AIA Advocate for Absolute Returns : Inflation

Association of Investor Awareness - Week of 09/24/2009

Research & Editorial Staff — Thu, 24 Sep 2009 16:48:00 GMT

In This Issue:

Will The Right Fundamentals Please Stand Up?
The "Uncle Sam Effect"
Small Investors Are Coming Back To Stocks
Inflation Fears Are Increasing
First Some Bad News, Then Some Good News
Easy Index Gains May Be Over
These Four Favorites Should Stay On Top
And So Should China
The Bottom Line This Week

Despite all the worries about overvalued stocks, the market is continuing to advance. To be sure, the gains aren't coming by leaps and bounds anymore – but they are still adding up nicely. Since our last newsletter, the Dow and the Nasdaq rose another 1.8% and 5.1% respectively.

Will The Right Fundamentals Please Stand Up?

When it comes to stock fundamentals, value is in the eye of the beholder. Traditionalists believe the market is too expensive for the weak economic recovery they expect to see. The analysts argue that the economy may take over a year to justify the whopping 46% gain in the Dow since March. Some analysts think the recovery will never gain the necessary strength.

However, many other number crunchers believe the data suggests that stocks have further to run. Their main argument is that earnings were whacked so hard by the economic downturn that even a small uptick in growth will have a big impact on profits. The more bullish analysts believe that even a 2% expansion will double the profits of many top companies. It follows that if earnings shoot up, so should stock prices.

Other bullish investors believe it's a mistake to look solely at a company's U.S. potential. The globalists point to the much stronger recovery that is happening in the world economy. The bulls insist that investors in well-run companies with a substantial amount of business overseas can expect to prosper over the next few years.

The "Uncle Sam Effect"

We think even the most optimistic fundamental investors are missing the biggest plus for the stock market: a great deal of Uncle Sam's stimulus and bailout money is moving into equities. That's not surprising since increasing stock values was almost certainly one of the Fed's goals. That's as it should be since raising equity prices is one of the best and broadest ways to increase America's economic health.

So far, the government has pumped about $2 trillion (that's trillion with a "T") into the economy. Another $2 trillion or so has been earmarked for additional programs. Since stocks are the best-performing investments available now, it isn't surprising that they are attracting much of the money.

Small Investors Are Coming Back To Stocks

Another plus for stocks is individual investors are starting to come back to Wall Street. If that trickle becomes stronger, there should be an attractive new leg up for the bull.

Small investors hold a great deal of potential because they have some $5 trillion available to buy stocks. Money market accounts alone contain over $3 trillion, most of which is earning returns below one percent. It is no wonder that investors are chomping at the bit to find better opportunities for their cash. High quality stocks that pay good dividends are moving to the top of that list.

America's baby boomers are especially eager to boost their investment returns. Most retirement portfolios took huge hits when the market collapsed two years ago. Although the boomers are being very careful not to lose even more money, they know they must recoup their earnings if they want more than a subsistence old age.

Since April, only about $56 billion has come out of safe harbor accounts to be invested in stocks. It doesn't take a math wizard to see that a great deal of money is still available to purchase equities.

Inflation Fears Are Increasing

The huge amount of stimulus and bailout money the government is pouring into the economy is causing many people to worry about rising inflation. That's especially true since most of the money was created out of thin air for the occasion. Since the new money isn't represented by additional goods and services, many economists say it will soon begin to push prices up.

The threat of sharply rising inflation is adding to the need to find greater returns. That's because the value of cash can be expected to fall at whatever rate inflation rises.

On the other hand, the tangible asset values are likely to keep pace with inflation. That's not true for all of them, of course. Real estate, for example, doesn't look very attractive right now.

However, precious metals and some commodities should do well if inflation returns. But those hedges don't appeal to many mainstream investors. Most people are more attracted to high quality stocks that have a long history of keeping up with inflation. The icing on the cake is the best companies also pay dividends.

First Some Bad News, Then Some Good News

When we put all the stock market pros and cons together, we think the odds favor more gains. However, we should not expect additional returns to come as easily as those we received in recent months. Progress from here is likely to be bumpy.

One of the first, and perhaps the biggest, bumps may be close at hand. After the market's 46% run-up over the past six months, a correction seems overdue. If you don't wish to run the rapids, this would be a good time to take some profits. If you want to remain in the market, but with lower risk, we heartily recommend the use of stop loss orders. The more nervous you are, the tighter you should place your stops. Just be sure to pick prices that are outside each stock's normal trading range.

Easy Index Gains May Be Over

When the market started to surge in March, investors in broad index funds did very well. For the first six months, making money was a no-brainer.

From now on, however, we think investors will need to be more selective to find attractive profits. As many brokers advise, "It's time to trade your shotgun for a rifle."

Another reason to choose stocks carefully is investors have become more conservative and risk averse than they were during the boom. Whiz-bang widget makers with big dreams and short histories are getting scant attention. Instead, the market now favors known companies with proven products and solid track records. The best blue chips fit those criteria perfectly.

These Four Favorites Should Stay On Top

Four companies that we like very much this fall are:

Alcoa (AA) http://finance.yahoo.com/q/bc?s=AA,

Deere & Company (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.

We first recommended them in our June 25 newsletter, and they have since done very well. Here are the numbers:

Name	Symbol	Price on 6-24-09	Price on 9-22-09	Percent Change	Yield
Alcoa	AA	$10.69	$14.26	33.4%	0.90%
Deere	DE	$41.83	$46.18	10.4%	2.50%
GE	GE	$11.79	$17.01	44.3%	2.40%
Caterpillar	CAT	$34.06	$54.34	59.5%	3.10%

Because all four companies are tied to the global economy, they are very efficient, and can prosper even in a slow growth environment; we continue to recommend them.

And So Should China

Another place we think you should take aim is China. While the U.S. and Europe remain mired in recession, China is booming.

In August, for example, the country's industrial production rose 12.3%. Retail sales surged over 15%. Real estate development jumped 14%. The list goes on and on. All together, China's economic growth is in the 8% range.

China is one place where stock gains are so broad that investing in an index fund makes sense. Our favorite is the PowerShares Golden Dragon ETF (PGJ) that tracks the performance of the Halter USX China Index: http://finance.yahoo.com/q/bc?s=PGJ.

The selective index contains Chinese stocks that trade on U.S. exchanges, and which have capitalizations of at least $50 million. We think the ETF is an excellent way to participate in the further growth of China.

For those investors who prefer individual stocks we have several favorites that we continue to follow and believe have significant upside potential.

Universal Travel Group (UTA) http://finance.yahoo.com/q?s=UTA

Universal Travel Group, a fast growing (20 to 25% top and bottom lines)travel services provider is engaged in providing reservation, booking, and domestic and international travel and tourism services throughout the PRC via the internet and through customer representatives. Under the theme "Wings Towards a More Colorful Life" the Company's core services include tour packaging for customers and booking services for air tickets and hotels.

Currently trading in the $13 range, multiple analysts have pegged UTA with a $20 price target.

NF Energy Saving Corp (NFEC) http://finance.yahoo.com/q?s=nfec.ob

NF Energy Saving is an integrated provider of energy conservation solutions utilizing energy-saving equipment, technical services and energy management re-engineering project operations to provide energy saving services to clients. Headquartered in Shenyang city of China, the Company currently has 220 employees and multiple proprietary energy saving technologies and patents.

In a press release issued early Wednesday morning (9/23/09) the Company stated that "based on customer orders received and anticipated project completion schedule for the remainder of 2009, the Company expects revenue for the fiscal year ending December 31, 2009 to reach $24 million, a 52% increase over revenue of $15.8 million for the fiscal year ended December 31, 2008."

Currently trading below $5, NFEC is seen by several noted small-cap analysts as a good bet to hit $8.50 to $10 a share.

Shengkai Innovations, Inc. (SKII) http://finance.yahoo.com/q?s=skii.ob

Shengkai Innovations is engaged in the design, manufacture and sale of ceramic valves, high-tech ceramic materials and the provision of technical consultation and related services. The Company's industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as high-performance, more durable alternatives to traditional metal valves.

SKII has delivered 128% in gains for January investors and with an attractive P/E of 10.00 it seems to just be getting started. Check out these strong financial results.

Revenue for the year ended June 30, 2009 increased 21.5% to $39,297,235, compared to $32,355,693 for YE 2008. Net income increased $3,490,655 or 34.6% to $13,577,694 for the year ended June 30, 2009 from $10,087,039 for the comparable period in 2008.

The Bottom Line

Although the stock market is no longer shooting up at its former rate, it is still continuing to deliver attractive gains. A correction seems likely after such a big run, but we think stocks will recover and go on to greater heights.

Four stocks that are doing even better than the market are Alcoa, Deere & Company, General Electric, and Caterpillar. All of them should continue to do well as the world emerges from the recession.

One country that looks especially good is China where growth is still an impressive 8%. We think investors who seek a broad stake in China should consider the PowerShares Golden Dragon ETF that tracks the performance of the country's most successful companies. Or, for individual stock picks three small-cap profit opportunities include Universal Travel, NF Energy and Shengkai Innovations.

Until Next Time

The AIA "Advocate For Absolute Returns", a 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 time...

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. The Association for Investor Awareness, Inc. (AIA) and respective staffs and associates may or may not have investments in any companies, stocks or funds cited herein, may or may not have long or short positions and/or options and warrants relating thereto and may purchase and/or sell these securities or options at any time in the open market or otherwise without further notice. AIA, its Officers, Directors, Employees and Affiliates may receive compensation for the dissemination of this information.

Communications from AIA are intended solely for informational purposes. Statements made by various contributors do not necessarily reflect the opinions of AIA and should not be construed as an endorsement either expressed or implied. AIA is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not necessarily indicative of future performance.

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 12/11/2008

Research & Editorial Staff — Thu, 11 Dec 2008 17:35:00 GMT

In This Issue:

The Long-Awaited Bear Rally May Be Starting
Although Weak, Some Hopeful Economic Signs Are Emerging
Credit Is Slowly Opening Up Again
If Fear Subsides, The Outlook Will Improve Immediately
A Recovery Will Bring Unwelcome Inflation
The Bottom Line This Week

As we reported in our previous issue, the sharp stock market advance over the Thanksgiving holiday came to a crashing end on December 1. However, prices have been stronger since then. Although the gains weren't enough to fully erase the earlier plunge, the Dow and the Nasdaq managed to end last week down just 2.2% and 1.7% respectively. From Monday to Wednesday of the current week, the market managed to make some additional gains.

It's significant that the price increases occurred while more bad economic news was breaking. A manufacturing decline, an auto sales plunge, and more job losses should have pushed stocks down several more notches. The fact that investors largely ignored the negatives may indicate that the bear market is close to a bottom.

The Long-Awaited Bear Rally May Be Starting

Many analysts believe that the market's apparent strength indicates that investors may be looking beyond the current situation and are seeing signs that a recovery is on the way.

Our response is that severe bear markets always have strong rebounds that usually become traps for the unwary. In 1933, for example, there was a big rally that investors believed was the recovery they expected after the 1929 disaster. Unfortunately, the rally collapsed within a few months and created another round of big losses for investors.

Although Weak, Some Hopeful Economic Signs Are Emerging

That is not to say that there isn't any light appearing at the end of the dark tunnel. But as the old joke goes, the light may be on a locomotive that's speeding our way.

In this case, the "locomotive" to worry about is declining corporate earnings as job losses and slow economic growth begin to take a greater toll on business activity. Most optimists acknowledge the weak outlook, but they believe it is fully discounted in today's low stock prices.

Another major worry is the prospect of further job losses. However, many analysts are quick to point out that a 6.7% unemployment rate isn't out of line for a recession where a 10% rate is often seen. Again, the optimists say, the market has more than discounted the outlook.

As for overtly positive news, as we reported last week Black Friday sales were much better than expected. Nobody is expecting a consumer spending turnaround anytime soon. But stocks appear to be priced for a much lower spending rate than we may actually see.

Many analysts are also encouraged that productivity (the amount of value produced per hour by workers) is on the rise. Clearly, workers who are keeping their jobs are working more hours, or are working more efficiently. When productivity grows, output can increase even when employment declines. We may finish the year with a higher GDP than in 2007 even though employment is lower.

Credit Is Slowly Opening Up Again

The brightest ray of economic sunshine to break through the clouds is on the credit front. Banks are starting to loan money again, albeit cautiously. As you may have noticed, many lenders are now running ads for mortgages, refinancing, auto loans, and the like. It's not a flood, but the tide does appear to be turning around.

Of course, the heady days of easy money are probably gone forever. But, that's as it should be. All we need for the economy to get going again is for banks to return to the lending standards they had before the credit madness began in the late 1990's.

If Fear Subsides, The Outlook Will Improve Immediately

From all the headlines about collapsing home values, rising unemployment, excess consumer debt, and the like, it would be easy to think that most Americans are in financial trouble. But that's simply not the case. Fear, not true hardship, is the biggest reason consumer spending has plunged.

Some of us at The AIA Advocate are old enough to remember the role that a climate of fear had in the severe recession of 1980-81. Even people with secure government jobs wouldn't spend more money than was absolutely necessary. As a result, auto dealers, real estate agents, homebuilders, and so on often went bankrupt in towns that were awash in wealth.

The bright side of the fear picture is it can end as quickly as it began. Americans are predisposed to be optimistic, not down in the dumps all the time. When good news begins to replace the frightening headlines we are seeing now, the economy will start to recover.

A Recovery Will Bring Unwelcome Inflation

However, there is a downside to a recovery that you should know about. So much money has been pumped into our economic system in an attempt to restore credit and prevent bankruptcies that inflation will almost certainly accompany a rebound. Some analysts think inflation is likely to be such a powerful force that investors should play that event rather than an earnings recovery.

Although we believe an earnings rebound will be the biggest money-maker for most investors, taking inflation into account is also a good idea. That's especially true since today's strong dollar will buy a lot of inflation investments at very low prices.

Gold looks especially attractive now. At its current $771 price, the yellow metal is off 23.3% from the $1006 high it reached in March of this year. There is every reason to think that gold will move back up as the value of the dollar declines due to inflation.

A shortage of U.S. gold coins continues, but premiums will come down as the Mint catches up with demand. Meanwhile, premiums for Canadian Maple Leafs and South African Krugerrands remain reasonable.

Alternately, you can buy the SPDR Gold Trust (GLD), a popular exchange traded fund. http://finance.yahoo.com/q/pr?s=GLD We continue to think the ETF is the best way for most investors to buy gold.

Silver is down 52.3% from its $20.92 high set in March. However, silver is largely an industrial metal that is priced to a great extent by the level of economic activity. Since growth is likely to be slow when inflation first begins to be a problem, gold should be a better performer.

Swiss francs continue to look very good longer term. Besides being a good hedge against the dollar, the Swiss currency has a positive effect on overall investment performance. In the latest issue of Review & Focus, Chuck Butler of EverBank World Markets, Everbank.com had this to say about foreign currencies:

Had an investor invested $100,000 in stocks during [the past year], they would have experienced a 39% loss, or a final dollar value of $60,577.29. But if they had added a 20% allocation of gold, and a 20% allocation of currencies (a combo of Swiss, euro, and Japan), their overall portfolio performance would have been a final dollar value of $74,450.82. While the portfolio was still at a loss, the overall value ends up almost $14,000 higher, a 14% improvement vs. the S&P alone.

Treasury Inflation Protection Securities (or TIPS) are also looking very attractive again. These special government bonds have their principal adjusted twice a year to compensate for the rate of inflation.

With TIPS, if you purchase a $1,000 bond and the inflation rate turns out to be 8.0% for the year, its value will be adjusted to $1,080. Consequently, your purchasing power will remain the same as it was when you bought the bond. You are also protected in the unlikely event of continued deflation because your final payment cannot be less than the original par value of the bond.

If inflation rises, not only will your principal be adjusted upwards, your twice-yearly interest payments will also go up. So, if inflation occurs throughout the life of your bond, every interest payment will be higher than the previous payment. If deflation occurs, your interest payments will decline.

Investors can buy TIPS directly from the U.S. Treasury Department's Bureau of the Public Debt. The bonds are available in 5-year, 10-year, and 20-year maturities. Uncle Sam will hold your TIPS in a Treasury Direct Account set up in your name. You can get the necessary information and forms using the link: http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm

If you don't wish to lock up your money for fixed periods of time, you should consider a TIPS fund. We particularly like the Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX). http://finance.yahoo.com/q/bc?s=VIPSX&t=2y As with most Vanguard products, the TIPS fund carries no load and has a very low 0.20% expense ratio, vs .86% average for its competitors.

The Bottom Line This Week

The financial turmoil that has been hammering the economy and the stock market is likely to continue well into 2009. However, there are some tentative indications that a gradual rebound may begin before the year ends.

Because of the unprecedented amount of money the Fed is pumping into the economy to fight the downturn, a recovery will almost certainly be accompanied by higher inflation. Gold and hard foreign currencies such as the Swiss franc should be good hedges against the declining value of the dollar. TIPS should also prove to be very effective protection against inflation.

Association of Investor Awareness - Week of 11/26/2008

Research & Editorial Staff — Wed, 26 Nov 2008 15:07:00 GMT

Special Issue:

When Deflation Comes,

Cash Is King

When everybody is certain the economy and stocks will move a particular way, usually just the opposite occurs. That's just what happened this summer when deflation suddenly overtook inflation as America's primary economic problem. Mr. Murphy, of Murphy's Law, seems to take particular pleasure in messing up the plans of investors.

Deflation, of course, is just the opposite of inflation. Instead of seeing the value of money fall and the prices of goods rise, cash becomes much more valuable and prices decrease.

Deflation is clearly in control today as homes, oil, and even precious metals plummet in price. Now food costs are beginning to sink. Jobs are being lost in most industries. Most experts think that wages will also begin to fall within a few months.

The public is starting to show the effects of the deflationary squeeze. People are selling motor homes, pleasure boats, and many other big ticket items to raise badly needed cash. A disturbing 10% of Ohio's adult population is on food stamps. Of course, retail sales are also weakening.

The Best Deflation Strategy

Although most people are hurt by deflation, investors can profit from a deflationary downturn. To do so it is only necessary to take the familiar rules about inflation and reverse them. Cash rises in value instead of depreciating. Real assets go down in price, not up. Interest rates drop rather than rise. It's all fairly simple. However, it has been so many years since the last deflation occurred, few investors remember what it was like.

The best way to make money from a deflationary downturn is to use the opportunity to buy deeply-discounted assets that you will sell for much higher prices when the economy starts to recover. Wise investors are doing just that by purchasing blue chip stocks at fire sale prices – a strategy we have been recommending for many months.

You Must Have The Green To Make The Scene

Because the ability to make bargain purchases is the key to making a deflationary cycle pay off, you should hold more cash in your trading account than you would do ordinarily. You won't earn much interest, but you will more than make up for the shortfall with the money you will save when buying high-quality assets at today's declining prices.

Where To Stash Your Cash

For most people, the best place to keep liquid assets is in FDIC insured certificates of deposit from secure banks. If your bank should fail, the government will print whatever amount of money is needed to make sure that insured accounts are restored. In an extreme case, you might need to wait a few days for your money, but you will get it.

As we said in our October 2 newsletter, you can get a list of current CD rates offered by 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
GMAC Bank	4.16%	4.35%	http://www.gmacbank.com/	$500
Nationwide Bk	3.97%	4.16%	http://nationwidebank.com	$500
EverBank	3.92%	4.07%	http://everbank.com	$1,500
Centennial Bk	3.90%	4.30%	http://www.centennialbank.com	$10,000
Capital One	3.78%	3.92%	http://www.capitalone.com	$5,000

Getting Around FDIC Limits

To boost the public's confidence in America's banks, Congress just increased the FDIC insurance limit from $100,000 per account to $250,000. Please note that the $250,000 limit will expire on December 31, 2009. After that date the limit will drop back to $100,000. Consequently, you should not put more than $100,000 in a CD that will mature after the higher insurance limit ends.

The new $250,000 limit is high enough for most people, but many investors have more to protect. One way around the FDIC insurance ceiling is to deposit money in different banks. However, multiple accounts are troublesome to set up and monitor.

Now some innovative banks are doing the legwork themselves by creating insured accounts in several places for their customers. The individual accounts are then packaged into jumbo CDs that are sold to the bank's preferred clients. Because no account exceeds the $250,000 limit, the new CDs are FDIC insured even if they may be worth several million dollars.

If your bank doesn't offer these combined account CDs, you might wish to contact EverBank and ask about their Insured Advantage Certificates of Deposit. The bank constructs the insured CDs in amounts up to $50 million. Terms run from three months to five years, and returns are usually a bit above market rates.

T-Bills Shine

If you will accept lower interest rates, T-bills are also safe places to keep cash. The shortest T-bill maturity is 90 days. However, locking up some funds for three months at a time should not be a problem if you have ready cash available elsewhere.

Foreign Currencies Offer Double Protection

Another option for holding cash is the Merk Hard Currency Fund (MERKX). http://finance.yahoo.com/q/pr?s=MERKX Merk offers investors a diversified foreign currency portfolio that will rise in value if the dollar resumes its slide, as we expect will happen in a few months.

Some Cash Should Be The Folding Variety

When we recommend having plenty of cash available we are referring to actual folding money in addition to funds kept in banks. Some of the best bargains you will be offered during the economic troubles are likely to be at local sales where greenbacks will speak louder than checks.

You should also have a good supply of paper currency on hand because the digital money in your bank may as well be on the moon if anything disrupts the network. If the financial service industry continues to unravel, the Fed may need to declare a bank holiday while it tries to fix the mess. In either case, ATMs, credit card approvals, check verification, online banking, and the accounts themselves will be off line. That's when "mattress liquidity" will prove its value.

It is also possible in a banking emergency that regulators will restrict the amount of money customers can withdraw. That's what happened when 200 banks failed in 1988. In some areas, withdrawals were limited to $1,000 a month. We would have a hard time living on that allowance, and we bet you would too.

This year Goldman Sachs, Countrywide, and many hedge funds also suspended or put limits on withdrawals. The accounts were based upon failing investments not deposits. However, some commercial banks are in similar distress.

Keeping cash in safety deposit boxes is another way to go, but they have limitations. When many financial institutions failed during the banking crisis of the 1980's, some customers could get to their safety deposit boxes and others couldn't. If you want to use a safety deposit box to hold cash, it would be better to open one in a local trust company than in a bank.

Inflation Will Eventually Return

Deflation is the dominant monetary condition now, but a return to inflation is a virtual certainty longer-term. That's because the Fed is fighting the credit crunch and the economic downturn by flooding the economy with money. At some point, the sheer number of dollars will overcome the deflationary forces that are currently at work.

Because the amount of money being created by the government is unprecedented, when inflation returns it may be higher than we have ever seen in this country. On September 22, John Williams of Shadow Government Statistics (www.shadowstats.com) predicted that high inflation may return as early as next year. He also said that the more the government spends, the sooner the problem is likely to hit.

The conclusion to be drawn is clear: while you are making good use of the deflation cycle that is here today, you should also get ready for the period of inflation that is on the way. As we will show in the next section, many investments that are cheap today should deliver excellent gains during longer term.

And Investments Purchased Now Should Soar

Blue chip stocks that investors accumulate now at bargain prices should make spectacular gains when deflation ends and the economy gets going again. Look for leading companies that do business worldwide selling products that everyone needs. Examples that we have discussed in recent months include Coca-Cola (KO) http://finance.yahoo.com/q/pr?s=KO, Procter & Gamble (PG) http://finance.yahoo.com/q/pr?s=PG, Colgate Palmolive (CL) http://finance.yahoo.com/q/pr?s=CL, Kraft Foods (KFT) http://finance.yahoo.com/q/pr?s=KFT, General Mills (GIS) and http://finance.yahoo.com/q/pr?s=GIS, Johnson & Johnson (JNJ) http://finance.yahoo.com/q/pr?s=JNJ – to name only a few.

We think you should avoid buying small, obscure companies now. Such stocks are attractive when the economy is strong and blue chips are overpriced. But when you can get the best of the best companies at bargain prices, as you can do today, they are the stocks to buy.

Real estate is a traditional hedge against inflation. If you live in a city where the real estate plunge seems to be bottoming out –and there are many such places- we think you should get ready to do some bargain hunting. Because there are millions of people who will no longer qualify for home loans, rentals will offer the most potential for appreciation.

Precious metals should also do well when inflation takes hold again. Just be certain not to over invest in them. We are entering the most difficult economic period in over 75 years and gold is up only 9.6% from its pre-crisis level. On September 29 when the bailout vote failed and the stock market plummeted, gold only gained $5.50. However, gold should shine when the value of the dollar begins to decline again.

Strong foreign currencies look very good. Even without the new bailout costs, the dollar was destined to fall in value due to the government's soaring debts. Now the downside for the dollar is much worse due to the additional trillions of dollars the government is spending to revitalize the banking industry.

Fortunately, you currently have a window of opportunity to exchange some of your dollars at fairly good prices. Because the dollar is a traditional safe harbor during times of trouble, it moved up when the financial crisis swept around the world. However, the panic buying won't last forever. When it ends, the dollar will be valued solely on the basis of its declining fundamentals.

The alternative currency of choice is the Swiss franc. The euro was pushed off center stage by political and economic problems in the European Union. After the conflict in Georgia, Russia's shared border with several EU countries is also casting a shadow over the euro.

On the other hand, Swiss currency has little geopolitical risk, so that's where you should be. Once again, EverBank is a good place to go for insured Swiss franc accounts and CD's, all of which pay interest.

The Bottom Line This Week

The deflationary recession that is at work today is an adversity that can be turned into an advantage by knowledgeable investors who have the courage to buy what everyone else is selling.

High quality stocks and other assets that are purchased at today's steep discounts can be expected to rebound strongly when the economy begins to recover. The same will be true of real estate, precious metals, and solid foreign currencies.

All of us at The Association for Investor Awareness
wish you and your family a very Happy Thanksgiving!

Week of 08/28/2008

Research & Editorial Staff — Thu, 28 Aug 2008 17:25:00 GMT

In This Issue:

Tensions Between The U.S. And Russia Are Serious
Oil And Commodities React To The Threat
Defense Stocks Look Even Better Than Last Week
And So Does The Dollar
Inflation vs Deflation Contest Heats Up
But Inflation Should End Up With The Gold
The Bottom Line This Week

Last week the stock market revealed that it has more underlying strength than world events would seem to justify. If the market is once again acting as a leading indicator of the future, the outlook is brighter than is generally supposed.

Despite the fact that a new cold war seems to be underway, the Dow was only off 0.3% last week. The Nasdaq declined 1.5%. The market dropped 242 points when it reopened on Monday, but it regained nearly half the loss on Tuesday and Wednesday.

Our feeling is that investors want to be buyers and can only be held back by disturbing news. That's a big difference from a bear market mentality when bad news drives prices and good news is ignored.

Tensions Between The U.S. And Russia Are Serious

Investors' underlying optimism aside, the prospect of another cold war is not a trivial concern. Russia has been using very harsh language about what it sees as an American attempt to surround it with NATO states and U.S. anti-missile batteries. There is a chance the arguments could have serious consequences.

Vladimir Putin of Russia promised that his country would respond to the threats, and that is clearly happening in Georgia. In addition, on August 18 Russia sent a large fleet of naval vessels towards the port city of Tartus in Syria. The goal appears to be to obtain an agreement to build a naval facility in the country. If so, it would give Russia its first base on the Mediterranean Sea. Washington won't like that at all.

Russia was also very unhappy with the West's approval of Kosovo's independence from Serbia, a traditional Russian ally. Mr. Putin made it very clear that the argument for Kosovo's independence applied equally well to Abkhazia and South Ossetia in Georgia. On Tuesday of this week, Russia decided to formally recognize the independence of both regions. Now the world is waiting to see what the American response will be to the latest Russian moves.

Oil And Commodities React To The Threat

Although U.S. investors are taking the problems with Russia in stride, the same is not true everywhere. Global markets are finally pushing oil prices up in anticipation that supplies could be cut. That's a sharp departure from the resilience of oil during the early days of the conflict in Georgia.

Gold, industrial metals, and several other raw materials also jumped in price last week after falling sharply earlier this summer. As with oil, investors are nervous that supplies could be disrupted.

The bottom line is that readers should consider the growing problem with Russia as they make their investment plans. There is no need for undue alarm but neither should investors have a cavalier attitude towards the events.

Defense Stocks Look Even Better Than Last Week

One part of the stock market that is likely to profit from increasing global tensions is the defense sector. Our recent recommendation of the Fidelity Select Defense & Aerospace Fund (FSDAX) http://finance.yahoo.com/q/pr?s=FSDAX and Raytheon http://finance.yahoo.com/q/pr?s=RTN could not have been more timely. Both investments stand to gain from the possibility that another cold war may be starting.

Orbital Sciences (ORB) is also in a very good position to appreciate over the next few years. http://finance.yahoo.com/q/pr?s=ORB When the company was formed in 1982, nearly everyone in the aerospace industry laughed at the effrontery of the young firm that thought it could enter the space business from scratch and with only a few million dollars.

The guffaws came to a halt 16 years ago when Orbital Sciences launched its first space vehicle. Since then, the company has delivered over 110 satellites and space-related systems to its customers.

Orbital Sciences' niche is providing small, and often reusable, launch systems. The company is the developer of the unique Pegasus rocket that is released from an aircraft at high altitude and then shoots into orbit. The Taurus series of rockets are ground-based variants of the Pegasus.

The company also produces the Minotaur rocket. It is the only U.S. launch vehicle that can be deployed from all American spaceports, including those operated by commercial interests. Taken together, the company's rockets offer the most efficient means to place small payloads in orbit.

Lastly, the company is a major supplier of interceptor booster rockets that will carry kill vehicles to destroy long-range enemy missiles in midcourse before they reenter the atmosphere. Another system intercepts enemy missiles in the early phase of flight when they are most vulnerable. Both developments are part of the layered missile defense system the government is in the process of placing around the world. The program will be worth many billions of dollars over the next few years.

And So Does The Dollar

At first glance it might seem that the dollar should weaken if America faces a period of rising tensions with Russia. Instead, the dollar has been strengthening.

One reason the dollar is strong is countless people around the world are becoming nervous about the euro, our currency's main competition. That's because many European countries share a border with Russia. In addition, several of them have joined NATO, a move that Russia vehemently opposes.

There is also a purely economic reason for the euro's weakness. The European economy is weakening which means the EU Central Bank is unlikely to raise interest rates as expected. If the European economy slips much more, the bank might even lower rates. The poor interest rate outlook is making the euro less attractive than the dollar.

As with our defense stocks, the PowerShares Dollar Bull ETF (UUP) also looks better this week than it did last time. http://finance.yahoo.com/q/pr?s=UUP The same is true for ordinary dollar accounts, CD's, and T-Bills. The returns from the interest they pay is pathetic, but the dollars themselves are starting to buy more of what you need – especially imported products.

Inflation vs Deflation Contest Heats Up

During the past several years, the biggest monetary threat Americans faced was rising inflation. Although the official rate remained low, the government conveniently took food and energy costs out of the equation to make the numbers look better. For real people who like to eat and keep their homes comfortable, the cost of living has been rising steadily.

However, when the credit crunch began billions of dollars started to disappear from the economy. Every bankruptcy, foreclosure, and layoff reduced the amount of money in our system. The hemorrhage was as least as large as the amount of money and credit the Fed was pouring into the economy.

In July, the money supply actually shrank. Data compiled by Lombard Street Research show that M3 (broad money) fell by almost $50 billion during the month, the biggest thirty day decline since modern records began in 1959. It shows that deflation gained the upper hand in spite of the Fed's efforts to control it.

But Inflation Should End Up With The Gold

In a deflationary environment, the value of money goes up, and that's what we are seeing today with the dollar. At the same time, precious metal prices usually decline, which has also been happening.

If we believed that deflation would continue for any length of time, we would make several changes in the recommendations we made in recent months. However, we think the deflationary period will be brief and inflation will come back. Most likely, the turnaround will occur before the year is over.

If we are correct, you should use this period to buy inflation hedges at today's bargain prices. Gold and silver, for example, are less expensive now than they were earlier this year.

We also think energy stocks will rebound within a few months. Again, if we are right, you should use this time to buy more of the industry leaders while they are cheap. At the minimum, we think you should own the Fidelity Select Energy Service Fund (FSESX) that holds the major exploration and development companies in its portfolio. http://finance.yahoo.com/q/pr?s=FSESX

As we explained last time, the official inflation number should continue to climb for another month or two because it reflects changes that have already happened. It won't be the first time Uncle Sam tells you one thing, and the real world tells you just the opposite.

The Bottom Line This Week

Rising tensions between the U.S. and Russia are having very little effect on the stock market, at least for now. However, if the situation gets much worse we can expect the market to decline. This is a time for investors to be cautious.

One sector that should benefit from the tiff with Russia is defense. The dollar is also benefiting from the threat of a new cold war, and from economic problems in Europe.

Lastly, energy stocks are still very cheap despite the small uptick in oil prices we saw this week. As with the defense stocks, it's time to buy more energy shares.

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 08/21/2008

Research & Editorial Staff — Thu, 21 Aug 2008 17:23:00 GMT

In This Issue:

Inflation Spike Seems Unlikely To Last
The Dollar Rally Gathers Strength
Russians In Georgia Have Investors Spooked
The Outlook Is Good For U.S. Defense Companies
In A Low Yield World, Dividends Shine
The Bottom Line This Week

The stock rally lost some ground last week which made many investors worry that the run may be coming to an end. That fear was justified since the main engine behind the rally -falling oil prices- continued to play their part. Even with oil moving down to the $112 range, the Dow fell 0.6% for the week.

Small stocks moved in the opposite direction to their larger cousins as the Nasdaq posted a 1.6% advance. In its own way, the small stock upturn also made investors nervous. The bounce was another in a long list of confusing situations that are at work in the market today.

Some of the fog lifted this week when the Nasdaq got back in step with the Dow. Unfortunately, new concerns about the financial sector pushed the direction down for both of them, which wasn't what investors had hoped to see. By Wednesday afternoon the two indices were off 242.4 points and 63.4 points respectively.

Inflation Spike Seems Unlikely To Last

One reason the summer rally appears to be stumbling is inflation numbers for July were disturbing. The Labor Department said its Producer Price Index rose by 1.2%, more than double the expected rate. It was also the fastest pace we've seen in 27 years.

A second look, however, makes the inflation spike seem less threatening. July was the third month in a row when oil prices made record highs. Under the circumstances, inflation was bound to shoot up. Because energy costs take two or three months to fully impact the economy, we can expect the August inflation rate will also be high.

The good news, of course, is the recent plunge in oil prices should bring inflation back down later this year. We just need to be patient until the lower costs start to give the economy a much-needed boost.

The Dollar Rally Gathers Strength

Another reason the outlook for inflation probably isn't as bad as it appeared to be last month is the U.S. dollar is continuing to rebound. As measured against the euro, the greenback is up 8% since its April 22 low. If the dollar gains additional ground, it will take fewer of them to buy the products we need, and inflation will drop proportionately.

As we said in several recent issues, we think deep-seated problems with U.S. debts, the balance of payments deficit, the housing market, and the economy will start to push the dollar back down a few months from now. Shorter term, however, the greenback should deliver additional profits to aggressive currency investors.

If the dollar rally continues as expected, the PowerShares Dollar Bull (UUP) will reflect the gains. http://finance.yahoo.com/q/pr?s=UUP The ETF mirrors the movements of our currency against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and the Swiss franc. Taking a broad measure of the dollar's value is a good way to even out the price swings that often occur in the foreign exchange market.

One of the biggest advantages of the dollar ETF is it is easy to buy and to sell. Just as importantly, you can place a stop loss order on the ETF to protect your position. Using a stop will allow you to participate in the dollar rally for as long as it lasts, and be out automatically once it comes to an end.

Russians In Georgia Have Investors Spooked

In addition to the new worries about inflation, investors are also concerned about Russia's decision to leave many soldiers in Georgia. Although it appears the shooting has stopped, the war could start up again overnight.

Strategically, Georgia is of little importance by itself. However, analysts believe that Russia is using the country to send a message to the Ukraine, Poland, and Central Asia to stay in line, or else. Russia wants them to be free of U.S. missiles and to reject making any new military alliances with the West.

Some political analysts believe that Russia's aggressive action in Georgia indicates that a new cold war may be starting. If so, it won't be good for the stock market. However, many defense issues should prosper.

The Outlook Is Good For U.S. Defense Companies

As it turns out, many leading defense companies are attractive whether or not relations with Russia deteriorate. Many billions of dollars worth in military equipment has been trashed by five years in the harsh environments of Iraq and Afghanistan. Replacing it all should keep the defense industry in clover for several years.

Investors who may be interested in taking a diversified position in the defense industry, should consider the Fidelity Select Defense & Aerospace Fund (FSDAX). http://finance.yahoo.com/q/pr?s=FSDAX This no-load fund holds all the major military suppliers in its portfolio including United Technologies, Boeing, Lockheed Martin, General Dynamics, Northrop Grumman, Raytheon, and Rockwell - to name only a few.

Investors who might prefer a more direct defense investment should consider Raytheon (RTN), a major producer of sophisticated command and control electronics, guidance systems, and related equipment. http://finance.yahoo.com/q/pr?s=RTN Raytheon supplies all branches of the U.S. military with systems that are years ahead of what is available elsewhere.

Some readers may worry that the defense industry might only do well if Senator McCain wins the presidency. However, there is little doubt that Senator Obama will also support rebuilding our military. Maintaining a strong national defense is part of both Republican and Democratic platforms.

In A Low Yield World, Dividends Shine

One of the most frustrating problems investors face today is trying to get a decent return on their cash. The outlook for relief anytime soon is poor because the Fed's expected interest rate hikes have been tabled due to the weak economy. We don't expect to see a change in that policy anytime soon.

Meanwhile, several blue chip stocks have declined so much in price that their dividend yields have become quite attractive. Of course, buying high-yielding stocks makes no sense if the company's financials are so weak that the dividends may be cut.

Fortunately, several firms with good yields are likely to hold their dividends steady. A few of them may actually raise their payouts to attract investors. Among the latter, General Electric (GE) looks especially promising. http://finance.yahoo.com/q/pr?s=GE

GE is in the bargain basement primarily because it has a substantial financial service operation that isn't doing well. However, investors are overlooking GE's much larger industrial strengths. The company makes everything from locomotives to wind turbines, all of which are high-margin items that are sold worldwide. Thanks to its industrial operations, the company has an AAA bond rating.

GE is currently paying an attractive 4.20% dividend. Not only is the dividend unlikely to be cut, several analysts think the company may raise it later this year.

As much as we like GE's yield, it is the potential stock appreciation that we find most appealing. Although GE made some mistakes in the past, and is saddled with a financial service operation, the company is a multinational powerhouse. When global economic conditions improve, we think GE will be a top performer.

Another company we like very much is Kraft Foods (KFT), one of the world's leading food and beverage suppliers. http://finance.yahoo.com/q/pr?s=KFT Although the company's 3.30% yield is lower than you can get with GE, the company's position in a defensive industry is appealing. That's one of the reasons that Warren Buffett of Berkshire Hathaway purchased 10% of the company.

Kraft is currently out of favor on Wall Street because the company's profits have been hurt by soaring oil prices that pushed food costs sharply up. However, with energy prices coming down, Kraft's costs should soon begin to drop. In any event, the company is finally starting to pass its higher costs onto consumers.

Thanks to the new policy, Kraft's second quarter profit rose from $707 million to $735 million. With some 80 new products on the way, the company should be on track for another good year.

The Bottom Line This Week

Higher inflation numbers from July, plus the Russia/Georgia conflict, appear to have put the summer rally on hold. However, lower oil prices and a stronger dollar should get it going again. The near term aside, investors with an eye to both dividends and capital appreciation should profit from adding General Electric and Kraft Foods to their portfolios.

AIA Advocate for Absolute Returns : Inflation

Association of Investor Awareness - Week of 09/24/2009

Will The Right Fundamentals Please Stand Up?

The "Uncle Sam Effect"

Small Investors Are Coming Back To Stocks

Inflation Fears Are Increasing

First Some Bad News, Then Some Good News

Easy Index Gains May Be Over

These Four Favorites Should Stay On Top

And So Should China

The Bottom Line

Until Next Time

Association of Investor Awareness - Week of 12/11/2008

The Long-Awaited Bear Rally May Be StartingAlthough Weak, Some Hopeful Economic Signs Are EmergingCredit Is Slowly Opening Up AgainIf Fear Subsides, The Outlook Will Improve ImmediatelyA Recovery Will Bring Unwelcome InflationThe Bottom Line This Week

The Long-Awaited Bear Rally May Be Starting

Although Weak, Some Hopeful Economic Signs Are Emerging

Credit Is Slowly Opening Up Again

If Fear Subsides, The Outlook Will Improve Immediately

A Recovery Will Bring Unwelcome Inflation

The Bottom Line This Week

Association of Investor Awareness - Week of 11/26/2008

When Deflation Comes,

Cash Is King

The Best Deflation Strategy

You Must Have The Green To Make The Scene

Where To Stash Your Cash

Getting Around FDIC Limits

T-Bills Shine

Foreign Currencies Offer Double Protection

Some Cash Should Be The Folding Variety

Inflation Will Eventually Return

And Investments Purchased Now Should Soar

The Bottom Line This Week

All of us at The Association for Investor Awarenesswish you and your family a very Happy Thanksgiving!

Week of 08/28/2008

In This Issue:

Tensions Between The U.S. And Russia Are SeriousOil And Commodities React To The ThreatDefense Stocks Look Even Better Than Last WeekAnd So Does The DollarInflation vs Deflation Contest Heats UpBut Inflation Should End Up With The GoldThe Bottom Line This Week

Tensions Between The U.S. And Russia Are Serious

Oil And Commodities React To The Threat

Defense Stocks Look Even Better Than Last Week

And So Does The Dollar

Inflation vs Deflation Contest Heats Up

But Inflation Should End Up With The Gold

The Bottom Line This Week

Until Next Week

Week of 08/21/2008

In This Issue:

Inflation Spike Seems Unlikely To LastThe Dollar Rally Gathers StrengthRussians In Georgia Have Investors SpookedThe Outlook Is Good For U.S. Defense CompaniesIn A Low Yield World, Dividends ShineThe Bottom Line This Week

Inflation Spike Seems Unlikely To Last

The Dollar Rally Gathers Strength

Russians In Georgia Have Investors Spooked

The Outlook Is Good For U.S. Defense Companies

In A Low Yield World, Dividends Shine

The Bottom Line This Week

Until Next Week

The Long-Awaited Bear Rally May Be Starting
Although Weak, Some Hopeful Economic Signs Are Emerging
Credit Is Slowly Opening Up Again
If Fear Subsides, The Outlook Will Improve Immediately
A Recovery Will Bring Unwelcome Inflation
The Bottom Line This Week

All of us at The Association for Investor Awareness
wish you and your family a very Happy Thanksgiving!

Tensions Between The U.S. And Russia Are Serious
Oil And Commodities React To The Threat
Defense Stocks Look Even Better Than Last Week
And So Does The Dollar
Inflation vs Deflation Contest Heats Up
But Inflation Should End Up With The Gold
The Bottom Line This Week

Inflation Spike Seems Unlikely To Last
The Dollar Rally Gathers Strength
Russians In Georgia Have Investors Spooked
The Outlook Is Good For U.S. Defense Companies
In A Low Yield World, Dividends Shine
The Bottom Line This Week