AIA Advocate for Absolute Returns : Oil

Association of Investor Awareness - Week of 08/27/2009

Research & Editorial Staff — Thu, 27 Aug 2009 19:06:00 GMT

In This Issue:

The Outlook Is Better For An Improving Economy
Profit Growth Can Be Misleading
Big Companies Still Have An Advantage
Emerging Countries Are Making A Strong Recovery
Two Long Term Dividend Payers Look Good
Fasten Your Seat Belts, Oil Prices Are Roaring Back
The Bottom Line This Week

It's been a bear market for bears recently as their many doom-and-gloom pronouncements have gone wanting. The old bull just won't quit, despite all the logical arguments that predict his demise. It's a good lesson that paying attention to what is actually happening in the stock market is more profitable than following theories. Mother Market always has the last word.

The numbers tell the story. Since our last letter on July 29, the Dow and the Nasdaq have gone up 5.2% and 2.9% respectively. In only one of the four weeks did the market slide into negative territory, and then by less than 1%. By contrast, the best week registered a 7.3% gain. That's the sort of tailwind we like to have.

The Outlook Is Better For An Improving Economy

Of course, the rally could come to grief overnight. Stocks are rising on the expectation that the economy is finally coming out of recession, and companies will again make oodles of money. The unofficial office pool index suggests that most people on Wall Street think growth rates will be higher than Grandpa Bernanke at the Fed is predicting.

One accomplished tea leaf reader we talked to said his off-the-record prediction is that growth may exceed 4% next year. That would be quite a jump from two points behind the zero line, which is where the economy is today.

Profit Growth Can Be Misleading

Even if the economy doesn't win the long jump next year, most well-run companies should continue to see their profits increase. That's because nearly all of them have been on lean-and-mean programs that have cut costs to the bone. So even though revenues have been abysmal, profits have been on an upswing.

Of course, lean-and-mean can only go so far. At some point, all the useful cuts will have been made and profits must come from actually selling more goods. That change will mark the real beginning of a recovery.

Big Companies Still Have An Advantage

The big blue chips have a king-sized advantage when it comes to selling more products, even if the optimists are wrong and the U.S. economy just dribbles along. The global economy, where most mega companies do most of their business, is still doing well – and it should do even better next year. If so, the multinationals will once again prove that big is the size to be in the 21^st century world.

The stronger global economy will also help many U.S. firms that don't have facilities overseas. Many exporters are beginning to see their order books fill up as foreign firms ramp up their operations to meet their expected needs. As a significant side benefit, rising exports will help the U.S. trade balance, which has been suffering mightily for several years.

Emerging Countries Are Making A Strong Recovery

Speaking of the global economy, nobody is doing better than the emerging market countries. You may remember them from a few years ago when they were also on a roll. However, the high achievers plunged when their main customer, the U.S., slipped into the red.

Now many developing countries are growing quickly again. This time around, the countries are tapping into their own regional markets rather than putting all their efforts into winning U.S. orders. Fortunately for the local suppliers, the approximately 2.5 billion people in developing countries want just as many plastic salad shooters and cars as their American counterparts.

Doing best of all are the BRIC countries (Brazil, Russia, India, and China). The first two are in the catbird's seat for growth because they are major suppliers of energy and raw materials to industrial countries of all sizes.

From an investor's standpoint, emerging markets still look good for long-term portfolios because they are many years away from reaching their peaks.

To that end, we once again recommend the iShares MSCI Emerging Markets Index ETF (EEM) http://finance.yahoo.com/q/bc?s=EEM. When we first presented the fund on June 26 it was $32.32. The price is now $36.47, a 12.8% gain. We think more is on the way, but we can expect some bumps along the road. Emerging markets will always be volatile, which is why we think the best way to invest is with a diversified fund.

Two Long Term Dividend Payers Look Good

Closer to home, we continue to recommend stocks that pay rising dividends. Although fears about inflation are continuing to make the rounds, deflationary forces are still at work in our economy. As long as that situation continues –which we think will be longer than most people think— the buying power of dividends will increase.

If you purchased a selection of the blue chip companies we have been recommending in recent months, you probably don't need to make additions to your dividend portfolio. But if you want to gild the lily, we think you should add Sysco Corp. (SSY) to the group. http://finance.yahoo.com/q/bc?s=SYY

Sysco is the leading supplier of food to colleges, hospitals, corporate cafeterias, hotels, and restaurants in the U.S. The company has been winning many orders because it can operate more efficiently than its customers can do on their own. At the same time, Sysco can usually provide a better and more diverse menu.

We think Sysco has excellent prospects for several years of growth. The company has been strengthening its business capabilities by purchasing other food suppliers in its field. As a result, Sysco will be coming out of the recession much better equipped to generate new business than any of its rivals.

Sysco also shines in the dividend department. The company currently boasts a 3.8% yield which should increase by 10% annually for the next few years. The stock price is also likely to do well.

Another stock with an attractive yield is Abbott Laboratories (ABT) a 121 year old company that produces and sells healthcare products throughout the world. http://finance.yahoo.com/q/bc?s=ABT

Abbott, of course, is best known for its many successful pharmaceuticals. But the company also offers a variety of diagnostic products that are in widespread use. In addition, Abbott produces infant formula and adult nutritional drinks – and it supplies stents, vessel closure devices, and related products for coronary applications.

One of the reasons we think that Abbott is attractive is the stock is down due to all the worries about a national health care program. If such a plan is passed, there is a possibility that drug prices will be forced down. However, we think the large increase in the number of people who will receive care will more than make up for the shortfall.

Abbott's yield currently stands at 3.5%. As with Sysco, Abbott Labs will probably continue to increase its annual payout, as it has been doing for 37 straight years. Nearer term, the stock should make an attractive catch-up move once the outlook for national health care clarifies.

Fasten Your Seat Belts, Oil Prices Are Roaring Back

Although it has not yet caused gasoline prices to shoot up, the price of oil has more than doubled since its low point earlier this year. In fact, at about $75 a barrel, oil is about half way back to its all-time high of $149 that it set during the late, great economic boom.

The main reason oil prices have been rising strongly is China and other developing countries have been buying all they can find. The countries are stockpiling as much as possible because they think that supplies will become tight again as the global economy improves. We think they are right.

China is not just buying oil, it is also buying producers. The country has become Brazil's biggest customer, and is rumored to be in negotiations to purchase the largest oil company in Venezuela.

In Africa, where there are few local oil companies with which to do business, China's approach is to extract the oil itself by setting up its own operations. Local governments and warlords are happy to give China a free hand to do whatever it wants in exchange for their piece of the action.

The price of oil is like the proverbial tide that lifts all boats. When it goes up so do the profits for companies that sell it. Since ExxonMobil (XOM) has a delightfully large amount of the stuff, we think it is the company to buy. http://finance.yahoo.com/q/bc?s=XOM

The Bottom Line This Week

Like the Energizer bunny, the stock rally just keeps going. The downside with both the bunny and the rally is, when the end comes it will be sudden. Therefore, we think this would be a good time to take some profits off the table, and to put stop loss orders on everything else.

Two new companies that look very good to us are Sysco Corporation and Abbott Laboratories. Because they are in defensive sectors, the stocks should not be as sensitive to a market correction as their more aggressive cousins. We also like the dividends the two companies pay, and the prospects for more.

With oil prices on a tear again, this appears to be a good time to buy more ExxonMobil, a stock we recommended on several occasions.

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 Thursday...

Association of Investor Awareness - Week of 01/29/2009

Research & Editorial Staff — Thu, 29 Jan 2009 13:59:00 GMT

In This Issue:

Reasons For Cautious Optimism Continue To Appear
Many Promising Stocks Attract Long-Term Investors
The Bottom Line This Week

The stock market continued to lose ground last week as the Dow and the Nasdaq declined an additional 2.5% and 3.4% respectively.

A growing number of analysts believe the stock slide will continue until the market tests (reaches) the low point it made on November 20. If so, it will be a classic correction to a bear market rally.

A much bigger issue is what will come next if the November lows are reached. Pessimists believe the market will continue to decline until blue chip P/E ratios get closer to 10. If so, the S&P 500 would drop from today's 832 to 750, or so. Super bears think the index might fall another hundred points.

On the other hand, optimists believe the market will bounce back in a classic stage two bear market rebound. If history repeats, the second time should be the charm as a new rally would typically test its former highs – and then continue up. The 298 point jump the market took during the first three days of this week suggests that the optimists may be right.

Reasons For Cautious Optimism Continue To Appear

We are of the opinion that if another big economic shock doesn't occur, the market will follow the second scenario and begin to move up again.

Our more optimistic outlook isn't based upon wishful thinking. Instead, we see additional indications that the economy may begin to claw its way out of the hole starting late this year. Here are some of the most important changes that suggest this tough recession may not last as long as most people expect:

First, as we reported last week house sales are continuing to pick up as buyers decide to make use of the lower prices that are now available in many markets. Since home prices are continuing to weaken throughout America, we think sales will increase further in the coming months.

Second, cash levels are now at record levels. At the same time, interest rates are at near-record lows. Not surprisingly, cash levels dropped last week and, for the first time since August 2007, volume picked up on Wall Street. We think the numbers indicate that investors are moving some of their cash from fixed income accounts into better-paying stocks.

In our opinion, dividend yields are more important to investors now than P/E ratios. Solid companies with payouts above 3.25% seem unlikely to decline much further even if their multiples are still a bit high for a severe bear market.

Third, oil prices are beginning to tick up again. Part of the rise is due to a reduction in supply by oil producers. But analysts also think higher prices reflect small increases in global economic activity. In the past, oil has been a good barometer of early changes in growth that didn't show up on economists' radar screens for several months.

A similar case can be made for the recent uptick in gold prices. Critics may say the change only indicates that investors are expecting inflation to come back. However, the only way inflation can return is if deflation is on the way out. We can think of few changes that would be more bullish for the economy than a slowdown in the destruction of assets.

Fourth, there are old adages on Wall Street that say, "don't fight the Treasury" and "don't fight the Fed." That means don't bet against the Treasury's ability to rejuvenate the economy by pumping money into it, or the Fed's ability to boost growth by lowering interest rates.

For all the problems that the bailout programs will create, they should also have a positive impact on the economy. However, it will probably take from six to nine months before the beneficial effects begin to show up.

Fifth, consumer confidence is at record lows. As Dr. Steve Sjuggerud at Daily Wealth (www.dailywealth.com) pointed out recently, the lows typically occur just before a recession runs out of steam and growth starts to inch back up. The tougher the recession --as in 1973-74 and 1981-82-- the more reliable the indicator becomes.

Sixth, the more we look at what's happening in America the more it looks like the financial crisis is much worse than the economic crisis. In other words, most of the red ink is pouring out of banks. Nearly all blue chip industries are seeing their profits slashed, but most of them are still in the black. Some companies such as Apple, IBM, Heinz and Google are doing very well – to name only a few.

Any company that is weathering today's storm is a lot stronger than its stock price would suggest. In addition, most companies are rapidly adjusting to the tougher conditions.

Seven, as we discussed last week, credit is continuing to come back. To the great surprise of many investors, the pharmaceutical giant Pfizer was able to raise $22.5 billion to buy Wyeth. To be sure, the lenders took precautions against a default, but that should always be the case. If lenders had been running their businesses responsibly in recent years, there would be no credit crisis.

Although the Pfizer/Wyeth case is attracting a great deal of publicity, thousands of much smaller deals financed by regional banks are doing the most to help turn the economy around.

Eight, people in every walk of life are absolutely certain that the economy is circling the drain. However, what everybody "knows" is often wrong. In this case, the expectations of more pain may be accurate near term, but they are almost certainly off the mark for the longer-term.

Lastly, the Conference Board just announced that the Leading Economic Index rose 0.3% in December. That wasn't a very big increase. However, almost all analysts were expecting another decline. The news didn't attract much attention because one month does not make a trend. But if the index moves up again in January, we think Wall Street will take notice.

Many Promising Stocks Attract Long-Term Investors

Since we are long-term investors, we continue to urge our readers to use the bear market to pick up high quality stocks at bargain prices. Many of the world's finest multinational blue chips are affordable for the first time in over a decade. If you don't buy them now, you may not get another chance to do so for another ten years or so.

Readers who have been with us awhile undoubtedly remember the names of the blue chip value stocks that we have been recommending. We keep waving their flags because we think they are the stocks that most investors should buy.

This week we will discuss two recommendations that we have not featured recently, plus one new one for your consideration.

H.J. Heinz (HNZ) is back in the news, and for good reason. http://finance.yahoo.com/q/bc?s=HNZ Heinz is one of the many companies that managed to increase its earnings in fiscal 2008. Nevertheless, the stock price is still very low, and the dividend yield is a very attractive 4.6%. In addition, this solid blue chip raised its dividends in 40 of the past 41 years.

Heinz is also very unlikely to lose its leadership standing in its industry anytime soon. Nearly all of its products are rated either first or second in their markets. And since most of the company's products (such as ketchup, mayo, pickles, etc.) are inexpensive, shoppers are not under any great pressure to switch to cheaper brands.

IBM (IBM) is at the other end of the technology spectrum from Heinz, but it is doing no less well. http://finance.yahoo.com/q/bc?s=IBM The company just released its fourth-quarter numbers, and they are impressive. Profits rose 12% during a time when most banks were having staggering losses. Moreover, IBM issued a rosy outlook for 2009. The company is expecting to earn from $10 to $11 a share vs $8.75 predicted by analysts.

IBM is a good example of a giant company that is nevertheless able to think and act quickly as business conditions change. A year ago management noticed that the hardware side of its business was losing ground to an explosion of rivals that were finding it easier to enter the server market. As a result, IBM started to place more emphasis on software and services that are harder for competitors to match.

Home Depot (HD) is a new recommendation that popped up on our value screens this month. http://finance.yahoo.com/q/bc?s=HD The company needs little introduction since its home improvement stores can be found in nearly every city.

After soaring in price during the real estate mania, the stock dropped sharply when the bubble ended. However, Home Depot is still profitable. That's not surprising since many people who hoped to purchase new homes have decided to fix up their old places instead. Home Depot has expansion debts, but it has the income to cover them. Meanwhile, the dividend is an attractive 4.1%.

The Bottom Line This Week

The economy is not out of the woods. Far from it. Growth should continue to sink for another few months. However, there are some early signs that the situation will change for the better late this year. Since prices for many blue chip companies are currently very low, and most yields are high, we think investors should take positions for what should be better days ahead. Among the companies that look especially good are Heinz, IBM, and Home Depot.

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

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

In This Issue:

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

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

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

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

Sometimes Good News Can Be Bad News

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

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

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

Treasury Bonds May Be A Bubble

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

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

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

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

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

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

It’s Time To Choose Shorter Bond Maturities

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

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

Three Ways To Win If Treasuries Decline

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

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

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

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

Staying Healthy During Impossible Times

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

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

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

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

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

When Nothing Works, Quit Worrying About It

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

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

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

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

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

The Bottom Line This Week

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

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

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

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

Research & Editorial Staff — Thu, 01 Jan 2009 16:18:00 GMT

In This Issue:

The New Year Should Bring Investors Some Relief
Consumers Have More Money Than Holiday Sales Suggest
Most Corporations Are In Good Financial Shape
Economy Gains From Cheaper Dollars, Oil, And Interest Rates
The Faster The Pain, The Quicker The Gain?
If You Don’t Play, You Can’t Win
The Bottom Line This Week

Investors who hoped that Santa might bring them some cheer over Christmas were sorely disappointed. The usually-jolly old gentlemen dropped off a rather large bag of coal. Even that gift was worth a lot less than would have been true a few months ago.

In any event, when the stock market closed on Christmas week, the Dow and the Nasdaq were down another 0.7% and 2.2% respectively. The mood brightened over the weekend when unemployment claims dropped unexpectedly. During the last three trading days of 2008, the market went up 260 points. We suspect that the occasion will be celebrated with a little extra bubbly on New Years Eve.

Of course, Wall Street’s revelers will need to overlook the fact that the S&P 500 went down a dismal 41% during 2008. It wasn’t the worst annual performance in history, but it was the worst in the memory of most investors living now.

The New Year Should Bring Investors Some Relief

On the brighter side, we continue to think that 2009 will be a better year than 2008. Although we can expect to see many stock prices drop to new lows, and many venerable companies go bankrupt, many analysts think the worst of the crisis is probably behind us.

There are even some indications that the economy will begin a partial recovery in 2009. The downward momentum will almost certainly continue during the first quarter when growth is likely to shrink by 4% or so. However, by the third quarter growth should start to slowly improve, although it is likely to remain below water. But by the fourth quarter, the GDP may tiptoe into the black – but not by much.

Consumers Have More Money Than Holiday Sales Suggest

The biggest positive for the economy is consumers are in better shape than the recent retail sales figures would indicate. In the December 26 issue of the Wall Street Journal, Zachary Karabell, president of River Twice Research, www.rivertwice.com pointed out that the U.S. credit system didn’t allow consumers to take on the ruinous leverage that the lenders themselves used. As a result, household wealth is still about $45 trillion. (That’s trillion with a "T".) In addition, a third of U.S. households have no mortgage, much less a sub-prime mortgage.

Consumers also seem to be determined to get out of debt. During the holiday season, most Americans used their credit cards less than in previous years. Their restraint hurt merchants, but the savings will allow the public to spend more in the future. When fears subside, there will be money available to jump start the economy.

Lastly, by the end of 2009 consumers will need to replace many items that will be nearing the end of their useful lives. Everything from clothes to cars will be on the list. Delayed spending led the economy back from many past recessions, and it’s likely to do it again.

Most Corporations Are In Good Financial Shape

Contrary to popular belief, most companies didn’t participate in the debt binge that triggered the credit crisis. Unlike the downturns of the 1980’s and in 2002, corporate debt is low and cash reserves are high. When consumers decide to open their pocketbooks a bit wider, companies will be able to respond quickly to meet the increasing demand.

Companies are also beginning to adjust to the new financial reality. As we have seen during other tough economic periods, businesses are trimming fat as fast as they can. The new "lean and mean" measures are hurting the economy now, but they will lead to improved profits later.

Economy Gains From Cheaper Dollars, Oil, And Interest Rates

As you probably recall, the declining value of the U.S. dollar contributed significantly to the late boom by making U.S products less expensive overseas. But when the economy finally started to fall apart, the dollar jumped back up as millions of investors around the world flocked to safe U.S. Treasuries.

Now the dollar is moving back down again. Although the decline is unlikely to trigger anything like the recent period of growth, it will help many U.S. exporters. That will be welcome news for investors who have been increasing their positions in the blue chip multinational companies that we have been recommending for many months.

Lower oil prices are providing another stimulus for growth. The Energy Information Administration is estimating that regular gasoline will average $2.03 a gallon in 2009. That’s a 38% decrease from the $3.27 we endured in 2008. Richard DeKaser, chief economist at National City Corporation, believes the reduction will add 1% to whatever growth rate the 2009 economy creates on its own.

The Fed’s ultra-low interest rates will also stimulate growth, particularly in the housing market. Wells Fargo is already offering some 30-year loans at 4.9%. Mortgage rates may sink to 4.5% within a few months. If so, home sales in many oversold markets may recover much faster than most investors expect.

The Faster The Pain, The Quicker The Gain?

When the credit crisis got underway there was a heated debate about what, if anything, the government should do about it. Many economists thought that Washington should stay out of the mess. They argued that the country would be better off having a terrible –but short- downturn that would clear out the bad debts, kill off the weak companies, and quickly lead to a recovery.

The recession isn’t the problem. The boom is the problem, the recession is the cure.

Peter Schiff, President of Euro Pacific Capital www.europac.net

That option appeared to have been taken off the table when the federal rescue funds began to flow. However, the pace of the downturn remained very high. As a result, more analysts are beginning to think that an equally surprising rebound may be on the way.

We have been saying the same thing about oversold stocks. Our analysis indicates that a rebound in many blue chips will occur even if the economy remains weak. If the economy does better than expected, the same should be true of America’s strongest companies.

If You Don’t Play, You Can’t Win

Investors are understandably nervous about venturing into the stock market after suffering big losses in 2008. But for people who stay on the bench, those losses will be locked in. Only by taking advantage of today’s low stock prices will it be possible to turn the gut wrenching declines of the past year into attractive gains.

In truth, investors who stay on the sidelines will probably do worse than we just indicated. That’s because returns from fixed income investments are so low, investors who stick with them won’t even keep up with inflation. On the other hand, stocks of successful companies typically stay ahead of inflation and deliver real wealth to their investors.

A look back at the Crash of 1929, the Crash of 1987, and several mini-crashes tells the tale. After each collapse, most investors retired to the sidelines to lick their wounds. When the emergencies ended, the sideliners were still in the hole.

Wiser investors looked at the high quality companies that were selling for half or less of their former values - and they bought them. When America started to move forward again, these investors made huge gains.

Now we have another once-in-a-lifetime opportunity to buy the cream of America's companies at prices nobody ever expected to see again. We are convinced that if you stand aside from the fear that grips the markets, and you buy the best-of-the-best companies, you will be handsomely rewarded.

The Bottom Line This Week

The year that just ended will go down in history as one of the toughest the U.S. economy and stock market ever had. Although there is a chance that 2009 will be even worse, we think a partial recovery is far more likely.

As a result, we are confident that our advice to invest in high-quality blue chip stocks will result in excellent long-term profits. The best stocks to buy are from companies that provide products and services that meet the basic needs of people all over the world.

Companies with good dividends are the most attractive of all because they will pay investors to wait for the bigger gains that are expected. Please review recent issues of the AIA Advocate for our recommendations.

We wish everyone a Healthy, Happy, and Prosperous New Year!

AIA Advocate for Absolute Returns : Oil

Association of Investor Awareness - Week of 08/27/2009

The Outlook Is Better For An Improving Economy

Profit Growth Can Be Misleading

Big Companies Still Have An Advantage

Emerging Countries Are Making A Strong Recovery

Two Long Term Dividend Payers Look Good

Fasten Your Seat Belts, Oil Prices Are Roaring Back

The Bottom Line This Week

Until Next Time

Association of Investor Awareness - Week of 01/29/2009

Reasons For Cautious Optimism Continue To Appear Many Promising Stocks Attract Long-Term Investors The Bottom Line This Week

Reasons For Cautious Optimism Continue To Appear

Many Promising Stocks Attract Long-Term Investors

The Bottom Line This Week

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

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

Sometimes Good News Can Be Bad News

Treasury Bonds May Be A Bubble

It’s Time To Choose Shorter Bond Maturities

Three Ways To Win If Treasuries Decline

Staying Healthy During Impossible Times

When Nothing Works, Quit Worrying About It

The Bottom Line This Week

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

The New Year Should Bring Investors Some Relief

Consumers Have More Money Than Holiday Sales Suggest

Most Corporations Are In Good Financial Shape

Economy Gains From Cheaper Dollars, Oil, And Interest Rates

The Faster The Pain, The Quicker The Gain?

The recession isn’t the problem. The boom is the problem, the recession is the cure.

If You Don’t Play, You Can’t Win

The Bottom Line This Week

We wish everyone a Healthy, Happy, and Prosperous New Year!

Reasons For Cautious Optimism Continue To Appear
Many Promising Stocks Attract Long-Term Investors
The Bottom Line This Week

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