AIA Advocate for Absolute Returns : The Dollar

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!

Week of 09/18/2008

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

In This Issue:

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

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

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

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

Stocks Plunged, But The Expected Crash Didn't Occur

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

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

Investors Were Pleased To See Some Bailouts End

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

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

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

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

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

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

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

Many Companies Are Having A Good Year

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

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

It's Time For Bottom Fishers To Unfold Their Nets

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

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

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

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

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

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

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

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

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

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

The Dollar Rebound May Be Over

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

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

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

The Bottom Line This Week

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

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.

Until Next Week

Week of 08/14/2008

Research & Editorial Staff — Thu, 14 Aug 2008 17:22:00 GMT

In This Issue:

Surprise! Oil Prices Can Plunge As Well As Soar
Russia-Georgia Conflict Shows Oil Retreat Has Legs
The Dollar Is Rebounding By Default
We Know We've Said This Before, But "Buy The Bargains"
The Bottom Line This Week

Last week, the stock market continued to make the big swings that started several days earlier. This time, however, we were delighted to see that the pattern was skewed towards the positive. Thanks to a 332 point gain on Tuesday and another 303 point jump on Friday, the Dow and the Nasdaq ended the week up 3.6% and 4.5% respectively.

Those were very nice numbers for a five day period, especially since poor economic news –and the Russian/Georgian war- continued to dominate the headlines. However, none of it could overcome the enthusiasm investors had for the recent plunge in oil prices that brought the magic $100 level within sight. If oil gets that low we will see rejoicing on both Wall Street and on Main Street. We might even raise a glass ourselves.

Meanwhile, Mother Market is testing our resolve. After rising 49 points on Monday, stocks dropped 250 points through Wednesday. More gyrations are undoubtedly on the way.

Surprise! Oil Prices Can Plunge As Well As Soar

When oil started to drop sharply, many investors doubted that the move would go very far. Most people had come to accept the argument that the world's increasing population, and its expanding economy, could only make oil more expensive.

Long term, we think the arguments for higher priced energy are correct. However, prices depend on the delicate balance between supply and demand, which can fluctuate widely nearer term. With a high volume commodity like oil, where a gusher is produced every day, it only takes a small decrease in demand to create a flood of excess product. The market adjusts to the surplus by dropping prices, as it is doing now.

The oil bulls also forgot that markets often get ahead of themselves. Speculators pushed the price of oil to a level it probably won't reach due to market forces until late 2009 or 2010. As a result, oil was due for a rollback even if demand had not dropped.

Russia-Georgia Conflict Shows Oil Retreat Has Legs

We were given a preview to oil's most likely near-term performance when Georgia made the mistake of poking the Russian bear in the backside two weeks ago. Because Georgia has a major pipeline that carries Caspian oil to Turkey, and on to Europe, the war should have sent prices soaring. That's especially true since Russia dropped a few bombs close to the pipeline. Nevertheless, oil fell another two dollars to the $113 area.

We must conclude from oil's weakness during the Russian-Georgian conflict that its fundamentals have deteriorated significantly. It's another indication that we could see oil drop below $100 before the correction ends, although some reversals must be expected.

One caveat is in order. If the U.S. or Israel attacks Iran, oil prices will shoot back up within hours.

The Dollar Is Rebounding By Default

Another abrupt change that analysts were not expecting is the recent upturn in the value of the U.S. dollar. As you probably know, the greenback had been on a losing streak for several years. As measured against the euro, the dollar fell from $1.06 in January 2000 to $0.63 in April of this year, a 40.6% decline. Now the greenback is up to $0.67.

At first glance, it is surprising that the dollar is getting stronger. The U.S. economy is slow, the federal debt is soaring, the credit crunch is in full swing, and housing prices are still falling.

Nevertheless, the value of the dollar is largely set by interest rates. For months, most currency traders were convinced that Europe would soon be forced to raise its interest rates to fight inflation. Then the European economy started to slow down which is taking pressure off inflation. As a result, Europe –horror of horrors- might actually lower interest rates. The bottom line is that the U.S. dollar, and dollar-based investments, became competitive again.

As with oil, however, the longer term outlook for the dollar isn't good. We continue to believe the dollar won't make a lasting rebound until the U.S. recovers from its seven year borrow-and-spend binge, and its costly aftermath. That process could take several years.

We Know We've Said This Before, But "Buy The Bargains"

When it comes to making investment recommendations we hate to sound like a broken record. On the other hand we've found that clients never get bored with making money. To that end, we will say once again that investors should use the reversals in oil prices and the dollar to pick up bargains. When the powerful forces that drove the investments in opposite directions over the past few years begin to reassert themselves, we will see the primary trends return. If you want to participate in those plays, you must take positions while most investors are bailing out of them.

The dollar is the easiest rebound to play. Nothing could be simpler than opening a foreign currency account, or buying a foreign currency CD, in a U.S bank. If your bank doesn't have them, we recommend EverBank World Markets that has many strong currencies available. www.everbank.com

Alternately, you can invest in a good foreign bond fund. The pick of the litter continues to be the T. Rowe Price International Bond Fund (RPIBX). 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, Austria, and similar advanced countries.

As you can see from its price chart, the fund has declined 0.57% over the past 30 days, which reflects the rise in the dollar. When the dollar turns back down, the fund will rebound. We think RPIBX is an excellent hedge against the costly financial problems that are doing so much damage in the U.S.

Longer term investors should also consider the T. Rowe Price International Stock Fund (PRITX). http://finance.yahoo.com/q/pr?s=PRITX This no-load fund invests the majority of its assets in stocks of established non-US companies in both developing and developed countries. PRITX offers investors a broad position in the growth of the world economy that is still in its infancy.

In the energy industry we continue to favor exploration and development (E&D) companies. Every time we hear another politician say "drill, drill drill" we think "money, money, money." Even if the U.S. coastlines aren't opened up for energy extraction, there will be a lot of E&D elsewhere. The bottom line is clear, if the world wants more energy it will need to spend the enormous amounts of money that will be needed to find it.

There are several good E&D companies with bright futures. If you can own only one, we think it should be Transocean (RIG). http://finance.yahoo.com/q/pr?s=RIG The company specializes in finding energy in difficult areas including miles below the sea, and in festering tropical swamps. If there is any more oil to be found –and we think there is- Transocean will be a big winner.

We are also recommending Suncor Energy (SU) http://finance.yahoo.com/q/bc?s=SU&t=1y, EnCana (ECA) http://finance.yahoo.com/q/bc?s=ECA&t=1y, and Sasol (SSL) http://finance.yahoo.com/q/bc?s=SSL&t=1y All three secure energy stocks are down sharply with oil's decline because they have high production costs. The same lever will swing the other way when oil prices bounce back up. These three stocks are great long-term buys.

While you are waiting for the previous stocks to pay off, our shorter-term recommendation of Valero Energy (VLO) should keep you from getting bored. http://finance.yahoo.com/q/pr?s=VLO As we predicted in our July 24 issue, America's leading oil refiner has been caught in a pinch between rising oil costs and extreme price resistance at the pump. Now that oil costs are coming down more rapidly than gasoline prices, Valero's outlook is turning around – and so is its stock. Valero is one of the few energy plays that can gain when oil prices retreat.

Timing: In a declining market, bargain hunters should resist the impulse to make their purchases all at once. A better plan is to buy a little at a time as the situation unfolds. That way you will get at least part of your portfolio at the lowest possible prices.

The Bottom Line This Week

The oil correction is showing that it has stronger legs than most investors expected. It is impossible to know how far the price will drop, but we are only about $14 away from the psychologically-important $100 mark. We should hit it by the end of the year, and perhaps a lot earlier. Meanwhile, energy stocks are very attractive.

Similarly, the dollar's rebound could run several months. Buying foreign currencies along the way should prove to be a very profitable strategy longer term.

AIA Advocate for Absolute Returns : The Dollar

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!

Week of 09/18/2008

In This Issue:

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

Stocks Plunged, But The Expected Crash Didn't Occur

Investors Were Pleased To See Some Bailouts End

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

Many Companies Are Having A Good Year

It's Time For Bottom Fishers To Unfold Their Nets

The Dollar Rebound May Be Over

The Bottom Line This Week

Until Next Week

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

Week of 08/14/2008

In This Issue:

Surprise! Oil Prices Can Plunge As Well As SoarRussia-Georgia Conflict Shows Oil Retreat Has LegsThe Dollar Is Rebounding By DefaultWe Know We've Said This Before, But "Buy The Bargains"The Bottom Line This Week

Surprise! Oil Prices Can Plunge As Well As Soar

Russia-Georgia Conflict Shows Oil Retreat Has Legs

The Dollar Is Rebounding By Default

We Know We've Said This Before, But "Buy The Bargains"

The Bottom Line This Week

Until Next Week

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

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

Surprise! Oil Prices Can Plunge As Well As Soar
Russia-Georgia Conflict Shows Oil Retreat Has Legs
The Dollar Is Rebounding By Default
We Know We've Said This Before, But "Buy The Bargains"
The Bottom Line This Week