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.

..."> Association for Investor Awareness - Week of 01/01/2009 - AIA Advocate for Absolute Returns - Investment Strategies, Analysis & Intelligence for Seasoned Investors.
Association for Investor Awareness - Week of 01/01/2009

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!


Disclaimer

Copyright 2010 The Association for Investor Awareness, Inc. All Rights Reserved

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. The Association for Investor Awareness, Inc. (AIA) and respective staffs and associates may or may not have investments in any companies, stocks or funds cited herein, may or may not have long or short positions and/or options and warrants relating thereto and may purchase and/or sell these securities or options at any time in the open market or otherwise without further notice. AIA, its Officers, Directors, Employees and Affiliates may receive compensation for the dissemination of this information.

Communications from AIA are intended solely for informational purposes. Statements made by various contributors do not necessarily reflect the opinions of AIA and should not be construed as an endorsement either expressed or implied. AIA is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not necessarily indicative of future performance.




Posted 01-01-2009 10:18 AM by Research & Editorial Staff