AIA Advocate for Absolute Returns : Recession

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

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

In This Issue:

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

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

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

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

It's Too Early For A Sustained Rebound

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

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

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

But, There Are Finally Some Signs Of Relief

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

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

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

What Everybody Knows Is Often Wrong

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

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

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

Another Contrary Economic Outlook

A small but growing number of economists are now beginning to think the widespread doomsday outlook for the credit crunch and the economy is also dead wrong. We spotlighted the idea last week when we wrote about Casey B. Mulligan, a professor of economics at the University of Chicago who said, "...the economy doesn't really need saving. It's stronger than we think." And, "The non-financial sectors of our economy won't suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated."

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

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

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

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

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

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

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

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

This High Yield Investment Looks Good

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

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

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

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

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

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

The Bottom Line This Week

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

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

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

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

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

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

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

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

The Biggest Danger Now Is A Series Of Bear Traps

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

The Financial Crisis Has Further To Run

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

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

Some Bear Market Investments Have Promise

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

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

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

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

How Long The Bear Might Stick Around

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

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

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

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

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

A Contrary Economic Outlook

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

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

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

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

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

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

Another Shameless Plug For Blue Chip Stocks

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

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

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

The Bottom Line This Week

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

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

Week of 10/09/2008

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

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

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

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

Bargains Are Starting To Appear

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

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

A Bottom Fishing Check List

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

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

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

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

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

The Bear Isn't Finished Yet

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

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

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

Big Drops Lead To Big Rebounds

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

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

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

Financial Stocks Attract More Attention

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

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

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

There Is One More Shoe To Fall

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

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

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

The Biggest Question: Will The Bailout Work?

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

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

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

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

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

The Bottom Line This Week

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

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

Week of 07/31/2008

Research & Editorial Staff — Thu, 31 Jul 2008 16:10:00 GMT

In This Issue:

Many Americans Are In A Funk
If Everything Is So Bad, Where's The Recession?
The Fed's Rescues Come With A Price
A Lending Conflict Is In The Making
And A Weaker Dollar May Be On The Way
DNA Checks Are Not Just For Crooks
The Bottom Line This Week

The bear picked himself up off the mat last week after having been knocked flat by the bull a few days earlier.

As it turned out, the nasty fellow should have taken the full count to get back more of his strength. The best he could do with his rebound was push the Dow back a miniscule 1.1%. Nasdaq actually rose 1.2%.

When the market reopened this week, we got a dramatic demonstration about how important oil prices have become on Wall Street. On Monday oil ticked up fractionally, and the Dow dropped 240 points. Then on Tuesday, oil dropped back down and the Dow shot up 267 points. The uptrend continued the next day with a 186 point gain.

Many Americans Are In A Funk

Americans are in a gloomy mood. That's not surprising since they have been told since childhood that their homes would be their greatest, and best performing, asset. Now that house prices have tanked in most regions, a lot of people are feeling poor, and they don't like it. They are especially upset to learn that the price slide may not be over.

It isn't helping that many financial service firms are also falling on their faces. Next to houses, banks have always been the bedrocks of a community. Many people think if the banks are in trouble, the nation must be in bad shape.

At the same time, gas prices have been raking household budgets over the coals. In truth, most people can pay the extra dollar a gallon or so without needing to totally rearrange their budgets. What bothers people the most is the possibility that prices may go much higher. If that happens, lifestyles will need to change, a prospect too terrible to contemplate.

If Everything Is So Bad, Where's The Recession?

Fortunately, a broader view of the economy reveals that the U.S is holding up a lot better than the public believes. Growth is still in the 1.5% - 2.1% range, which is a lot better than the negative numbers that had been predicted.

Most individual economic measures are also doing fairly well. Unemployment, for example, is hovering at about 5.5%. That's below the 5.8% average of the past 45 years.

Inflation is also livable, although it is several points above Uncle Sam's official 5% rate. Nevertheless, inflation has been higher in the past for long periods of time when the economy got along quite well.

Economist Robert Samuelson summed the situation up best in his recent column, "The Depression Specter." He pointed out that after all the shocks the economy has absorbed this year, it hasn't collapsed. That suggests that the U.S. is a lot stronger than it appears to be.

The Fed's Rescues Come With A Price

One of the reasons the sharp housing downturn and the bank failures have not torpedoed the economy is the Fed has been fighting them tooth and nail. The agency's bailouts and other monetary measures kept Fannie Mae, Freddie Mac, and dozens of other firms from stumbling over a cliff.

The Fed also engineered several mergers and buyouts that matched strong banks with those that were about to fold. The best known deal was the 11^th hour rescue of Bear Stearns by JP Morgan Chase that Ben the matchmaker helped put together. There have been many other shotgun marriages that didn't make the front pages.

Although the Fed acted as it should to keep the economy afloat, it could lead to the U.S. having a worse downturn in the future. That's because the Fed is keeping many practices alive that should be allowed to fail.

For example, many businesses with mounting losses are being propped up with public money. Ditto for contractors who built far too many houses, and banks that loaned millions of dollars to people with bad credit records. In a normal economic downturn, the malefactors would be stricken from the rolls and the books would be balanced again.

To make matters worse, many of the worst offenders are being rewarded by the Fed's bailouts. When they make money, they get to keep it. When they fail, taxpayers get the bill. No one should be surprised when the scoundrels keep up the bad work.

The bottom line is that many of America's financial problems will be transferred to the next economic cycle. At some point, the troubles they cause may be beyond repair.

A Lending Conflict Is In The Making

There is another problem being created by Mr. Bernanke's agency. On October 1, borrowers will be required to prove they have an income. What an imposition! It's positively un-American. A person should just be able to sign a paper and get a house, a car, or a Hawaiian vacation.

The new lending standards, of course, are designed to keep the banks from running amuck again. However, the battered housing industry is unlikely to recover anytime soon if it becomes hard to get a mortgage. Without some loosey-goosey lending, the huge inventory of unsold homes will remain huge for years.

The slow-moving inventory of homes will be trouble enough by itself. To make matters worse, the market will compensate by slashing prices. It's Economics 101: unwanted stuff goes on sale. As we said a minute ago, the public is already unnerved by the housing plunge and won't like lower prices one little bit.

And A Weaker Dollar May Be On The Way

Lastly, because each financial bailout increases the money supply the dollar is also coming under pressure and seems likely to decline quite a bit more over the next several months.

In recent issues we discussed using foreign currency accounts and ETFs to help protect your assets from the weak dollar. Swiss francs have the best track record in that role. Many commercial banks and EverBank World Markets (www.everbank.com) have deposit accounts and CDs in the gnomes' currency. Alternately, you can hedge the dollar with the CurrencyShares Swiss Franc Trust (FXF). http://finance.yahoo.com/q/pr?s=FXF

Another way to protect yourself from a further decline in the dollar is to invest in a good international bond fund. Besides being good dollar hedges, the funds pay regular income, and they can also deliver attractive capital gains.

The income from an international bond fund can be especially sweet. Before the checks are cut, they are adjusted to compensate for any decline in the dollar that may have occurred. As a result, investors maintain their purchasing power.

We think the T. Rowe Price International Bond Fund (RPIBX) is the best in its group for most investors. http://finance.yahoo.com/q/pr?s=RPIBX The no-load fund seeks to provide high current income and capital appreciation by investing in bonds from France, Japan, the United Kingdom, and Austria – to name only a few. The fund is up 3.85% so far this year, vs a 4.3% decline for those that invest in long term U.S. Treasury bonds.

There is always a risk with any international bond fund that the dollar will rise and reduce your returns. As a result, you should diversify your bond investments just as carefully as you do the stocks you buy.

DNA Checks Are Not Just For Crooks

Several companies have come along that will trace your genealogy by comparing your DNA sequence with others in its database. You can find out where your ancestors came from and how they scattered throughout the world. In addition, tests can determine whether you originated from the same ancestors as others who share your last name. You can also find out if your pappy is who you think he is, but we will leave that one alone.

One of the leading providers of DNA tracing is Genebase Systems. www.dnaancestryproject.com Prices range from $119 to $318 depending on the number of traces requested. Check the company's website for details.

The Bottom Line This Week

Americans are feeling a bit blue about house prices, expensive energy, shaky banks, and other problems. However, the economy isn't doing nearly as badly as most citizens believe. There is still every reason to think the future will be better than it is today.

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...

AIA Advocate for Absolute Returns : Recession

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

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

It's Too Early For A Sustained Rebound

But, There Are Finally Some Signs Of Relief

What Everybody Knows Is Often Wrong

Another Contrary Economic Outlook

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

This High Yield Investment Looks Good

The Bottom Line This Week

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

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

The Biggest Danger Now Is A Series Of Bear Traps

The Financial Crisis Has Further To Run

Some Bear Market Investments Have Promise

How Long The Bear Might Stick Around

A Contrary Economic Outlook

Another Shameless Plug For Blue Chip Stocks

The Bottom Line This Week

Week of 10/09/2008

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

Bargains Are Starting To Appear

A Bottom Fishing Check List

The Bear Isn't Finished Yet

Big Drops Lead To Big Rebounds

Financial Stocks Attract More Attention

There Is One More Shoe To Fall

The Biggest Question: Will The Bailout Work?

The Bottom Line This Week

Week of 07/31/2008

In This Issue:

Many Americans Are In A FunkIf Everything Is So Bad, Where's The Recession? The Fed's Rescues Come With A Price A Lending Conflict Is In The MakingAnd A Weaker Dollar May Be On The WayDNA Checks Are Not Just For CrooksThe Bottom Line This Week

Many Americans Are In A Funk

If Everything Is So Bad, Where's The Recession?

The Fed's Rescues Come With A Price

A Lending Conflict Is In The Making

And A Weaker Dollar May Be On The Way

DNA Checks Are Not Just For Crooks

The Bottom Line This Week

Until Next Week

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

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

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

Many Americans Are In A Funk
If Everything Is So Bad, Where's The Recession?
The Fed's Rescues Come With A Price
A Lending Conflict Is In The Making
And A Weaker Dollar May Be On The Way
DNA Checks Are Not Just For Crooks
The Bottom Line This Week