued China stock we had been following for quite some time. Those of you who took a position in Universal Travel Group (NYSE Amex: UTA) http://finance.yahoo.com/q?s=UTA have been rewarded with a very nice upward move of 44%, with Wednesday's close at $10.10.

Since moving to the American Stock Exchange, UTA has been showing up on more radar screens than a 757. The Company was profiled by "The Motley Fool CAPS" on June 23, 2009. One comment that caught our attention was..."Universal Travel has outpaced the other 11 stocks in the CAPS Travel Services sector by orders of magnitude. Shares of the growing travel company are up nearly 50% over the past month (and up more than 223% year to date),compared to the 6% increase across the sector since late May."

You may recall that Universal Travel specializes in online and customer representative services. The Company offers packaged tours, air ticketing, hotel reservation and agency services. They racked up some great numbers from 2005 through 2008: 202% Compound Annual Growth Rate (CAGR) ... they have no long-term debt ... $16.2 million in cash ... $30.2 million in working capital... and earnings of $14.5 million for the full year ending 12/31/08.

By our calculations, they have earned $1.20 ttm, and at a closing price of $10.10 on 6/23/09, they are still trading at less than a 8.5 P/E multiple. Comparable industry multiples range from 25 to 43 times earnings...even with its recent share price increase, Universal Travel has a lot of upward potential.

Three independent analysts have issued recommendations on UTA in the past eight months...the latest indicating a price target in the $16 to $18 range. We think that could be conservative, given the average P/E multiple of 34 might suggest a price approaching $40 per share. Given the Company's YOY growth of top and bottom lines, that's certainly possible in the next 12 to 18 months.

Go to http://cnutg.ir.stockpr.com/ for more details.

The Bottom Line This Week

The green shoots that most investors have been expecting are here, but they are developing more slowly than expected. We think the reason is the U.S. economy is adjusting to a lower level of growth instead of making a traditional post recession rebound.

Fortunately, well-established companies are adept at squeezing profits from slack markets. At the top of that list are our top-rated blue chip companies. All of them may be purchased if a correction makes their prices attractive again.

Investors who will accept extra risk in return for the prospect of higher profits should look to emerging markets where growth rates remain high. Among them, the BRIC countries appear to offer the greatest long-term potential, with China leading the pack.

In the interest of full disclosure, John M. Casson, Executive Director of AIA is president of Casson Media Group, Inc. (CMG), an affiliated company. CMG has received cash compensation and allocated $2500 for the transmission of this publication as part of a comprehensive corporate communications services agreement for Universal Travel Group. Although the Research and Editorial Staff of AIA conducts independent research and analysis, you should be aware of this potential conflict of interest.

Association of Investor Awareness - Week of 02/26/2009

Research & Editorial Staff — Thu, 26 Feb 2009 14:43:00 GMT

In This Issue:

The Federal Bailout Is A Mixed Bag
Capitulation May Have Been Reached
Some Blue Chip Stocks Will Win Blue Ribbons
A Speculation Is Also Attractive
Gold Regains Its Appeal, But There Are Problems
An Economic Indicator That We Can Love
The Bottom Line This Week

Since our last newsletter on January 29, the stock market took a sharp turn for the worse. In fact, calling it a "turn" is an understatement. "Plunge" would better describe the 9.6% and 4.4% declines in the Dow and the Nasdaq. The slide left the market at a 12 year low.

Curiously, the plunge isn't due to another panic. At this point in the long bear market, most investors are too tired to sprint for the exits. Instead, many of them are dropping their gear and are simply walking off the field.

The Federal Bailout Is A Mixed Bag

Although we wish it were otherwise, we think the market will continue to drop until values become so attractive that they can no longer be ignored. Last month we thought that point had been reached, but the combination of poor economic news and a poorly executed federal bank rescue program sent another wave of discouraged investors to the sidelines. Most people now think the feds are "just winging it" and they won't be able to save the banks or the economy after all.

Overlooked during all the worries about the bank bailouts are other parts of the $787 billion federal package. Many of the individual programs have proven to be effective economic boosters during past downturns. About $315 billion will go towards education and job training. Nearly $190 billion will be spent on direct aid to states. Another $236 billion will go to tax breaks for families, renewable energy credits, and a temporary fix for the dreaded AMT. Most of that money will flow into the economy within a year.

Nevertheless, it now looks as if the economy may not begin to dig itself out of its hole until early 2010. That's not a huge setback from the late 2009 prediction that was becoming common. However, there is a big psychological difference between 2009 and 2010 that is having an outsized impact on investors. As we said earlier, many people don't want to stick around the stock market much longer.

Capitulation May Have Been Reached

The dark mood that is rapidly spreading on Wall Street may have a positive ending. As we said in a previous newsletter, bear markets rarely end until most investors are thoroughly discouraged, and they pull out of the market. Once the capitulation stage is reached, stocks typically start to move up again. Moreover, the final recovery doesn't turn into another bear trap. Instead, it just keeps going.

No one can know if the latest stock plunge marks the bottom of the severe bear market. However, with stocks down nearly 50% from their highs, we are almost certainly closer to the bottom than we are to the top.

Some Blue Chip Stocks Will Win Blue Ribbons

As a result, we continue to urge investors to use this opportunity to buy the bluest of the world's blue chip stocks for prices we have not seen in nearly two decades. Dozens of top-quality companies with very bright futures are in the bargain basement. If you don't make use of this unprecedented Wall Street sale, we think you will kick yourself within a few years.

JP Morgan Chase (JPM) is a case in point. http://finance.yahoo.com/q/bc?s=JPM Unlike most of its rivals, the company is solidly profitable. Not only did the bank stay in the black last year, it is making money now in the toughest economy we've had in recent memory. That's an enormous achievement that shows the underlying strength of this multinational powerhouse.

Nevertheless, JPM is down 54% from the high it reached during the boom. Investors are so afraid of the banking industry, they don't even want to own the best of the group. That shortsightedness is creating an opportunity for more reasoned investors to pad their long term portfolios with this world-class bank at a very low price.

Archer Daniels Midland (ADM) is another multinational blue chip that is ridiculously cheap. http://finance.yahoo.com/q/bc?s=ADM The company is in Wall Street's dog house for two reasons, neither of which will last more than a year or so. First, the slow economy is starting to hit food sales. Secondly, the company's ethanol business has been put in mothballs because oil prices collapsed from $149 a barrel to just $39.

However, food sales are projected to increase worldwide as governments make giant-sized purchases later this year to satisfy their hungry populations. Moreover, most of the money will go for bulk foods, which is the core of ADM's business.

Energy prices will also rebound once the global economy begins to recover. Because oil reserves were drawn down quite a bit during the recent economic boom, when demand picks up again prices should rise even faster, and probably go higher, than they did last time. When it happens, Archer Daniels Midland will be able to put its ethanol business back on line.

A Speculation Is Also Attractive

Even some stocks that are under a cloud are worth your consideration. It's all a matter of the risk/reward balance they offer. If prices are so low that the downside is very small, and the upside could be huge, it can make sense to make small purchases.

Ford (F) is one such stock. http://finance.yahoo.com/q/bc?s=F Unlike Chrysler and General Motors, Ford has not asked for a handout. In addition, critics are all agog about the new 2010 Ford Fusion hybrid family sedan. USA Today called it "the best gasoline-electric hybrid yet." And it has "the industry's smoothest, best-integrated gas-electric power system." Car and Driver put the Fusion up against the Camry Hybrid, the Chevy Malibu Hybrid, and the Altima Hybrid and said "it topped the others…."

Lastly, Ford would obviously be helped if its rivals need to pare back production to stay afloat. GM already plans to dump its Saturn, Saab, and Hummer brands, and Chrysler may not survive at all.

Gold Regains Its Appeal, But There Are Problems

The sinking stock market, poor fixed income returns, possible bank failures, and weak currencies, are prompting countless investors to buy gold as a last refuge. On February 20, the price of the metal came within $25 of reaching its all time high of $1,030 set in March 2008.

Many bulls are convinced that gold will continue to rise in the coming months. They correctly point out that in inflation adjusted dollars, the metal would need to reach $2,200 just to match the price it briefly hit in 1980. Of course, just because gold soared 28 years ago is no guarantee that it will do so again.

In fact, many gold critics say if the metal isn't blasting through the ceiling now, it probably never will. They argue that the economy is in much worse shape than it was in 1980, and so is the outlook for many financial institutions. So they ask, what is gold waiting for? One of our group quipped that if conditions must get twice as bad as they are now to make gold twice as expensive, we will all be back in the stoneage.

Gold's biggest liability is it doesn't do anything. It doesn't make products, grow crops, or otherwise add to the world's real wealth. That's why it almost always sinks when the economy is strong enough to support productive activities.

We think gold makes sense for part of an investor's portfolio, but don't plan on a long hold. For most people, the best way to buy the metal is with the SPDR Gold Trust (GLD) that holds over 1,000 tons of the stuff. http://finance.yahoo.com/q/bc?s=GLD The ETF is easy to buy and sell, there are no storage or theft issues to deal with, and it mirrors the price of gold almost to the penny.

An Economic Indicator That We Can Love

According to the Bespoke Investment Group, http://bespokeinvest.typepad.com/bespoke/ one of the most accurate of the non-traditional stock market indicators is the annual Sports Illustrated Swimsuit Issue. Over the past 30 years, an American has been on the cover of the issue 16 times. In 13 of those years the gain in the S&P 500 was a whopping 81.3%. Overall, the average was a still-healthy 10.6%.

We've decided that the indicator's sterling track record shows that we should pay more attention to the Swimsuit Issue. Accordingly, we have ordered several copies for our analysts that we will examine closely for clues to the economy. We never tire of working for your welfare.

The Bottom Line This Week

The stock market declined sharply last month when investors lost faith in the government's ability to save the banks and turn the economy around. The sour mood feels very much like a classic bear market washout that is typically followed by a rebound.

Although there is no guarantee that the same happy event will happen this time, we think many stock values have become too attractive to ignore. Looking particularly good to us are JP Morgan Chase and Archer Daniels Midland. More aggressive investors should consider Ford, a stock that might deliver extraordinary gains as America's only surviving automaker.

Association of Investor Awareness - Week of 01/15/2009

Research & Editorial Staff — Thu, 15 Jan 2009 16:55:00 GMT

In This Issue:

Sometimes Good News Can Be Bad News
Treasury Bonds May Be A Bubble
It’s Time To Choose Shorter Bond Maturities
Three Ways To Win If Treasuries Decline
Investing In Times Of Extremes
Staying Healthy During Impossible Times
The Bottom Line This Week

The optimistic mood that lifted the stock market two weeks ago didn’t last very long. In fact it might have been the smallest January bounce on record. After the 2^nd, prices started to move back down again.

There is some solace in noting that the market is still up some 20% from where the zigzag rally started on November 21. Despite all the turmoil, it may turn out that the bear market reached bottom at that time. We shall know soon enough.

In any event, by the time last Friday afternoon rolled around, the Dow and the Nasdaq were down 4.8% and 3.7% respectively. During the first three days of this week, the market continued to decline sharply as more disturbing economic numbers were announced.

Sometimes Good News Can Be Bad News

Ironically, one of the biggest worries investors have right now is falling oil prices. A few months ago when oil was approaching $150 a barrel, each decline was met with jubilation. But with oil selling below $38, as it is today, every decline indicates that the economy is continuing to weaken.

In addition, President-elect Obama’s request for an additional $350 billion in bailout money would have been welcomed when the program was new. At the time, the monetary booster shot was seen as a way to get America going again. Now, the need for more funds is seen as a sign that the economy may be in worse shape than investors thought.

Lastly, Citigroup’s (C) apparent decision to sell 51% of its Smith Barney division to Morgan Stanley (MS) would have been welcomed as an acceptable way to prevent Citi from failing. Now the sale looks like the financial services industry is continuing to implode.

Treasury Bonds May Be A Bubble

U.S. Treasury bonds have been a popular refuge from the financial carnage of the past few months. Although Helicopter Ben drove interest rates down, investors can at least be confident that Treasuries won’t default. When the bonds mature, Uncle Sam will pay them at their full face value.

However, investors may be in for a nasty shock if they wish to sell their bonds rather than keep them. The bonds could be worth a lot less than they were when they were purchased.

The problem is that bonds are subject to the same market pressures as any other security. In today’s frightened world, Treasuries are in great demand. But that may not be true tomorrow. When the economic outlook improves, investors will find better-paying places to put their money, and the Treasury bond market will go hisssssss.

Bonds will also take a hit if interest rates start to move up. In that case, older bonds will drop in value because they will pay less interest than new bonds.

In fact, for every 1% increase in the yield of 10 year bonds, investors can expect to see lower-paying bonds drop 7% in price. When the declines begin, bond holders will need to choose between two undesirable options: they can either hold the lower-paying bonds until they mature, or they can sell them at a loss.

Letter to the bank - Dear Sirs, In light of recent developments, when you returned my check marked "insufficient funds," were you referring to my funds or yours? -- Ellen Brown

It’s Time To Choose Shorter Bond Maturities

Unfortunately, Treasury bond declines are likely since all the bailout money that is being poured into the economy will almost certainly lead to higher inflation and interest rates within a year or so. Unprepared bond holders will be caught in the lurch.

The best way to prevent bond losses due to rising interest rates is to roll them over to securities with shorter maturities. Not only will you avoid the declines, you will capture the higher rates that come along. When rates start to level off at some point in the future, it will be time to lock them in by purchasing bonds with longer maturities.

Three Ways To Win If Treasuries Decline

Even better than avoiding Treasury bond losses is to profit from rising rates.

One way is to short a bond ETF such as iShares Lehman 7-10 Year Treasury Bond Fund (IEF). However, we don’t recommend this method because losses can mount up quickly with a short sale that doesn’t work out.

A much better strategy is to invest in an inverse Treasury mutual fund such as ProFunds Rising Rates Opportunity 10 (RTPIX). http://finance.yahoo.com/q/pr?s=RTPIX This no-load fund is structured to move in the opposite direction to the daily price changes in the 10 year Treasury Bond.

More aggressive investors can buy an exchange traded fund that will rise twice as much as price changes in Uncle Sam’s bonds. The most popular of the inverse Treasury ETF’s is ProShares Ultrashort Lehman 7 – 10 Year Treasury ETF (PST). http://finance.yahoo.com/q/pr?s=PST Just remember, the lever can swing both ways.

Staying Healthy During Impossible Times

Speaking of levers that swing both ways, the same is true of the public’s outlook about the future. As we’ve seen during previous downturns, fear can turn to greed far faster than anyone at the time would believe possible. Moreover, the turns often occur when the way ahead looks especially bleak.

We think the foundations have already been laid for some turnarounds later this year. Prices for fine art, jewelry, rare cars, yachts, stocks, and (in some regions) real estate have fallen to ridiculous levels. More importantly, knowledgeable people in each of those markets realize that many items are screaming bargains.

However, few people are reaching for their wallets as yet because they think prices might go even lower in the future. One man we know who deals in expensive watches says many affluent customers come in every week to check prices. If they notice that a watch has been marked down from the week before, they won’t spend a dime. Our client believes the fear of paying too much, and feeling foolish, is a stronger emotion than the desire to get something they want at a good price.

However, when customers see that prices are starting to move up, they will usually make their purchases quickly. Often a buying frenzy begins that can be breathtaking.

We don’t know when the tide will turn for stocks and other valuables that are currently priced very cheaply. We do know, however, that the turn is coming. If you want to make the most of it, you should be in position before the race begins.

When Nothing Works, Quit Worrying About It

We had a client call last week who was beside himself with worry about what to do with his small company. He couldn’t see any way to stay in business. The harder he tried to keep everything going, the more damage he was doing to his health.

Our client’s plight reminded us of a famous psychological experiment that was done sixty years ago. Two sets of monkeys were put in cages that were wired to give them harmless but unpleasant shocks on a random basis.

Both cages contained electrical switches that the monkeys could manipulate. In one cage the switch did nothing. In the other cage, the switch would prevent the next shock from coming – but only if it was used at just the right time.

After a few weeks, medical exams were done on both groups of monkeys. The group that had inoperative switches were fine. But the “executive monkeys” that had to decide how to stop the shocks, were nervous wrecks. Several of them even developed ulcers.

We think the conclusion to be made from the experiment is clear. If you are in a no-win situation that you can’t control, don’t ruin your health attempting to do the impossible. Do what needs to be done to survive the crisis, and live to fight another day.

The Bottom Line This Week

The worldwide economic decline sent a flood of buyers to the safety of U.S. Treasury bonds. As a result, their prices went up and yields declined.

We think the Treasury bubble will begin to deflate sometime in the coming months. To avoid being caught in the trap, readers should roll their maturing bonds into those having shorter maturities. Aggressive investors can profit from declining bond prices by using inverse funds.

Many markets appear to be oversold, and an increasing number of knowledgeable investors know it. The situation is ripe for a rebound that could begin later this year. To participate, investors should take positions early, or be prepared to act very quickly when the turnaround begins.

Association of Investor Awareness - Week of 10/16/2008

Research & Editorial Staff — Thu, 16 Oct 2008 17:12:00 GMT

The Biggest Danger Now Is A Series Of Bear Traps
The Financial Crisis Has Further To Run
Some Bear Market Investments Have Promise
How Long The Bear Might Stick Around
A Contrary Economic Outlook
Another Shameless Plug For Blue Chip Stocks
The Bottom Line This Week

Stock volatility has become so extreme, we had to redraw the charts. Although there have been up and down days as large as those we have seen recently, never before have they come in such quick succession.

Last week, as everyone from New Guinea to New York must know by now, the Dow and the Nasdaq fell 18.2% and 15.3% respectively. That would have been tough enough by itself, but what made the week even more hectic is it contained a 679 point jump that many investors believed was the start of a reversal.

The market leaped forward again this Monday with a breath taking 936 point surge when U.S and European leaders decided on a coordinated financial rescue plan. Stocks took a breather on Tuesday. Then it plunged 733 points the next day on poor consumer spending data. We must expect more whiplash days as the credit crisis continues to unfold.

The Biggest Danger Now Is A Series Of Bear Traps

Although big market swings aren't much fun, they do show that investors are reluctant to quit the game. As we mentioned last week, however, bear markets rarely hit bottom until investors become so discouraged that they want nothing more to do with stocks. Until then, rebounds are likely to be traps for the unwary. Only when rallies become rare, can we begin to feel confident that the bear market has run its course.

The Financial Crisis Has Further To Run

The biggest reason we are not expecting a sustained stock market recovery any time soon is the credit crisis is far from over. Even with the billions (and possibly trillions) of dollars the government plans to inject into the financial service system, a turnaround will take months. In the meantime, more banks, S&L's, and hedge funds are likely to fail. The losses will almost certainly kill any stock rebounds that may get started.

The best strategy to use in a bear market is to buy high value stocks when the market is falling, and sell any lower value stocks when it is rallying. That way, when the bear cycle finally comes to an end, your portfolio will be heavily weighted with stocks that are likely to perform well during the next expansion.

Some Bear Market Investments Have Promise

More aggressive investors can also find profits while the market is dropping. Selling stocks or ETF's short is one way to go, but the strategy is risky. If the market goes up rather than down --and it gets away from you-- losses can be very high. If you do make short sales, you must be certain to protect your positions with stop-loss orders.

For most investors, the safest way to dance with the bear is with a fund that is structured to move contrary to the S&P 500 index. We think the most attractive is the Rydex Inverse S&P 500 Strategy Fund (RYURX) http://finance.yahoo.com/q/pr?s=RYURX . When Wall Street sinks, the Inverse S&P Fund will make you smile.

The ProFunds UltraBear Fund (URPIX) is equally broad in scope as the Inverse S&P Fund, but it is much more aggressive. http://finance.yahoo.com/q/pr?s=URPIX UltraBear also acts contrary to the S&P 500 - but it seeks to double the size of the moves. The fund uses the same investment vehicles as its more conservative cousin, but it purchases more of everything to gain extra leverage. Of course, the lever swings both ways: The UltraBear fund will decline quickly if the S&P 500 index rises. Neither of the Rydex funds charge a load.

The best strategy to use with a bear market fund is to buy it during the first big rally and hold it for the duration of the downturn. Trying to jump in and out of the fund with each market change is rarely successful. Staying with the dominant trend almost always pays the greatest rewards.

How Long The Bear Might Stick Around

As we said earlier, we doubt that the bear market will be going away anytime soon. But just how long might it be before the bull returns? More importantly, how long is it likely to take before the bull replaces the bear's losses?

In an attempt to shed some light on the subject, value investor Ali Khan took a look at the four biggest bear markets we had over the past 30 years. www.investmentplayground.net We put his research into a table that shows what we might expect from the current tug of war between the bear and the bull.

Bear Market	Duration	Percent Decline	Time To A Full Recovery
Jan 1973 - Oct 1974	21 months	57%	3.5 years
Aug 1987 - Dec 1987	105 days	35%	21 months
9/11 Terror Attack	28 days	21%	105 days
Mar 2002 - Sep 2002	173 days	29%	15 months
Average of first 4	234 days	35.5%	20 months
Oct 2007 - ?	264 days so far	40% so far	?

As you can see, the current bear market has already lasted 30 days longer and has fallen 4.5% deeper than the average. However, the crisis that triggered the current downturn was far greater in monetary terms than the previous four. It is most comparable to the severe bear market of 1973-74 when the market dropped 57%. If we see a repeat of that tough downturn, stocks will drop another 17%.

Of course, history rarely repeats itself. However, as Mark Twain observed, it often rhymes.

A Contrary Economic Outlook

You may recall that on several occasions during the past year we remarked that the economy was doing better than analysts expected. Even during the third quarter, when a recession was a forgone conclusion by nearly everyone, we noted that mainstream America was actually doing fairly well.

A few days ago, Casey B. Mulligan, a professor of economics at the University of Chicago, made a similar observation when he said, "...the economy doesn't really need saving. It's stronger than we think."

Prof. Mulligan made the case that "The non-financial sectors of our economy won't suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated." He pointed out that pension funds, university endowments, venture capitalists, and corporations also provide large sums of money to businesses.

In addition, the average corporation gets about 25% of the funds it needs from its own cash reserves. If necessary, companies could get as much as three times that amount by cutting their dividends.

The professor also pointed out that banking services aren't about to vanish. To be sure, some banks are failing - but others are taking their places. If the survivors don't loan money, they won't last very long themselves. In any event, most businesses won't be hurt if the credit freeze lasts for a few quarters.

We think Dr. Mulligan is correct about the economy. His outlook certainly fits the pattern we have been seeing ourselves. If his prediction is correct, the stock market rebound could come a lot sooner than almost anyone expects.

Another Shameless Plug For Blue Chip Stocks

Whenever good times return, we are confident that the blue chips we have been recommending will be at the head of the Wall Street parade. As we have been reporting throughout this difficult period, many of our leading stocks are already doing better than expected.

Three of our companies that surprised investors over the past few days were General Electric (GE), Intel (INTC) and IBM. GE's profits fell 22% but they were above expectations. Intel turned in a 12% profit jump. IBM also said it will soon report an earnings increase.

But, as we mentioned earlier, wait to buy until rallies collapse and prices drop from the bargain basement to the liquidation table.

The Bottom Line This Week

Although the economy appears to be doing better than is generally believed, a recession seems likely that may last into the first quarter of 2009, and possibly further.

Rather than grumble about the slowdown, we think investors should use it to their advantage. Bear market funds such as the Rydex Inverse S&P 500 Strategy Fund look good for the near and medium terms. When their time at bat ends, many multinational blue chips are likely to score home runs.

Week of 10/09/2008

Research & Editorial Staff — Thu, 09 Oct 2008 14:47:00 GMT

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.

Bargains Are Starting To Appear

It is encouraging to see that most of the big market drops are starting to attract bargain hunters, including big hitters such as Warren Buffett. That's not surprising since many stocks are clearly oversold when measured against their long-term potential.

We were delighted to see that one of the stocks Mr. Buffett picked for a multi-billion dollar investment was General Electric, a company we started to accumulate in February. Other stocks the value investors are buying include Burlington Northern, Cisco Systems, Coca-Cola, IBM, Kraft Foods, Hewlett-Packard, Intel, Procter & Gamble, and Pfizer – all of which have been recommended in The AIA Advocate.

A Bottom Fishing Check List

In times like these when the bear is still raging, successful bargain hunters don't take undue risks. Although they venture into the storm, they only buy stocks when the odds of winning appear to be solidly in their favor.

The first thing the bottom fishers look for is lots of cash and very little debt. With a strong balance sheet, a company can make it through a tough period even if it lasts quite a bit longer than expected.

The odds of success rise higher if the companies provide products and services that people need even when times are bad. Food, drug, and basic retailers are favorite choices.

Of course, stock fundamentals must also be right. A good rule of thumb is to find companies with price to earnings ratios that are close to their historic lows. For example, the P/E for SuperValu (SVU) is currently an attractive 7.3. By contrast, the P/E for Amazon.com (AMZN) is a stratospheric 42.6.

It's also highly desirable to get some income while waiting for the big payoff. Comparing SuperValu and Amazon again we find a 3.3% dividend and none at all, respectively.

The Bear Isn't Finished Yet

With all the fear we see in the market today, we doubt that stocks will turn around any time soon. First there needs to be a stomach churning washout, an ugly process Wall Street calls capitulation. It occurs when investors become so discouraged they keep selling stocks no matter how cheap they are becoming. When the last of the stragglers are out of the market, stocks will finally stop sinking.

Once a floor has been reached, smart money will begin to come in from the sidelines where it was waiting patiently for months. The influx of cash will solidify the market bottom and lay the groundwork for a recovery.

Currently, the market's partial rebounds after every drop indicate that the capitulation phase of the downturn is still to come. When it finally arrives, we hope you look beyond the carnage and remember the event marks the end of the bear market.

Big Drops Lead To Big Rebounds

Although the final stock market shakeout is still on the way, we continue to think you should begin to do some cautious value buying. Dr. Steve Sjuggerud of DailyWealth (www.dailywealth.com) looked at 150 years of stock data and found that over the past 70 years, there was only one time that the market turned in a worse 12-month performance than the period that's currently ending. (Assuming that stocks finish October about where they are now.)

Dr. Sjuggerud also found that when stocks had a terrible 12 months, they usually followed up by having 12 very good months. The only exceptions were after the dot-com bust and the Great Depression. However, stocks were at record highs during those two times, which is certainly not the case today.

There is one caveat: the relationship between year-long declines and recoveries only applies for the worst 12 months in a bear market. We may not be there yet.

Financial Stocks Attract More Attention

We were pleased to see the article, Financial Stocks, Yes Financial Stocks, To Consider in Barron's this week. As you undoubtedly recall, we have been recommending the group since the meltdown slashed their prices over the summer.

The only place we would differ with the Barron's article is with the stocks that were mentioned. Since many additional banks and S&L's are likely to fail before the blood bath is over --and it is impossible to know with certainty which ones they will be-- we think picking individual issues is not the best way to proceed.

Instead, we continue to recommend the Fidelity Select Financial Services Fund (FIDSX). http://finance.yahoo.com/q/bc?s=FIDSX When the sector rebounds, so will the fund, no matter how many firms don't make it through the shakeout.

There Is One More Shoe To Fall

Right now, the world is understandably focused on the financial service industry. In its shadow, however, another giant sector is starting to look weak: consumer spending. Because consumers account for about 2/3 of our economic growth, if they curtail their spending significantly the downturn will intensify.

Unfortunately, Joe and Sally MidAmerica are starting to grip their pocketbooks more tightly. The big three automakers saw their sales decline about 30% last month. Most shopping malls are also seeing sharp reductions. If the trend continues through the winter holidays, we could see the first quarterly drop in consumer spending in nearly two decades.

The bright spot in the consumer picture is most Americans are being frugal because they are scared, not because they don't have the means to buy what they want. If the federal rescue program appears to be working, millions of Americans will breathe a sigh of relief and go shopping again.

The Biggest Question: Will The Bailout Work?

We believe the government's efforts to turn the credit crisis around can work, but only if it is greatly expanded. Here's what most economists think should be done:

First, the big banks aren't the only financial service firms that are in trouble. Many regional banks, credit unions, savings & loans, and hedge funds are also on shaky ground. Collectively, they are worth more than the giant firms that are in the news every day, and they also need a lifeline.

In addition, the collapse of subprime, no-document, and ninja (no income, no job, no assets) mortgages started the credit crisis, but they aren't its only problem. Also at risk are countless short term loans that individuals and businesses make to each other. Bank to bank loans are also drying up. All these sources of capital are essential to the smooth functioning of our economy, and must resume.

It appears the government is starting to include additional financial service firms and types of loans in its rescue program. On Tuesday, Fed Chairman Bernanke announced a plan to buy large amounts of short-term debt in an effort to get lenders to make credit available again. On Wednesday, the Fed also lowered interest rates ½ point. Other measures are undoubtedly on the way.

The final bailout cost, of course, will be well above the initial $700 billion allocated for the rescue effort. In fact, the language in the law clearly states that $700 billion is the limit that can be spent "at any one time." Some economists think the total bill could be three times the initial figure. By this time next year we should know what the final tally is likely to be, and whether the massive spending is having the desired effect. Keep your fingers crossed.

The Bottom Line This Week

The financial service crisis appears to be moving faster than the government can keep up. One analyst referred to the rescue program as a "whack a mole" strategy. However, the money that Washington is spending should begin to take effect within a few weeks.

Meanwhile, some stock bargains are appearing. We think investors should start to make some cautious purchases over the next several months. Financial, food, drug, and basic retailers look the most attractive now.

Week of 10/02/2008

Research & Editorial Staff — Thu, 02 Oct 2008 16:38:00 GMT

A Nasty, But Not A Calamitous, Stock Plunge
Our Contrary Opinion
A Cure For The Crisis Is Already Being Applied
It's Time To Do Some Cautious Buying
Stock Buyers Should Sip, Not Gulp
The Bottom Line This Week

People who enjoy excitement must envy investors right now. Not even thrill seekers who travel to New Zealand for the world's highest bungee jump have anything on us. When it comes to big bounces, Wall Street is the place to be.

On Monday of this week, we completed the jumping part of the stock market's bungee experience. The rebound on Tuesday was nearly as exhilarating. Wednesday, thank goodness, was a quiet day of recuperation.

Of course the rubber cord could break at any time, in which case the game will be over. However, that seems very unlikely. If a crash was in the works, we think it would have happened on Monday when deep pessimism was rampant.

The market action we are having now is all the more exciting because there was no hint of it last week. The Dow dropped a tepid 2.2% while the Nasdaq just about doubled it with a 4.0% decline. It was barely enough to be a good warm-up for this week's main event.

A Nasty, But Not A Calamitous, Stock Plunge

On Monday, as everyone must know by now, the Dow and the Nasdaq plummeted 778 points and 200 points respectively. Pundits, of course, were quick to point out that the Dow's move was the "biggest stock plunge in history!"

That's true, but as Paul Harvey liked to say, "Heeeeere's the rest of the story:"

In percentage terms the Dow's plunge represented just under a 7% drop. By contrast, the Dow fell 23% on October 19, 1987, which was over three times the size of the hiccup we had this week.

Pundits also gleefully point out that the drop erased all the gains stocks made in the past eight years. Well, that's also true. However, eight years ago was the top of the tech and dot-com bubbles, which was hardly a proper place to begin a measurement. If we start from the market's bottom after the bubbles burst, stocks are up nearly 40%, plunge and all.

Our Contrary Opinion

Many articles about the financial crisis predict it will lead to a near-total meltdown of the U.S. economy. Credit will be unavailable, business will grind to a halt, consumers will stop spending money, and civilization as we know it will end. It's about the darkest outlook possible.

For such a scenario, the Monday-Tuesday stock decline seems mild. If the world is really in as much trouble as so many dire projections suggest, a much larger drop would have been likely. Either the outlook for the economy isn't anywhere near as bad as many writers believe, or investors don't understand the gravity of the problem.

We doubt the latter is the case. On the contrary, history shows that investors have a much better grasp of the future than professionals. That's not surprising because investors put money on their predictions, which tends to focus the mind.

Lastly, if we look at the market action on Monday and Tuesday together, we have another reason not to take poison. Our arithmetic shows the 778 point drop and the 485 point rebound left us with a 293 point decline, which was far from a disaster.

A Cure For The Crisis Is Already Being Applied

We are not in any way suggesting that the financial turmoil isn't serious. It is the most threatening event we have seen in many years. But we think Congress and market forces will restructure our financial system without killing the American dream.

In fact, the process has already started. In January, the Fed arranged for Bank of America to acquire Countrywide. Six months later BOA took over Merrill Lynch. In March, JP Morgan Chase was persuaded to rescue Bear Stearns.

Earlier this month, Uncle Ben Bernanke also paired JP Morgan Chase with Washington Mutual. On Monday of this week, Citigroup took over Wachovia. More "strategic alliances" are undoubtedly on the way, particularly with regional banks that are also having liquidity problems.

Even before the financial crisis hit, banking insiders predicted that a wave of consolidation was on the way. Guess who was expected to lead the charge? The list was headed by none other than Bank of America, JP Morgan Chase, and Citigroup. Recent events simply appear to have accelerated the buyout cycle. It also gave the buyers much better prices.

It's Time To Do Some Cautious Buying

Speaking of better prices, the best time to buy stocks is when everybody else wants to sell them. As uber-investor Warren Buffett once said, "We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful." He went on to say, "You must have a willingness to do something when everyone else is petrified. You must learn the lesson of following logic over emotion."

With the advice of "The Sage Of Omaha" in mind, we suggest that you consider the following blood-in-the-streets investments:

Financial Services

The low prices the large financial service firms paid for their acquisitions should lead to king-sized profits once the current troubles are over. But, with the financial crisis dominating the headlines, the leading bank companies are currently dirt cheap.

As a result, we are even more bullish on the long-term outlook for the Fidelity Select Financial Services Fund (FIDSX). http://finance.yahoo.com/q/bc?s=FIDSX Remember, this is a managed fund, which means its portfolio will hone in on the winners as they emerge. The fund already holds substantial positions in Morgan Stanley, JP Morgan Chase, Bank of America, and Citigroup. All of them are in the Wall Street doghouse because they also purchased many bad mortgages and ran into trouble. But the surviving banks are now starting to make up for their mistakes.

The Fidelity fund is down 46.5% from its October 2007 high, and it is off 26.2% this year. We think the steep discount makes the fund attractive for long-term portfolios. It should be a particularly good performer in retirement accounts.

Bond Funds

Bond funds also look good. On Monday, market psychologist Brett Steenbarger of TraderFeed (www.traderfeed.blogspot.com) pointed out that the iShares Investment Grade Corporate Bond Fund (LQD) lost 20% of its value over the past three weeks. http://finance.yahoo.com/q/bc?s=LQD Investors are worried that the companies whose bonds are in the fund will not be able to make their interest payments. We think that threat is greatly overstated for investment grade bonds.

To see how irrational bond fears have become, the iShares High Yield Corporate Bond Fund (HYG) is also down 20%. It's ridiculous to price the two very different classes of bonds the same way. It's all the more reason to think the investment grade fund is a classic case of the baby being thrown out with the bathwater.

Multinational Blue Chips

We will also repeat our recommendation of the iShares Dow Jones Select Dividend Index (DVY) that tracks the 100 highest-yielding stocks in the Dow Jones Total Market Index. http://finance.yahoo.com/q/bc?s=DVY&t=1y

When investors start to tiptoe back into the market following a scare, the first place they go is to high-yielding blue chip stocks. As a result, big stocks should be especially good performers at the same time they offer investors a high degree of safety.

Stock Buyers Should Sip, Not Gulp

If you decide to do some cautious bottom fishing, please proceed slowly. The financial crisis is far from over. We may see several more scares in the coming weeks. If you hold some cash back from your first venture into the market, you may see even better prices later on.

In any event, the best investment strategy during times of great turmoil is to buy a little bit after every significant market decline. That will leave your ultimate returns far higher than will be true for people who chase the rallies.

The Bottom Line This Week

The past three weeks have not been much fun. However, Mother Market has a way of rewarding investors who stick with her system over the long term. The greatest returns go to people who find the courage to buy stocks when they are out of favor and they are the least expensive, as is the case today.

Three investments that currently look very attractive are the Fidelity Select Financial Services Fund, the iShares Investment Grade Corporate Bond Fund, and the iShares Dow Jones Select Dividend Index. All of them have been top performers in the past, and they will almost certainly be top performers in the future.

Week of 09/25/2008

Research & Editorial Staff — Thu, 25 Sep 2008 17:29:00 GMT

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.

Most Economists Believe The Rescue Plan Will Work

The reason for the market's extreme moves is nobody knows for sure if the government's unprecedented rescue package will help the economy or ruin it. Pundits with equally impressive credentials have embraced both opinions. Because so much is at stake, even small changes in the outlook are triggering big stock market swings.

Weighing in on the positive side, many economists believe that Uncle Sam's $700 billion cash transfusion to our financial service industry will keep many essential firms alive to provide the credit the economy requires. The proponents also believe that we will eventually grow our way out of the hole, and everybody's books -including Uncle Sam's - will be balanced again.

There is precedent for believing that the bailout plan will work. Japan used it after its soaring real estate market collapsed in the 1980's and the country's banks went into a death spiral. Although the country subsequently endured a 12 year recession, it wasn't particularly hard on its citizens. In any event, the long recession was infinitely better than the depression that might have otherwise been Japan's fate.

Big cash infusions also rescued the U.S. economy at various times in the past. For example, the Great Depression dragged on for over a decade until preparations for WW-2 flooded the economy with money. The theory goes that using the same technique early in a downturn can prevent it from starting in the first place.

Others Say It Will Only Postpone The Inevitable

Critics of the Treasury's rescue plan believe the bailouts will only delay more bank failures and a sharp recession by a few months. The most vocal naysayers are adamant that the delay will make the inevitable problems worse. They also insist that the bailouts will put the Treasury in the same dire straits as the industry it is trying to rescue.

Furthermore, the bailout opponents argue, since the government will ultimately get the money from the American people, the rescue plan represents a gigantic case of robbing Peter to pay Paul. The critics go on to cite many examples where the hot potato game of passing the debt didn't end happily.

We Think The Optimists Are Right

We are of the opinion that the government's rescue package is more likely to work than not. However, the bailout money itself won't be its biggest contribution, at least not directly. Instead, Washington's support should make lenders willing to put their own funds at risk once again, and at affordable rates.

Contrary to popular belief, there is plenty of capital available in the private sector to keep our economy chugging -or at least inching— along. The problem is, nervous lenders have become very reluctant to let loose of it. Many banks are even refusing to make overnight loans to other banks that are known to be sound. Home loans, car loans, and the like are also becoming tougher to get. The squeeze is cutting economic growth across the board.

However, just the announcement that a rescue package was in the works resulted in more capital being made available. Passing the bill should have an even bigger effect. We will soon know how the financial service industry will react because Congress seems likely ready to pass the bailout measure within a few days.

If the rescue package doesn't work, there is no Plan B. Most likely, the Treasury will simply expand the payments from the original $700 billion to who knows how much. Some economists think the final tab could approach $2 trillion, and might still fail to solve the problem. All we can do is wait to see what happens.

Meanwhile, Here's An All-Weather Investment Plan

Although there is little that individuals can do that will have any effect on the national crisis, we can at least protect ourselves. Many of the most useful strategies have been discussed in this newsletter. Here's a summary of what we think investors should consider now:

1) While the storm is raging, your principal goal should be the preservation of capital. The closer you are to retirement, the more conservative you should be with the majority of your nest egg.

Paradoxically, the U.S. Treasury offers the most protection for your liquid assets. Although Uncle Sam is many times deeper in the hole than Fannie, Freddie, Lehman, or AIG (or even all of them combined), the government can create the money it needs to pay its debts.

Three and six month T-Bills are the safest places to stash your cash until the financial turmoil quiets down. You can set up a Treasury account and buy T-Bills using the agency's website: http://www.publicdebt.treas.gov/tdhome.htm

2) Next up are much better-paying, FDIC insured, certificates of deposit from secure banks. As with Treasury obligations, the government will print whatever amount of money is needed to make sure that accounts insured by the FDIC are restored if your bank fails. In an extreme case, you might need to wait a few days for your money, but you will get it.

As we said two weeks ago, you can get a list of current CD rates from top banks from Bankrate.com. www.bankrate.com Stick with banks that have at least a 3-star (***) rating. Here's an updated list of what's available now:

The Best CD Rates In The U.S. From Secure Banks
Bank	1-Yr APY	2-Yr APY	Address	Min Deposit
Zions Bank	4.16%	4.31%	https://www2.zionsbank.com/	$1,000
GMAC Bank	4.35%	4.35%	http://www.gmacbank.com/	$500
Capital One	4.00%	4.15%	http://www.capitalone.com	$5,000
Centennial Bk	4.10%	4.44%	http://www.centennialbank.com	$10,000
Nationwide Bk	4.05%	4.25%	http://nationwidebank.com	$500

For larger amounts of cash than the $100,000 FDIC limit, you can buy a jumbo Insured Advantage Certificate of Deposit from EverBank. Everbank.com See the September 11 issue of this newsletter for details.

3) If you are comfortable with a little bit more risk, we recommend the Permanent Portfolio Fund (PRPFX) that is structured to balance the ups and downs of our economy and stock market. http://finance.yahoo.com/q/bc?s=PRPFX The fund rarely does as well as the stock market during booms, but it almost never does as badly during downturns. Instead, the fund seeks a happy medium and generates attractive long-term gains without taking big chances.

The Permanent Portfolio Fund achieves its goals by investing primarily in precious metals, hard currencies, and secure bonds. Holdings include cash, gold in various forms, silver, and U.S. Treasury securities. The fund's portfolio also regularly includes Swiss Confederation bonds, high grade corporate bonds, and the stocks of companies with proven assets.

Although the Permanent Portfolio Fund sticks to a limited range of investments, the balance between them changes with the economic outlook. Currently, the fund is structured for tough economic times and a weak dollar.

4) The best use of a stock market scare is to buy good long-term stocks while they are dirt cheap. You may not make any money from them until the rebound comes, but you will be handsomely rewarded when that happy day arrives.

To that end we recommend the iShares Dow Jones Select Dividend Index (DVY) that tracks the 100 highest-yielding stocks in the Dow Jones Total Market Index. http://finance.yahoo.com/q/bc?s=DVY&t=1y As a glance at its price chart will quickly reveal, DVY is down sharply from its recent high. In a year or so, we think it will be back up again.

The Bottom Line This Week

Over the past three weeks, investors practiced the old adage, "When the going gets tough, the tough get going." Only this time, many of them decided to get going straight for the door.

Taking a time out when everything is in turmoil isn't a bad idea, provided the goal is to use the downturn to prepare for the eventual recovery. Good places to park some of your money include T-Bills, insured CD's and the Permanent Portfolio Fund.

For far greater gains, however, we think you should put some of your assets into the iShares Dow Jones Select Dividend Index and other blue chip investments that are currently very cheap. Because the ETF may become even less expensive over the next few months, we think you should make your purchases a little at a time.

Until Next Week

The AIA "Advocate For Absolute Returns", a weekly publication of The Association for Investor Awareness, Inc., tracks market trends, industry news, the SEC, global trade and finance and Washington developments for you because they affect your investments. But who doesn't? Many sources report these issues as abstract facts. We feel that's not enough. The AIA Advocate's job is to warn you of what's important and how these developments translate to ground-level forces and threats that directly affect your wealth as well as your current investment opportunities. Not just information, but information you can use. Until next Thursday...

Week of 09/18/2008

Research & Editorial Staff — Thu, 18 Sep 2008 17:28:00 GMT

In This Issue:

Stocks Plunged, But The Expected Crash Didn't Occur
Many Investors Were Pleased To See Some Bailouts End
A Recession Is More Likely, But It Isn't Assured
Many Companies Are Having A Good Year
It's Time For Bottom Fishers To Unfold Their Nets
The Dollar Rebound May Be Over
The Bottom Line This Week

Looking back at the stock market of last week is like looking at the distant past. Compared to the big changes that have occurred since then, the five day period belonged to a different era. For the record, the Dow and the Nasdaq gained 1.8% and 0.2% respectively.

As everybody knows by now, this week opened with a 504 point plunge after the government failed to find a buyer for Lehman Brothers. The news was a shock because investors expected a repeat of the Bear Stearns shotgun marriage to J.P. Morgan that prevented a stock market quake in March. When the rescue attempt for Lehman fell apart, many investors headed for the door.

There was a brief rebound on Tuesday but stocks plunged another 449 points the next day. High volatility seems likely to continue for quite some time.

Stocks Plunged, But The Expected Crash Didn't Occur

Fortunately, there was a "walk, don't run" mood on the street that stopped short of panic. So far, at least, we haven't had the stock market crash that some advisors have been predicting.

One reason the market didn't melt down is the financial service crisis was well underway and much of the trouble was already priced into stocks. Although investors expected Lehman would be saved, the failure didn't carry the shock that accompanied the collapse of the dot-com industry eight years ago.

Investors Were Pleased To See Some Bailouts End

In fact many investors were relieved that the government decided not to save every financial service company that put itself on the rocks. There is a growing feeling that troubled firms should not have their colossal losses added to America's already overburdened debt. That's especially true since the moguls that ruined their companies are bailing out with millions of dollars in their pockets, at the same time their shareholders are being ruined.

On the other hand, investors welcomed the Fed's decision to make an $85 billion bridge loan to the American International Group, AIG, a company that is of far more importance to the U.S. economy than Lehman Brothers. Despite all the well-deserved jokes about government bungling and fiscal incompetence, it has a fairly good track record with loans.

One of the most successful federal loans went to Chrysler in 1980. The $1.5 billion transfusion allowed the company to retool and recover. Critics were amazed when Chrysler went on to repay its note ahead of schedule. In any event, AIG is profitable and it appears to have enough assets to cover its loan.

A Recession Is More Likely, But It Isn't Assured

Despite the turmoil we are seeing in the markets today, it is by no means certain that the U.S. will be plunged into a deep recession. None of the shocks we've seen so far this year have been able to send growth into negative territory, and some of them have been whoppers.

The record oil price surge didn't bring the economy down. The housing plunge didn't do it. The Iraq war didn't do it. The auto industry meltdown didn't do it - and so on. More importantly, all those problems hit the U.S. at once, and they still didn't trigger a meltdown.

Of course, any economic system has its limits - and ours may have been reached this week. Growth will undoubtedly drop sharply as capital becomes more expensive and harder to find. However, most economists think the economy will manage to expand from 0.5% - 1.0% during the fourth quarter.

Many Companies Are Having A Good Year

So far, countless companies are doing very well. Exporters are having an excellent year. Agriculture is also booming. Many industrial firms are making record profits. Mississippi River traffic is heavy. Railroads are operating 24/7. Energy companies are no longer rolling in money, but profits are continuing to rise.

Lastly -drum roll please- many financial service firms are also making money, a fact that is being obscured by the failures of others in the industry. Wells Fargo, for example, has largely avoided the current turmoil and is up over 50% in price since July. Other firms that didn't join the Russian roulette mortgage market are also in good shape.

It's Time For Bottom Fishers To Unfold Their Nets

Normally we are not contrary investors. The practice of buying what nobody else wants doesn't strike us as being very bright. In normal times there is far more money to be made investing in well-established trends that are gaining momentum.

However, when an entire industry falls out of favor and prices plummet, it can be time to dust off the contrary investment strategy. That is especially true if the industry is essential to the functioning of a modern society and it will definitely recover. In that case, buying what scares most investors can pay off handsomely.

For example, one of our elderly clients purchased essential industries in the 1930's after they had been ravaged by the stock market crash and the Depression. When the outlook for stocks appeared to be hopeless, he sold everything that still had some value and used the proceeds to buy leading railroad, telephone, banking, and industrial companies.

Our client reasoned that if America survived the crisis, it would need the companies he was buying. If the country didn't survive, nothing he owned would be worth anything anyway. So he went ahead with his plan that ultimately made him a millionaire, which was a lot of money in those days.

We have a similar situation today in the financial service industry. There is no way that our country (or the world for that matter) can function without a strong financial service industry. Capital, after all, is what makes capitalism work. Somebody will always supply it. It won't be Lehman Brothers and Bear Stearns anymore, but other firms will take their places.

Accordingly, we think an excellent opportunity exists for long-term investors who buy financial service companies while they are on Wall Street's black list. We think a strong rebound from today's levels is as close to being a slam dunk as the stock market ever offers.

Since it is impossible to know at this juncture who the biggest winners will be, we think the only way to proceed is to take a diversified position in the industry. The best way to do that is with a managed mutual fund that will focus on the leading companies as the recovery progresses.

We think the Fidelity Select Financial Services Fund (FIDSX) is the best in its class. http://finance.yahoo.com/q/bc?s=FIDSX The no-load fund buys banks, savings and loan associations, selected brokerage companies, consumer and industrial finance companies, insurance companies, and others.

The fund holds substantial positions in J.P. Morgan Chase, Bank of America, Citigroup and the other subprime mortgage bunglers that stumbled badly, but are surviving. Of course, those are the companies we want in the fund because they are the most likely to make the biggest recoveries.

The Fidelity fund is down 43.4% from its October 2007 high, and it is off 25.5% this year. We think the steep discount makes the fund very attractive for long-term accounts. Plan on a three year hold, which how long it took the last significant credit crunch to work out. However, FIDSX is likely to rebound much faster this time.

The Dollar Rebound May Be Over

We think the severe financial problems of the past two weeks are likely to stop the dollar's rebound in its tracks. That's especially true since Washington Mutual is also in serious trouble, and so are hundreds of smaller banks and S&L's.

At the same time, the weak U.S. economy, the housing plunge, Washington's colossal debts (that are now much higher), America's ruinous balance of trade deficit, and other problems will bring the dollar back down - probably by quite a lot.

The currency that is most likely to benefit from a weakening dollar is the Swiss franc. EverBank World Markets everbank.com has deposit accounts and CD's in the currency.

The Bottom Line This Week

Lehman Brothers and Merrill Lynch joined Fannie, Freddie, IndyMac, and Bear Stearns on the financial service refuse heap. So far, at least, investors have not panicked and a crash has been avoided. In fact, many brave souls are sifting through the ashes looking for bargains. We think you should join them. A good way to do so is with the Fidelity Select Financial Services Fund that is doing some selective bottom fishing right now.

AIA Advocate for Absolute Returns : Bailout

Association of Investor Awareness - Week of 06/25/2009

Mixed Economic Signals Worry Investors

Another Kind Of Bailout Is Also A Concern

A New Economic Reality Is Emerging

For Efficient Companies, Slow Growth Can Be Profitable

Your Best Strategy Now

THREE ANALYSTS AND A FOOL HAVE RECOMMENDED THIS STOCK

The Bottom Line This Week

Association of Investor Awareness - Week of 02/26/2009

The Federal Bailout Is A Mixed Bag Capitulation May Have Been Reached Some Blue Chip Stocks Will Win Blue Ribbons A Speculation Is Also Attractive Gold Regains Its Appeal, But There Are Problems An Economic Indicator That We Can Love The Bottom Line This Week

The Federal Bailout Is A Mixed Bag

Capitulation May Have Been Reached

Some Blue Chip Stocks Will Win Blue Ribbons

A Speculation Is Also Attractive

Gold Regains Its Appeal, But There Are Problems

An Economic Indicator That We Can Love

The Bottom Line This Week

Association of Investor Awareness - Week of 01/15/2009

Sometimes Good News Can Be Bad News Treasury Bonds May Be A Bubble It’s Time To Choose Shorter Bond Maturities Three Ways To Win If Treasuries Decline Investing In Times Of Extremes Staying Healthy During Impossible Times The Bottom Line This Week

Sometimes Good News Can Be Bad News

Treasury Bonds May Be A Bubble

It’s Time To Choose Shorter Bond Maturities

Three Ways To Win If Treasuries Decline

Staying Healthy During Impossible Times

When Nothing Works, Quit Worrying About It

The Bottom Line This Week

Association of Investor Awareness - Week of 10/16/2008

The Biggest Danger Now Is A Series Of Bear TrapsThe Financial Crisis Has Further To RunSome Bear Market Investments Have PromiseHow Long The Bear Might Stick AroundA Contrary Economic OutlookAnother Shameless Plug For Blue Chip StocksThe Bottom Line This Week

The Biggest Danger Now Is A Series Of Bear Traps

The Financial Crisis Has Further To Run

Some Bear Market Investments Have Promise

How Long The Bear Might Stick Around

A Contrary Economic Outlook

Another Shameless Plug For Blue Chip Stocks

The Bottom Line This Week

Week of 10/09/2008

Bargains Are Starting To AppearA Bottom Fishing Check ListThe Bear Isn't Finished YetBig Drops Lead To Big ReboundsFinancial Stocks Attract More AttentionThere Is One More Shoe To FallThe Biggest Question: Will The Bailout Work?The Bottom Line This Week

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

Week of 10/02/2008

A Nasty, But Not A Calamitous, Stock PlungeOur Contrary OpinionA Cure For The Crisis Is Already Being AppliedIt's Time To Do Some Cautious BuyingStock Buyers Should Sip, Not GulpThe Bottom Line This Week

A Nasty, But Not A Calamitous, Stock Plunge

Our Contrary Opinion

A Cure For The Crisis Is Already Being Applied

It's Time To Do Some Cautious Buying

Stock Buyers Should Sip, Not Gulp

The Bottom Line This Week

Week of 09/25/2008

In This Issue:

Most Economists Believe The Rescue Plan Will WorkOthers Say It Will Only Postpone The InevitableWe Think The Optimists Are RightMeanwhile, Here's An All-Weather Investment PlanThe Bottom Line This Week

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

Until Next Week

Week of 09/18/2008

In This Issue:

Stocks Plunged, But The Expected Crash Didn't OccurMany Investors Were Pleased To See Some Bailouts EndA Recession Is More Likely, But It Isn't AssuredMany Companies Are Having A Good YearIt's Time For Bottom Fishers To Unfold Their NetsThe Dollar Rebound May Be OverThe Bottom Line This Week

Stocks Plunged, But The Expected Crash Didn't Occur

Investors Were Pleased To See Some Bailouts End

A Recession Is More Likely, But It Isn't Assured

Many Companies Are Having A Good Year

It's Time For Bottom Fishers To Unfold Their Nets

The Dollar Rebound May Be Over

The Bottom Line This Week

Until Next Week

The Federal Bailout Is A Mixed Bag
Capitulation May Have Been Reached
Some Blue Chip Stocks Will Win Blue Ribbons
A Speculation Is Also Attractive
Gold Regains Its Appeal, But There Are Problems
An Economic Indicator That We Can Love
The Bottom Line This Week

Sometimes Good News Can Be Bad News
Treasury Bonds May Be A Bubble
It’s Time To Choose Shorter Bond Maturities
Three Ways To Win If Treasuries Decline
Investing In Times Of Extremes
Staying Healthy During Impossible Times
The Bottom Line This Week

The Biggest Danger Now Is A Series Of Bear Traps
The Financial Crisis Has Further To Run
Some Bear Market Investments Have Promise
How Long The Bear Might Stick Around
A Contrary Economic Outlook
Another Shameless Plug For Blue Chip Stocks
The Bottom Line This Week

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

A Nasty, But Not A Calamitous, Stock Plunge
Our Contrary Opinion
A Cure For The Crisis Is Already Being Applied
It's Time To Do Some Cautious Buying
Stock Buyers Should Sip, Not Gulp
The Bottom Line This Week

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

Stocks Plunged, But The Expected Crash Didn't Occur
Many Investors Were Pleased To See Some Bailouts End
A Recession Is More Likely, But It Isn't Assured
Many Companies Are Having A Good Year
It's Time For Bottom Fishers To Unfold Their Nets
The Dollar Rebound May Be Over
The Bottom Line This Week