AIA Advocate for Absolute Returns : Energy

Association of Investor Awareness - Week of 05/28/2009

Research & Editorial Staff — Thu, 28 May 2009 14:08:00 GMT

Is The Economy Finally Turning Around?
Companies With Cheap Eats Are Doing Well
China's Economy Is Still Hot (Compared With Everybody Else)
Energy Investments Are Looking Good Again
The Bottom Line This Week

The stock market rally that started on March 9 is proving to have longer legs than even the most optimistic investors dared hope. Through the end of May, the S&P 500 was up 30 percent even though the economy was continuing to decline.

Over the past month, however, the market's performance suggests that the rally may be getting short of breath. Since our last newsletter, the Dow gained an unremarkable 1.1% and the Nasdaq barely rose 0.7%. It remains to be seen if stocks will get a second wind and run for another few laps, of if a correction is on the way.

If history is any guide, the market's next move is more likely to be down than up. Not only is a 30% gain without a break unusual, summers are often slow on Wall Street. To be sure, rallies sometimes come along during the three month period but large surges don't usually arrive until after Labor Day. Shrinks think it has something to do with humans having an innate urge to stock up (pun intended) when cooler days remind them that winter is on the way.

Is The Economy Finally Turning Around?

The biggest stock market engine of all, of course, is the economy which has not been winning any medals of late. In fact, nearly all the leading indicators are still slipping. Housing prices, for example, dropped 19% in the first quarter, and jobs are continuing to disappear. There is a long and dismal list of negatives.

On the other hand, most indices are sliding less quickly than they did a few weeks ago. Optimists see the not-so-bad numbers as proof that the recession is finally coming to an end.

We are inclined to agree with the optimists, but we think a recovery will probably be more modest than they expect. A few problems are headed our way that will probably keep the rebound party from getting too lively.

The first hurdle is a commercial real estate crunch that seems likely to hit later this year. In several cities, a few skyscrapers that were once humming with activity have lost so many tenants their owners can't make the payments. As is true when Ma and Pa Kettle get behind a few months, the former high rollers are also getting the boot. There is so much vacant commercial space available, this market won't turn around anytime soon.

Many once bustling shopping malls are also in trouble. When Joe and Sally MidAmerica got their pink slips, they had a revelation: spend less money. What a concept. The result is lean times for retailers – especially those that sell overpriced glitter goods instead of affordable necessities. One bright spot is consumer confidence is rising.

Manufacturing is in no better shape than retailing. There is a connection between the two that people learn in economics classes at Harvard: if nobody buys stuff, nobody needs to replace it.

However, manufacturing should begin to pick up a bit this fall. The dollar has been dropping in value over the past few weeks which will make U.S. products more competitive overseas. The technology sector is already seeing an increase in foreign orders.

Speaking of Joe and Sally, many recent homebuyers who have been keeping their lenders happy may not be able to do so much longer. The people who are in trouble took out option mortgages that allowed them to pay whatever their incomes could afford for the first few years. The flexible terms were like winning a lottery for home buyers of modest means who realized they could live in a McMansion on a single-wide income.

Now the mortgage grace periods are running out and the option mortgage crowd will need to pay full freight each month. Many of them won't be able to do it, which will put more pressure on the housing industry.

All in all, there don't appear to be any big engines of growth that will do much more than lift the economy off the floor this year. Nevertheless, even modest growth will beat the sinking numbers we have now.

The bottom line is, there is reason for cautious optimism, but celebrate with domestic bubbly.

Companies With Cheap Eats Are Doing Well

Every problem creates opportunities for companies that happen to be in the right business. In the current situation, companies that supply necessities for the least amount of money are in the catbird's seat. Since the economy is likely to remain slow for quite some time, the winning suppliers should continue to prosper.

Leading the list of companies with the right stuff are those that provide inexpensive foods to the countless people who need to watch their pennies.

The fortunate suppliers are led by ConAgra Foods (CAG) that supplies a cornucopia of packaged foods throughout the U.S. http://finance.yahoo.com/q/bc?s=CAG The company's brands include Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National (great hot dogs), Hunts, Peter Pan, Rosarita, Van Camps, Marie Callenders, Parkay, Wesson, and a host of others. ConAgra also produces many private label foods for large retailers.

ConAgra's stock is beginning to move up as investors see how well it is doing in today's difficult economy. However, the yield is still an attractive 4.1% which indicates the stock is still attractive.

One step down the price ladder – which is an advantage now - is Hormel Foods (HRL). http://finance.yahoo.com/q/bc?s=HRL The company is profiting from booming sales of Spam, Hormel Chili, Dinty Moore Beef Stew, and several shelf-stable microwave foods. To capitalize on its good fortune, the company just converted a new processing plant to turn out the low-cost foods that are in highest demand. Profits rose 4% in the first quarter, which is remarkable in a weak economy with high unemployment.

Our old favorites, Colgate Palmolive (CL) http://finance.yahoo.com/q/bc?s=CL and Procter & Gamble (PG) http://finance.yahoo.com/q/bc?s=PG are also doing well. Both companies provide health, beauty, and homecare products worldwide. The companies are benefiting from the stronger economies that exist in many of its markets.

Colgate Palmolive and Procter & Gamble make a good pair for investors. Although their product lines overlap, Colgate has more low-priced basics that are ideally suited for current economic conditions. Procter & Gamble leans a bit towards higher end products that should have greater appeal as the economic siege lifts later this year.

The five investments we recommended last month are continuing to March forward. Their prices may drop back a bit before they resume course, but long term investors should hold on to them. Here's the scorecard:

China's Economy Is Still Hot (Compared With Everybody Else)

One country that is bucking the global economic recession is China. Although growth has fallen from its recent double digit highs, the country is still chugging along at a respectable 6.1% rate. That's higher than many experts expected since China's export business is linked to the economic health of its customers.

It turns out that the experts were so focused on exports, they underestimated the rapid growth of China's internal market. With at least 1.2 billion people, China can consume much of what it produces itself. That's especially true since the Chinese people have more money to spend than ever before, and they want to live large.

We are particularly bullish on the long-term prospects for China Mobile (CHL). http://finance.yahoo.com/q/pr?s=CHL Cellular service may seem like a luxury that people will drop during an economic slowdown. But that's not the case in China where mobile services are more important than in most countries. In much of China, landline telecom links are frequently of poor quality, and are often not available at all. Consequently, much of the population relies on cellular-based communication and Internet services.

China Mobile now has a staggering 457 million subscribers. That's about 150 million more people than the entire population of the U.S. Nevertheless, the company has yet to capture as much as half of its potential market share.

There's another indication of the continuing economic boom in China...and we're talking about the boom in domestic Chinese travel and tourism that we have observed.

As China transitions from poverty to affluence, an increasing number of the Chinese population are actively looking to enjoy their new-found middle-class status.

And one of the ways they are spending their money is on travel – taking vacations and seeing more of their vast country as well as traveling more on business.

The Great Wall of China remains one of the most popular tourist destinations in the world. Meanwhile, the number of people visiting Taiwan from mainland China has nearly doubled during the past 24 months ... and China's domestic tourism industry has grown 22.6% annually for the past 5 years.

We're certainly bullish on the Chinese travel and tourism market ... and in particular, on one of China's fastest-growing travel services companies... Universal Travel Group.

Universal Travel Group has been trading on the Bulletin Board, but starting Thursday, May 28, it will be trading on the NYSE Amex under the symbol "UTA."

Universal Travel specializes in online and customer representative services. The Company offers packaged tours, air ticketing, hotel reservation and air cargo 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 $7.00 on 5/27/09, they are trading under a 6 P/E multiple. Comparable industry multiples range from 22 to 28...so Universal Travel has a lot of upward potential. Go to http://cnutg.ir.stockpr.com/ for more details.

Energy Investments Are Looking Good Again

The last time we filled up our gas tanks we noticed that our local service station didn't get the word that a recession is in progress. Instead of lowering prices, they went up about 25%. Most energy insiders think the uptrend will continue, especially if the economy improves.

We think the best way to profit from the rebound is with ExxonMobil (XOM), the world's largest energy supplier. http://finance.yahoo.com/q/bc?s=XOM The company produces both oil and natural gas, much of which it turns into petrochemicals, fertilizers, plastics, and other products. ExxonMobil also has interests in electrical plants that are fueled with XOM's energy.

Despite ExxonMobil's leading position in its industry, the stock still carries a low P/E of 9.5. That looks very attractive to us.

The Bottom Line This Week

The economic outlook continues to improve fractionally, which has been fueling the stock market rally. At this point, however, stocks may have gotten ahead of themselves since the economic rebound is unlikely to be strong. As a result, a correction is probably on the way.

Nevertheless, many stocks should do well longer term because they can squeeze profits from a slow economy. Among the fortunate few are ConAgra Foods, Hormel Foods, Colgate Palmolive, and Procter & Gamble. Due to their unique market niches, China Mobile, Universal Travel Group and ExxonMobil should also have prosperous futures.

Association of Investor Awareness - Week of 12/18/2008

Research & Editorial Staff — Thu, 18 Dec 2008 16:51:00 GMT

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.

The Economy Is Bad, But Stocks Are Priced For Worse

We are not surprised that investors are starting to ignore what would otherwise be solid reasons to sell more stocks. Although the news is troubling, the market appears to be priced for much worse. Since investors always get around to matching values to reality, a partial rebound is likely.

An adjustment also seems to be warranted because more economists are beginning to predict that growth will ease back into positive territory late next year. If the contrary economists are right, the stocks of many high-quality companies are oversold.

Stocks Outshine Their Competition

Stocks don't just look better from a fundamental standpoint. They are also becoming more attractive when compared to other investments. For example, real estate in most regions is likely to decline much further before it turns around. As we said above, T-Bill interest rates are on the floor. And after the Fed's unprecedented rate cut on Tuesday, it won't be long before CD yields also come down.

Some Good Yields Are Still Available

To beat what could be a sharp loss of income we think you should act quickly to lock in the higher rates that are currently available at some banks. At EverBank, for example, rates will be adjusted downwards at the first of the year. However, Domestic Money Market accounts that are opened before December 31 will be "grandfathered" through all of 2009. New accounts start with a 4.01% return for 90 days after which the rate will be 3.42%.

The outlook for commodities is equally grim. One exception is gold. It should do well as inflation begins to replace deflation in a year or two.

That leaves stocks, especially from companies that are well established in global markets, have little debt, and have a good dividend yield. Such stocks are rapidly becoming the only game in town, which is why they are starting to attract more investors.

Behold The Halo Effect

Within the stock market, competition for investment dollars is also keen. Since most sectors don't look very appealing right now, new money coming into the market is likely to pour onto the minority of stocks that do look good. As a result, a rally may have a big impact on favored sectors, and nearly ignore others.

In addition to the multinational blue chips we have been recommending for several weeks, we also think the financial service sector is due for a pop. We've seen it happen on several occasions as the credit crunch set in. Every time it looked as if the sector might someday pull out of its tailspin, investors leaped aboard. For example, Citigroup (C) was just $3.05 in mid November. Now it is $8.23, 170% jump.

For the lowest risks, however, stick with companies that provide needed goods and services to consumers throughout the world.

A January Bounce Seems Likely

As to the timing of a rally, the last week or so of the year is likely to see it start. If so, prices could move up rather quickly because no portfolio manager can afford to miss any gains.

In addition, millions of Americans think that President-elect Obama is putting good teams together to deal with our problems. On Tuesday of this week, even Vice President Dick Cheney expressed his admiration for many of the heavyweights who are being recruited to the new administration. All in all, there appears to be an improving climate for stocks.

Energy And Foreign Growth Are Positives

One of the biggest stimulants at work in the economy isn't coming from Washington. Instead, the return to cheap energy and lower commodity prices is acting like a super tax break throughout the world.

Right now, most of the saved money is being squired away by nervous businesses and consumers. However, at least part of the savings will filter back into the economy as the new year progresses. Cars wear out, refrigerators quit, kids need braces, stores run out of products to sell, and so on. If the funds to fix the problems exist, they will be used.

Another reason the outlook may be better than the headlines today would suggest, is people in most developing countries are still spending money. The BRIC countries (Brazil, Russia, India and China) have over three billion consumers who are determined to maintain their improving lifestyles. The U.S. swims in that sea, and benefits from it.

We May Be Halfway Through The Economic Downturn

There is no doubt that the economic downturn is accelerating. However, even the optimistic economists acknowledge that conditions over the next few months are likely to be worse than they are now.

Fortunately, there is a consolation prize that goes with a severe economic correction: the faster it progresses, the quicker it can eliminate the excesses of the past. That's one of the reasons that the first part of a recovery may occur by the forth quarter of 2009.

The bottom line is, we don't expect an "Armageddon", a "Great Depression II", a "Greater Depression", or a "Very Great Depression" that many gloom and doomers are predicting.

What Everybody Knows...

Lastly on the subject of the economy, we have learned to be cautious when nearly everybody believes something is true. The more experts that climb on the bandwagon, the more likely it is that Mother Market will fool them all.

We don't need to look into the distant past to see how the cognoscenti can totally miss the boat. It was only a few months ago that nearly everyone from Harvard to Meadow Muffin Jr. College was certain that oil would soon be $200. Anyone who disagreed with that view was considered to be an utter fool.

Likewise, nearly every economist was certain that inflation was becoming a problem. Almost no one foresaw the deflationary cycle that began by mid year.

The conclusion to be drawn is not to assume anything is true just because nearly everyone thinks it is. Experts often miss economic calls, and they may be doing it again today.

The Bottom Line This Week

Jim Grant, a knowledgeable chap who writes the biweekly Interest Rate Observer, (www.grantspub.com) recently offered investors some cheer when he talked about several Wall Street legends who stumbled badly, and then recovered.

For example, Benjamin Graham lost over 70% following the crash of 1929. He got nearly everything back by 1936, but he gave about half of it back the next year. However, within a few years he was back on top again, big time.

Graham wasn't just stubborn. He knew that winning is impossible from the sidelines. That's a good lesson for today's investors who may be tempted to stay out of the game that hurt them badly this year.

Notice To Readers

The AIA "Advocate for Absolute Returns" will not be published next week. Publication will resume with our first January 2009 issue.

Association of Investor Awareness - Week of 11/20/2008

Research & Editorial Staff — Thu, 20 Nov 2008 15:31:00 GMT

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.

Stocks Search For A Bottom

As we discussed in our October 16 issue, each additional market plunge marks another step in the capitulation process that must run its course before stocks can begin to recover. How long the selling will last, and how far the market will fall before the carnage stops, is anybody's guess. For the present, sentiment is overwhelming fundamentals.

What we do know, however, is most stocks are more attractively priced than they have been in over 20 years. We can also say that over a century of stock market history shows that investors will eventually price stocks at their proper values. That means we can start to purchase today's high quality bargains with a lot of confidence that they will pay off at some point in the future.

Three important developments look especially attractive now. We think each of them has the potential to significantly increase the value of your long term portfolio.

High Energy Prices Will Return

Contrary to what Joe and Sally MidAmerica may believe, the energy crisis is not over - it has merely been suspended due to the global economic slowdown. When demand picks up again, the world will go back to the tight supply/demand situation that pushed prices into the stratosphere earlier this year.

The numbers tell the story. Before the economy started to cool off, oil producers pumped 86 million barrels a day. At the same time, the world consumed 85 million barrels a day. The million barrel difference was the tightest supply/demand balance we've ever seen in a major commodity.

According to an article in Forbes, world oil demand has since fallen by 1.1 million barrels of oil a day. That small decline still leaves the supply/demand balance on a knife edge. It would not take a very big uptick in the economy, or a problem with supply, to push the world back into an energy deficit. Every expert we consulted expects to see it happen within a few years. Several analysts think that shortages may reappear by late 2009.

Astute readers might look at the data and wonder how such a small decrease in demand could create such a big plunge in prices. The answer is it couldn't do so by itself. However, during the first half of 2008 suppliers were so worried about a possible delivery interruption that they built up their inventories to record levels. The Saudi's even used retired oil tankers as depots.

As a result, when demand slacked off a few months ago the world suddenly found itself awash in oil, and prices plunged. Once the extra oil is gone, prices will start to move back up again.

Attractive Energy Investments:

We think the tight oil supply/demand situation is a great opportunity for long-term investors. One way to play the rebound is to invest in ExxonMobil (XOM), the world's largest energy supplier. http://finance.yahoo.com/q/bc?s=XOM

ExxonMobil is a highly diversified company that produces both oil and natural gas, much of which it turns into petrochemicals, fertilizers, plastics, and other products. The company also has interests in electrical plants that are fueled with XOM's energy.

Despite ExxonMobil's leading position in its industry, the stock now carries a low P/E of 8.2 and a forward dividend yield of 2.2%. All in all, we think XOM is greatly oversold.

Another company that should do exceptionally well over the next few years is Transocean (RIG), a stock we have recommended in the past. http://finance.yahoo.com/q/bc?s=RIG All the major oil producers report that they need to find additional supplies, and they are willing to spend many billions of dollars to get them. As one of the world's leading exploration and development companies, Transocean should capture a great deal of the new business.

Commodities Will Also Rebound

The outlook for raw materials and commodities is nearly identical to that for energy, and for the same reasons. Particularly with agricultural commodities and some industrial metals, the surpluses are not very large. The supplies will disappear quickly when growth starts to rebound.

Attractive Commodity Investments:

One company that is already bouncing back is Archer Daniels Midland (ADM), an old favorite of ours. http://finance.yahoo.com/q/bc?s=ADM From its 2008 low of $13.53, the stock is back to the mid $20 area - a move that occurred while the economy and stock market were dropping.

The ADM rebound should not be a surprise because many foreign economies are still growing, and so are their populations. Since ADM deals in inexpensive basic foods, including grains and oils, the company should remain on a growth track for as far ahead as we can see.

Yet to recover is another top-performing AIA Advocate pick, BHP Billiton (BHP). http://finance.yahoo.com/q/bc?s=BHP This leading supplier of industrial metals is more sensitive to the economy than ADM, but that means it should rise even more strongly when growth begins to pick up. Meanwhile, BHP has an incredibly low P/E of 5.7 and an eye-popping 5% yield.

Alas, the yield may decline later this year if lower earnings force the company to reduce its dividend. Nevertheless, we believe BHP is an excellent value that will be very rewarding in long-term accounts.

Infrastructure Spending Is Likely To Soar

Last week we discussed how President-elect Obama is likely to affect the U.S. economy. He has since announced that one of his first moves will be to boost spending to upgrade and expand America's woefully out-of-date infrastructure. Besides fixing serious problems, the projects will create countless jobs and pump badly needed cash into the economy.

One of the first projects will be to upgrade and expand our antiquated electrical grid. As many readers may have experienced first hand, the system is so strained that large regions of the country have been plunged into darkness due to relatively minor equipment failures.

Another reason the grid must be upgraded is much of it is unable to handle the additional power that will be produced by the new electrical plants that are scheduled to be constructed. Two solar and wind power projects have already been cancelled because the local grids could not handle the extra loads. This bottleneck must be removed before America can solve its energy problems.

Attractive Infrastructure Investments:

One company that is in the catbird's seat to profit from efforts to improve our electrical grid is General Cable (BGC). http://finance.yahoo.com/q/bc?s=BGC As its name suggests, the company is a major producer of high-capacity electrical wires that are used in power transmission systems worldwide. In addition, the company produces wires and cables that are used within electrical plants. Products are also supplied for many industrial applications.

General Cable looks especially attractive because it has been hammered by the slow economy and the stock market plunge. Its price is down 86% from its January high, which is out of proportion to its earnings decline from $1.11 to $1.07. Such an extreme sell-off can only happen during a market panic. When the sell-off ends, General Cable should move back up.

We also like the outlook for Quanta Services (PWR), a company that installs and maintains electric power transmission lines and power distribution networks. http://finance.yahoo.com/q/bc?s=PWR In addition, the company provides many services to the natural gas, telecom, and cable TV industries.

Quanta is also down sharply from the high it reached when the economy was booming. Although the outlook for continued profit growth this year has dimmed considerably, the stock appears to be greatly oversold for its longer term potential.

The Bottom Line This Week

In the current race for the exits, investors are tossing many high quality stocks aside no matter how good their long term prospects may be. Leading companies in the energy, commodity, and infrastructure sectors are especially attractive. However, we continue to urge everyone to buy stocks a little at a time because prices may go lower before they begin to turn around.

Association of Investor Awareness - Week of 10/23/2008

Research & Editorial Staff — Thu, 23 Oct 2008 17:11:00 GMT

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.

It's Too Early For A Sustained Rebound

Although we were disappointed, we were not surprised that the bounce didn't last very long. There are still too many buyers around to think the bear market has run its course. As we said two weeks ago, the real recovery is unlikely to arrive until the last of the bulls have been chased away. That day is probably still several months ahead of us.

History also suggests that valuations need to rise before a sustained rebound will occur. To be sure, there are now some very attractive stocks on the bargain table. Chubb (CB) has a P/E of 7.2 and a 3.0% dividend yield. Pfizer's (PFE) numbers are 13 and 7.6%. For Merck (MRK) the teasers are 12.3 and 4.9%. It's becoming a long list.

However, most stocks have merely gone from sky high to fairly priced, which suggests they have further to fall. In most bear markets, the P/E ratios for the Dow blue chip stocks usually drop to 10 or less before they make a major rebound. At the present time, the Dow's P/E is 15.7.

But, There Are Finally Some Signs Of Relief

Nevertheless, some encouraging developments are starting to appear. An increasing number of banks are beginning to loan money to their most credit-worthy customers. Banks are also beginning to loan money to each other which helps make credit available where it is needed most.

In addition, many pension funds, insurance companies, universities, and corporations are starting to provide funds to businesses. Interest rates are also coming down a bit. It all points to a slow restoration of the credit system upon which our economy depends.

However, there is another problem with the credit crisis that is rarely discussed. In today's slow economy, many companies are putting their expansion plans on hold. As a result, the demand for credit is falling. If that trend continues, it won't make much difference if more money becomes available.

What Everybody Knows Is Often Wrong

When it comes to economics and investing, what "everybody knows" is often wrong. In fact, the greater the consensus about a particular outlook, the more likely it is that just the opposite will occur.

Oil prices are a recent case in point. Only three months ago, everyone from Nobel economists to Joe and Sally MidAmerica was certain that high priced oil was here to stay. Many of the most experienced people on Wall Street were equally certain that oil would reach $200 a barrel by the end of the year. Those outlooks seemed completely reasonable at the time.

Nevertheless, oil prices soon collapsed. Today oil is selling for only $70 a barrel, a 53% decline from its peak.

Another Contrary Economic Outlook

A small but growing number of economists are now beginning to think the widespread doomsday outlook for the credit crunch and the economy is also dead wrong. We spotlighted the idea last week when we wrote about Casey B. Mulligan, a professor of economics at the University of Chicago who said, "...the economy doesn't really need saving. It's stronger than we think." And, "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."

This week, Gene Epstein at Barron's wrote a two page article titled "Sorry, Chicken Little" that also cast doubt on the growing belief that the economy is doomed. He acknowledged that a recession seems inevitable due to the credit crisis and lower home values. But Mr. Epstein also said, "...it's possible that the downturn could prove to be one of the briefest and mildest on record." Talk about a contrary opinion!

Cheaper Energy: The World's Biggest "Tax" Cut

Mr. Epstein's main argument is the huge plunge in oil prices represents a massive booster shot for the economy that will soon begin to take effect. Not only is cheaper energy a benefit by itself, it should also bring down many other prices.

The first recipient of energy relief will be the American consumer who now has more money to spend than was true a few weeks ago. In many households, the savings totals several hundred dollars a month. As people begin to spend some of the money, inventories will be reduced, manufacturers will need to ramp up again, wages and employment will benefit, and so on.

To that happy outlook we will add that a reduction in scary news about bailouts and rescue packages should also help increase consumer spending. As we mentioned in a previous issue, Joe and Sally are mostly staying away from the mall because they are scared, not because they have no money.

The Fed is also trying to get Congress to play Santa Claus by sending another round of checks to individual Americans. The stimulus package we had earlier this year had a measurable impact even though most people put most of it into savings. With the holiday season right around the corner, the better part of a second helping of federal money will probably be spent.

Lastly, the economy will also receive a modest boost if the Fed lowers interest rates another half percent, as is widely expected. Such a reduction would leave the rate at 1%, a level that proved to be a magic charm when Alan Greenspan used it in 2003. This time around, the impact of cheaper money may be less because lending is slow for reasons other than interest rates. Still, a reduction would be an added stimulus to growth.

We are not trying to be Pollyanna. Huge economic problems remain, and they will take a toll. However, the end of the world may need to be postponed. If so, a stock market recovery may be closer than most analysts expect.

This High Yield Investment Looks Good

One investment that won't be helped by ultra-low interest rates is fixed income returns. Consequently, if your bonds and CD's will soon come due, they should be rolled over to longer term securities to lock in today's higher returns.

Alternately, readers might consider putting some of their money in high quality investments that have good dividend yields. We think one of the most attractive is Kinder Morgan Energy Partners LP (KMP). http://finance.yahoo.com/q/bc?s=KMP

Kinder Morgan is a master limited partnership that owns and operates over 25,000 miles of oil, natural gas, and fuel pipelines in the U.S. The company also has 150 terminals that store and transport petroleum, petrochemicals, coal and other bulk items by rail and truck.

Although energy prices are off sharply, KMP owns very little of what it pumps. As a result, KMP's price held up well while energy was dropping from $149 to $70. The price did drop sharply when the stock market fell out of bed recently, but it is now rebounding strongly.

Kinder Morgan is attractive because it currently yields 7.9%. Moreover, dividends have been increased for 12 years in a row and have been paid since KMP was formed in 1992. That's an excellent track record.

The kicker is that Kinder Morgan should also appreciate in price in the coming years. All in all, KMP appears to be ideally suited for the current conditions in the stock and fixed income markets.

The Bottom Line This Week

The dark cloud that hangs over the economy and the stock market opened up a bit over the past week. Although many serious problems remain, there are reasons to be optimistic that they are slowly being resolved. Some analysts think the process will take less time than is generally believed.

Meanwhile, several investments offer dividend yields that will keep investors warm while they wait for brighter days to come. Kinder Morgan Energy Partners LP looks especially attractive.

AIA Advocate for Absolute Returns : Energy

Association of Investor Awareness - Week of 05/28/2009

Is The Economy Finally Turning Around?

Companies With Cheap Eats Are Doing Well

China's Economy Is Still Hot (Compared With Everybody Else)

Energy Investments Are Looking Good Again

The Bottom Line This Week

Association of Investor Awareness - Week of 12/18/2008

The Economy Is Bad, But Stocks Are Priced For WorseStocks Outshine Their CompetitionBehold The Halo EffectA January Bounce Seems LikelyEnergy And Foreign Growth Are PositivesWe May Be Halfway Through The Economic DownturnWhat Everybody Knows...The Bottom Line This Week

The Economy Is Bad, But Stocks Are Priced For Worse

Stocks Outshine Their Competition

Some Good Yields Are Still Available

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

Notice To Readers

Association of Investor Awareness - Week of 11/20/2008

Stocks Search For A BottomHigh Energy Prices Will ReturnCommodities Will Also ReboundInfrastructure Spending Is Likely To SoarThe Bottom Line This Week

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

Association of Investor Awareness - Week of 10/23/2008

It's Too Early For A Sustained ReboundBut, There Are Finally Some Signs Of ReliefWhat Everybody Knows Is Often WrongAnother Contrary Economic OutlookCheaper Energy: The World's Biggest "Tax" CutThis High Yield Investment Looks GoodThe Bottom Line This Week

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

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

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

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