AIA Advocate for Absolute Returns : everbank

Association for Investor Awareness - Week of 11/25/2009

Research & Editorial Staff — Wed, 25 Nov 2009 16:24:00 GMT

In This Issue:

A Santa Claus Rally Seems Unlikely
But We Could Have A Big January Bounce
Get Your Buy List Ready
A Dollar Obituary Is Premature
Cash Is Still King
It's Time To Start Building A Family Fortune
The Bottom Line This Week

Last month we reported that investors were starting to become very cautious. Since then, several positive earnings reports encouraged traders to add more stocks to their portfolios. The new purchases pushed the Dow and the Nasdaq up 4.7% and 3.4% respectively. It was a great start to the Holiday Season.

A Santa Claus Rally Seems Unlikely

We would like to think that the latest stock market gains indicate that the bull is getting ready to make a nice end-of-the-year dash for the cash.

However, a roaring finish to 2009 may not be in the cards. Typically, as a good year winds down investors become more interested in holding onto their gains than trying to get a bit more. The easiest way to protect profits is to take them off the table.

For professional investors, the urge to stand pat with a winning hand is especially appealing because good numbers lead to good bonuses. Investing isn't like the banking industry where the worse executives do the more money they make.

An end-of-the-year slide can also trigger a larger sell-off if nervous investors decide they need to race for the door. Tax loss selling can also add to a December slide. All in all, the downside looks stronger than the upside for the remaining weeks of 2009.

But We Could Have A Big January Bounce

If history is any guide, a spike in any end-of-the-year selling is likely to create an equally large January bounce. The upturn occurs when investors rush to buy back stocks they felt they should sell in December, but they want to own longer term. Many stocks move more on the bounce than they do during the drop – and the gains often come much faster. A good January rally can be quite a rush.

Get Your Buy List Ready

If the December slump comes as expected, we think you should put it to good use. Any of the blue chip stocks that we have been recommending should be purchased if they end up on the year-end clearance table. Not only should cheaper prices add to your long-term capital gains, they will also boost your dividend yields. With the right stocks, lower prices give investors two ways to win.

One part of the December/January see-saw we urge you to avoid is taking early profits during a first-of-the-year bounce. With the global economy working its way back from the recession, we think you will see greater gains by holding your stocks for the longer term.

Here are several of the top blue chip multinational companies from recent issues of this newsletter that look particularly attractive:

For An Emphasis On Capital Gains:

For An Emphasis On Current Income:

Consolidated Edison (ED) http://finance.yahoo.com/q/bc?s=ED
Eli Lilly (LLY) http://finance.yahoo.com/q/bc?s=LLY
Kinder Morgan Energy Partners, L.P. http://finance.yahoo.com/q/bc?s=KMP

A Dollar Obituary Is Premature

Since mid-March the dollar has lost 14.4% of its value against a basket of major currencies. Many investors expect the trend to continue, which is one of the reasons that precious metals have been going up strongly of late. Both gold and silver are traditional hedges against declining currencies.

Ruinous debts and rising obligations of the federal government are doing the most to hurt the dollar. Thanks to the huge bailout and stimulus programs of the past 18 months, the national debt has soared to over $12 trillion, an unprecedented number. To put it into perspective, $12 trillion is $12,000 billion!

It isn't just Uncle Sam that is in over his head. Joe and Sally MidAmerica are also deeply in hock. Countless consumers bought everything from their houses to their tennis shoes on credit.

Many economists think there is no possible way that America's colossal debts can be paid in full. The only solution, they say, is to effectively cut them down to size by allowing the value of the dollar to fall through inflation. Because wages usually keep up with inflation but debts stay the same, the obligations become easier to pay. In effect, if the value of the dollar drops in half, so does the debt. Lenders, of course, are stuck with the losses.

Cash Is Still King

The dollar bears are almost certainly correct in predicting that another nasty round of inflation is on the way. Currently, however, the American economy is still suffering from deflation and dollars actually buy more than they did before the great recession started.

We think deflation is likely to last several more months, and perhaps longer. If so, the dollar is oversold and will probably rebound. If the Fed decides to raise interest rates, the rebound could be even stronger.

Jim Powell, editor of the Global Changes & Opportunities Report (www.powellreport.com) suggested recently that readers can take advantage of a near-term dollar bounce with the PowerShares DB U.S. Dollar Index Bullish Fund (UUP). http://finance.yahoo.com/q/bc?s=UUP The ETF is structured to gain when the dollar rises against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and the Swiss franc.

Inflation Is On The Way

Since rising inflation and a lower dollar seem likely longer term, investors would also be wise to use current conditions to get ready for them. Any near-term strength in the dollar should make gold, silver, strong foreign currencies, and other inflation hedges less expensive.

For most investors, the best way to invest in gold (as opposed to buying it for an emergency) is to purchase the SPDR Gold Shares ETF (GLD). http://finance.yahoo.com/q/bc?s=GLD For silver, we recommend the iShares Silver Trust ETF (SLV). http://finance.yahoo.com/q/bc?s=SLV Both ETFs, of course, track the metals they follow almost to the penny, and they can be traded just like stocks.

We think the most attractive foreign currency is the Australian dollar that is supported by that country's vast supply of valuable natural resources. While the U.S. dollar was sliding earlier this year, the Aussi currency gained 19.4%.

The best place to buy any foreign currency is still EverBank World Markets where deposit accounts and CD's are both available. www.everbank.com

It's Time To Start Building A Family Fortune

At this time of the year, people focus on their families and their investments at the same time. Accordingly, we think it is appropriate to consider taking steps to create a family fortune that will outlive yourself, perhaps indefinitely. With proper planning, and enough time, joining the Rockefellers, Vanderbilts, and other dynasties is easier to do than you may think.

Three years ago, Humberto Cruz showed how tax-free compounding within a Roth IRA, plus IRS inheritance rules, is making it easier than ever to create a fortune for your heirs. Here are the basics:

1) Start a Roth IRA and build it up to $100,000 by age 65. Try to keep breathing for another 20 years or so and don't withdraw money from the fund. Unlike a regular IRA, with a Roth no minimum distributions are required while the owner remains alive.

2) Name your spouse as the designated beneficiary of your Roth IRA.

3) When you die your spouse will roll your IRA into his or her own.

4) Your spouse then names your child as the beneficiary and lives another 10 years.

5) When your spouse dies, your child will inherit the IRA and should stretch out the withdrawals over his or her life expectancy using IRS tables.

6) Assuming an 8% annual return for 27 years, the beneficiary will receive $3,515,951 absolutely tax free.

7) Lastly, the child will start a Roth IRA and continue the process.

For details about how to use IRAs to create great wealth we recommend the book Parlay Your IRA Into A Family Fortune by Ed Slott (Penguin 2008). It's available from Amazon. www.amazon.com

The Bottom Line This Week

Stocks are continuing to move ahead. If the pattern continues, prices are likely to decline in December, and jump back up after the first of the year.

We think investors should use any late year market weakness to buy more of the blue chip multinational companies that we have been recommending in recent months.

All of us at The Association for Investor Awareness

wish you and your family a very Happy Thanksgiving!

Until Next Time

The AIA "Advocate For Absolute Returns", a publication of The Association for Investor Awareness, Inc., tracks market trends, industry news, the SEC, global trade and finance and Washington developments for you because they affect your investments. But who doesn't? Many sources report these issues as abstract facts. We feel that's not enough. The AIA Advocate's job is to warn you of what's important and how these developments translate to ground-level forces and threats that directly affect your wealth as well as your current investment opportunities. Not just information, but information you can use. Until next time ...

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

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

In This Issue:

The Economy Is Bad, But Stocks Are Priced For Worse
Stocks Outshine Their Competition
Behold The Halo Effect
A January Bounce Seems Likely
Energy And Foreign Growth Are Positives
We May Be Halfway Through The Economic Downturn
What Everybody Knows...
The Bottom Line This Week

Last week we received additional signals that a bear rally is probably in the works. During the five day period, investors were treated to a smorgasbord of bad news. Congress turned thumbs down on bailing out the Big Three automakers. Unemployment surged to a 26 year high. T-Bill returns dropped to essentially zero. Many bellwether companies issued earnings warnings. Several firms cut their dividends, and investors were shocked by a $50 billion hedge fund collapse.

So what did the market do? It barely budged. The Dow eased down less than 0.1%. The Nasdaq actually rose 2.1%. The market was also strong during the first three days of the current week. In our opinion, such resilience in the face of disturbing economic events indicates that investors are probably getting ready to do some buying.

The Economy Is Bad, But Stocks Are Priced For Worse

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

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

Stocks Outshine Their Competition

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

Some Good Yields Are Still Available

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

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

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

Behold The Halo Effect

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

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

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

A January Bounce Seems Likely

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

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

Energy And Foreign Growth Are Positives

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

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

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

We May Be Halfway Through The Economic Downturn

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

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

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

What Everybody Knows...

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

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

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

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

The Bottom Line This Week

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

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

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

Notice To Readers

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

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

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

In This Issue:

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

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

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

The Long-Awaited Bear Rally May Be Starting

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

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

Although Weak, Some Hopeful Economic Signs Are Emerging

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

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

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

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

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

Credit Is Slowly Opening Up Again

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

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

If Fear Subsides, The Outlook Will Improve Immediately

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

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

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

A Recovery Will Bring Unwelcome Inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

The Bottom Line This Week

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

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

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

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

Special Issue:

When Deflation Comes,

Cash Is King

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

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

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

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

The Best Deflation Strategy

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

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

You Must Have The Green To Make The Scene

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

Where To Stash Your Cash

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

As we said in our October 2 newsletter, you can get a list of current CD rates offered by top banks from Bankrate.com. www.bankrate.com Stick with banks that have at least a 3-star (***) rating. Here's an updated list of what's available now:

The Best CD Rates In The U.S. From Secure Banks
Bank	1-Yr APY	2-Yr APY	Address	Min Deposit
GMAC Bank	4.16%	4.35%	http://www.gmacbank.com/	$500
Nationwide Bk	3.97%	4.16%	http://nationwidebank.com	$500
EverBank	3.92%	4.07%	http://everbank.com	$1,500
Centennial Bk	3.90%	4.30%	http://www.centennialbank.com	$10,000
Capital One	3.78%	3.92%	http://www.capitalone.com	$5,000

Getting Around FDIC Limits

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

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

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

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

T-Bills Shine

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

Foreign Currencies Offer Double Protection

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

Some Cash Should Be The Folding Variety

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

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

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

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

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

Inflation Will Eventually Return

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

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

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

And Investments Purchased Now Should Soar

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

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

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

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

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

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

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

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

The Bottom Line This Week

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

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

AIA Advocate for Absolute Returns : everbank

Association for Investor Awareness - Week of 11/25/2009

A Santa Claus Rally Seems Unlikely

But We Could Have A Big January Bounce

Get Your Buy List Ready

A Dollar Obituary Is Premature

Cash Is Still King

Inflation Is On The Way

It's Time To Start Building A Family Fortune

The Bottom Line This Week

Until Next Time

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

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

The Economy Is Bad, But Stocks Are Priced For Worse

Stocks Outshine Their Competition

Some Good Yields Are Still Available

Behold The Halo Effect

A January Bounce Seems Likely

Energy And Foreign Growth Are Positives

We May Be Halfway Through The Economic Downturn

What Everybody Knows...

The Bottom Line This Week

Notice To Readers

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

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

The Long-Awaited Bear Rally May Be Starting

Although Weak, Some Hopeful Economic Signs Are Emerging

Credit Is Slowly Opening Up Again

If Fear Subsides, The Outlook Will Improve Immediately

A Recovery Will Bring Unwelcome Inflation

The Bottom Line This Week

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

When Deflation Comes,

Cash Is King

The Best Deflation Strategy

You Must Have The Green To Make The Scene

Where To Stash Your Cash

Getting Around FDIC Limits

T-Bills Shine

Foreign Currencies Offer Double Protection

Some Cash Should Be The Folding Variety

Inflation Will Eventually Return

And Investments Purchased Now Should Soar

The Bottom Line This Week

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

The Economy Is Bad, But Stocks Are Priced For Worse
Stocks Outshine Their Competition
Behold The Halo Effect
A January Bounce Seems Likely
Energy And Foreign Growth Are Positives
We May Be Halfway Through The Economic Downturn
What Everybody Knows...
The Bottom Line This Week

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

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