AIA Advocate for Absolute Returns : stocks

Association of Investor Awareness - Week of 07/30/2009

Research & Editorial Staff — Thu, 30 Jul 2009 16:10:00 GMT

In This Issue:

Stocks Got A Second Wind In July
But, How Long Will It Last?
Technology Appears To Be Turning Around
Blue Chips Top The Best Sellers Chart
The Economy Looks Better, But Not Great
Asia's Growth Is Much Stronger
A Single Stock Covers China And Its Neighbors
The Bottom Line This Week

As everyone knows all too well, the government has been working overtime to send billions of dollars in bailout money to banks. That's only fair since the poor banks depleted their resources taking such good care of us. And they say there are no more American heroes.

In any event, some of that money found its way to the stock market where it triggered the nice rally that has been warming our hearts and wallets for several months.

Stocks Got A Second Wind In July

Whatever the reason for the rally may be, after stocks hit their nadir on March 9, prices climbed an impressive 38.5%. The gains put all the major averages into positive territory for the year, an accomplishment that no one would have imagined possible a few months ago.

The big question now is, should we put away the party hats, or does the rally have further to go?

But, How Long Will It Last?

The best way to answer the question is to look at valuations. After the recent run-up, most high quality stocks are trading at about 15 times estimated earnings. That's between three and five points higher (depending on the stock) than the bear market lows. It's clear that the market is no longer in the bargain basement.

But 15 times earnings is also between three and five points below typical market tops. That means stocks could have further to run, particularly if investors look beyond 2010 for company earnings. Economic growth by then should be strong enough for efficient companies to increase their profits significantly.

Another way to answer the question is to look at the performance of individual sectors. Since consumers are counting every penny, the retail industry hasn't been doing well – and probably won't for quite some time.

Technology Appears To Be Turning Around

On the other hand, many technology companies have been making good gains, especially those that do a lot of business in countries with strong economies. We think tech could keep going quite a bit longer even if the broader market begins to sag.

Happily, many of the best-performing tech stocks were recommended in this newsletter. The list includes Apple (AAPL) Intel (INTC), IBM (IBM), Cisco Systems (CSCO), and Oracle (ORCL) – to name only a few.

Besides having robust sales, technology companies also look good because they are not burdened by debt or underfunded pension plans. Neither are they facing the blizzard of new regulations that Washington has coming down the pike for many former highflying companies.

Within the technology sector, however, investors are being very picky. Microsoft, for example, is currently out of favor. The company just reported its first ever fall in sales on an annual basis. Likewise, Dell drove many investors away when it warned that the public's preference for cheaper laptops is having an impact on its profit margins.

Blue Chips Top The Best Sellers Chart

In addition to several of our tech recommendations, many of our other stocks have also been doing well. The rally even gave an 8.2% boost to the picks from our June newsletter. Here are the numbers:

The point isn't that a group of our stocks did well. It's been known to happen. The important message is that blue chips are what investors have in their sights.

That's exactly what we would expect in a damaged economy where a recovery can only be low and slow. Tough conditions always favor large companies that are well established in their markets. The big boys can dig in and eke out profits when growth isn't strong enough to support smaller firms.

Most blue chips are also in the catbird's seat to make full use of faster-growing foreign opportunities. The big multinationals are everywhere. They almost always have at least one market that is hot. Today, the sizzler is China. India is cooler, but only by comparison to its bigger neighbor. India's 4% growth is a skyrocket compared with most countries.

There is another reason that blue chip stocks are doing well. The inflation cycle, that nearly everyone is expecting, has yet to arrive. Instead, deflation is still hammering the economy. Everywhere we look we see it at work. Job losses, wage reductions, rising foreclosures and bankruptcies, and sinking asset values fit the pattern chapter and verse. In addition, deflation has so much momentum, it may persist into 2010.

In a deflation, of course, cash is king. That makes dividends much more valuable than they are in rosier times. Most dividend stocks are blue chips. That's pretty much the end of the story.

The Economy Looks Better, But Not Great

Many investors attribute the stock rally to a positive change in the economy. However, about the most that can be said about it is the recession is weakening. Perhaps it has even hit bottom.

However, slowing down is a far cry from saying that a recovery is about to begin. Considering the amount of damage that's been done, it's likely to be quite awhile before growth can return to anything that resembles normal.

The biggest obstacle to a rebound is most consumers are no longer able to shop until they drop. Since consumer spending makes up 70% of the GDP, the slowdown is having a big impact. Until America's cash registers start playing tunes again, the economy won't do much better than limp along.

Unfortunately, Joe and Sally won't be back to the malls and auto dealers anytime soon. Not only are people being hammered by the recession, most of them are still mired in debt from their last big bash. The hangover won't go away for at least a year, and probably two.

Housing is also unable to make its normal contribution to growth. Although home prices have been inching up in some areas, it's too early to call a turn in the market. As with the recession, housing may be bottoming, but that doesn't mean a rebound is close at hand.

Asia's Growth Is Much Stronger

The economic outlook is far brighter in many foreign countries, especially those in Asia. The Chinese are leading the pack once again with an impressive 8% growth rate. The strength surprised many analysts because the weak American economy greatly reduced the demand for China's exports.

However, with 1.2 billion people, China has the world's largest domestic market. In addition, the country is like a young married couple that is just starting out – they need virtually everything. Filling the demand could keep China's economy in high gear for years.

The majority of China's neighbors are also doing well, and for the same reasons. India, for example, has a billion people that are starting to improve their lives. Taken together, the remaining Asian countries have another billion consumers.

The bottom line is, investors who are looking for excellent gains should include Asian stocks and funds in their portfolios. Of the group, China currently looks the most attractive.

A Single Stock Covers China And Its Neighbors

We continue to like the long-term outlook for China Mobile (CHL). The company offers every wireless service imaginable – including voice, text, long distance, music downloads, video, caller ID, and conference calls – to name only the most common. http://finance.yahoo.com/q/bc?s=CHL

China Mobile also does business in other parts of Asia. The company has 451 million customers, which boggles the mind. That number is 151 million higher than the entire population of the U.S.

Nevertheless, the mobile market in Asia is nowhere near saturated. China Mobile has a good record for growth, and it is currently paying an attractive 3.4% dividend. What's not to like?

The Bottom Line This Week

The stock rally is lasting longer than we expected, not that we are complaining. After such big gains we think it's time to become more cautious. If you have nice profits, it's probably a good idea to take some of them off the table. Please protect your remaining portfolio with stop-loss orders.

Going forward, we think the majority of Wall Street's winners will be blue chips with large foreign businesses. Technology stocks look particularly good. So do leading Asian companies such as China Mobile.

One investment we would avoid at this point is a broad market fund. From this point forward, you should do better if you trade your shotgun for a rifle.

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...

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

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

In This Issue:

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

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

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

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

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

Reasons For Cautious Optimism Continue To Appear

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Many Promising Stocks Attract Long-Term Investors

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

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

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

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

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

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

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

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

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

The Bottom Line This Week

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

Association of Investor Awareness - Week of 01/22/2009

Research & Editorial Staff — Thu, 22 Jan 2009 16:29:00 GMT

In This Issue:

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

As the inauguration of the new American president approached, many analysts expected the market would have an "Obama bounce." Alas, that happy event did not occur. On the contrary, as further economic and banking industry worries continued to mount last week, the Dow and the Nasdaq dropped another 3.7% and 2.7% respectively.

The market fell another 332 points on Tuesday, when our new president took office. (Nothing personal, Mr. Obama. As the Godfather used to say, "it's just business.")

On Wednesday, however, the mood brightened and the market rebounded 279 points.

Credit Rebound Coming From Unexpected Sources

It isn't working out the way most economists expected, but the slow credit recovery is not coming from the big banks that have been receiving billions of dollars in bailout money. Those funds are simply replacing money that was lost during the period of fiscal madness.

Instead, smaller banks that didn't play subprime roulette, and don't need taxpayer's money, are starting to write checks to their more credit-worthy customers. Lending standards are stricter than they were during the go-go years that recently ended, but that's as it should be.

Banks are also reviewing business proposals with greater scrutiny. Lenders must be convinced that each idea has a good chance of being successful, which is also a return to sanity.

The bottom line is, if you have been holding fire on a business venture that would seem to fit the new criteria, this should be a good time to start contacting banks again.

Signs Of Life Are Returning To Some Real Estate Markets

Slowly rebounding credit couldn't be coming at a more opportune time. Some real estate markets are slowly starting to turn around. As we have been predicting for months, prices have fallen so far in many areas that many people who need a home are making their moves. Mortgage rates that are well below 5% are also attracting buyers.

Some of the biggest sales increases are occurring in our largest cities. In New York, for example, many condos that cost $1 million or so a year ago are now in the $500k to $600k range. For many people with good jobs, the bargains are proving to be too good to pass up.

Although it will probably be a year or more before the broader real estate market starts to recover, there are new signs of life in many of them as well. In Las Vegas, for example, home prices from last year are down 28%, but home sales are up 15%. In many other parts of the country, bidding wars are starting to take place for foreclosed homes that are being dumped by unhappy banks.

In some markets, real estate prices will probably continue to fall. In others, however, the most likely change will be on the upside. If you have been thinking about making a real estate investment, this might be a good time to start looking. This may be a sweet spot where price, interest rates, credit availability, and market potential all come together.

A Home Town Advantage With Stocks

It isn't only with real estate investments where locals are in a unique position to find top values. The same is also true with stocks. No Wall Street analyst can know as much about how a company is really doing than a local person who keeps his eyes and ears open.

Wal-Mart and Microsoft are two classic cases in point. In 1970 when Wall Street was cool about Wal-Mart's prospects, many people in Bentonville, AR noticed that the company was hiring. Passersby could also see that Wal-Mart's loading docks were bustling with activity. Local investors who trusted what they heard and saw above what the analysts were saying, ended up making a great deal of money.

Similarly in the 1980's, Bellevue, WA restaurants were buzzing with jabber by Microsoft employees who were excited about all the software they were writing and selling. Employees also said that their young boss, Bill Gates, was the smartest man they'd ever met. It would be an understatement to say that Bellevue investors who acted on what they heard are very glad they did.

It can be just as useful to be close by if a local company gets into trouble. A few years ago in Junction City, OR people noticed that employees at Country Coach Motor Homes were becoming worried about their jobs long before anyone on Wall Street knew anything was wrong. Alert investors who bailed out of the parent company, National RV, saved a great deal of money.

Forget The Bottom, Focus On Value

With both stocks and real estate, we urge readers to avoid trying to call the bottom of the markets. Instead, focus on investments that are attractively priced. If it becomes an even better bargain in a few weeks or months, it won't have any effect on your ability to make a profit at the price you paid.

Dan Ferris, editor of Extreme Value said it best: "Value isn't about hoping share prices go up, and it certainly isn't about attempting to predict the lowest share price. It's about knowing what a business is worth and paying a substantially lower amount than that." http://www.stansberryresearch.com/pub/evi/?gclid=CPT45NGVnpgCFQwxawodXxWLlQ

Of the many successful stock and real estate investors we know, only one claims to have gotten into his best performers at the absolute bottom. The other clients made their money by simply making good investments whenever they could be found.

Two Leading Stocks Look Especially Good Right Now

Speaking of Microsoft (MSFT), the economy and stock market turned two of the company's disappointments into an asset last year. http://finance.yahoo.com/q/bc?s=MSFT

As you may recall, in 2008 Microsoft made expensive bids for Yahoo and Facebook, but both deals fell through. Not only did that fortunate "failure" save Microsoft from suffering big losses when the stock market plunged, it also left the company with over $19 billion in cash.

Microsoft, of course, may use the market weakness to make another try for its two targets, which are now priced much lower than before. Alternately, Microsoft might make another one-time dividend boost to its shareholders, just as it did in 2004. If so, the true yield of the stock will be much higher than the 2.6% that it carries today.

Besides the cash hoard, Microsoft's ability to make strategic acquisitions, and its yield potential, the company's price looks very attractive. Microsoft was selling for $35 at this time last year. It is now just $18.50. That looks like a bargain to us.

If reliable dividend growth is one of your goals this year, (and it should be) we recommend an old favorite of ours, Procter & Gamble (PG). http://finance.yahoo.com/q/bc?s=PG The stock "only" yields 2.8% at present, but that's more than many of Uncle Sam's bonds are paying.

However, the real appeal of the company's dividends is that they have been increased for 52 consecutive years. That's a rock solid track record that the company is unlikely to change.

In addition, Procter & Gamble just announced that it is about to begin its most ambitious manufacturing expansion. The company is making the move to further capture business in emerging markets that are already delivering double digit growth. We think the decision will lead to much higher profits within a few years.

If you look at Procter & Gamble's low stock price, its dividend outlook, and the company's new global initiative, we think you get a very strong case for buying the stock.

The Bottom Line This Week

Inch by inch and flicker by flicker, the economic outlook is giving investors reasons to be hopeful. Although we are sticking with our prediction that the recession will continue to rage for several months, we also believe we will begin to see some relief late this year.

That's not to say that Joe and Sally MidAmerica will be out of the woods anytime soon. Life will probably remain tough for quite some time. However, many businesses are continuing to adjust to the new conditions and should start to rebuild their profits by the 4^th quarter.

Meanwhile, many of the most promising stocks –and some real estate deals- look very attractive. Among the former, Microsoft and Procter & Gamble look especially promising. In some real estate markets, homes and apartment buildings are also starting to pencil out.

Association of 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.

AIA Advocate for Absolute Returns : stocks

Association of Investor Awareness - Week of 07/30/2009

Stocks Got A Second Wind In July

But, How Long Will It Last?

Technology Appears To Be Turning Around

Blue Chips Top The Best Sellers Chart

The Economy Looks Better, But Not Great

Asia's Growth Is Much Stronger

A Single Stock Covers China And Its Neighbors

The Bottom Line This Week

Until Next Week

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

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

Reasons For Cautious Optimism Continue To Appear

Many Promising Stocks Attract Long-Term Investors

The Bottom Line This Week

Association of Investor Awareness - Week of 01/22/2009

Credit Rebound Coming From Unexpected Sources Signs Of Life Are Returning To Some Real Estate Markets A Home Town Advantage With Stocks Forget The Bottom, Focus On Value Two Leading Stocks Look Especially Good Right Now The Bottom Line This Week

Credit Rebound Coming From Unexpected Sources

Signs Of Life Are Returning To Some Real Estate Markets

A Home Town Advantage With Stocks

Forget The Bottom, Focus On Value

Two Leading Stocks Look Especially Good Right Now

The Bottom Line This Week

Association of 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

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

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

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