AIA Advocate for Absolute Returns

In This Issue:

Company Earnings Look Good
Dividends Are Also Increasing
Another Shameless Plug For Dividend Aristocrats
These Winners Remain Attractive...One For 194 Years
Smaller Stocks Are Coming Up Fast
Semiconductors Looking Good Too!
The Bottom Line This Week

Since our last newsletter, the stock market retreated from its earlier highs. That's not surprising since there was cheerless economic news from Europe. The infamous PIGS (Portugal, Italy, Greece, and Spain) are having an embarrassing problem with their colossal debts. Payments are due, but the big spenders are coming up short a trillion dollars or so. The exact number is still in dispute. Whatever it turns out to be will be a shocker.

Investors calmed down a bit when other European countries promised to bail out their spendthrift neighbors. But before anybody could start to buy stocks again, the Fed made a surprise ¼ point increase in the discount rate it charges banks.

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.

In This Issue:

Will The Right Fundamentals Please Stand Up?
The "Uncle Sam Effect"
Small Investors Are Coming Back To Stocks
Inflation Fears Are Increasing
First Some Bad News, Then Some Good News
Easy Index Gains May Be Over
These Four Favorites Should Stay On Top
And So Should China
The Bottom Line This Week

Despite all the worries about overvalued stocks, the market is continuing to advance. To be sure, the gains aren't coming by leaps and bounds anymore - but they are still adding up nicely. Since our last newsletter, the Dow and the Nasdaq rose another 1.8% and 5.1% respectively.

Will The Right Fundamentals Please Stand Up?

When it comes to stock fundamentals, value is in the eye of the beholder. Traditionalists believe the market is too expensive for the weak economic recovery they expect to see. The analysts argue that the economy may take over a year to justify the whopping 46% gain in the Dow since March. Some analysts think the recovery will never gain the necessary strength.

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.

In This Issue:

Is The Economy Finally Turning Around?
Companies With Cheap Eats Are Doing Well
China's Economy Is Still Hot (Compared With Everybody Else)
Energy Investments Are Looking Good Again
The Bottom Line This Week

The stock market rally that started on March 9 is proving to have longer legs than even the most optimistic investors dared hope. Through the end of May, the S&P 500 was up 30 percent even though the economy was continuing to decline.

Over the past month, however, the market's performance suggests that the rally may be getting short of breath. Since our last newsletter, the Dow gained an unremarkable 1.1% and the Nasdaq barely rose 0.7%. It remains to be seen if stocks will get a second wind and run for another few laps, of if a correction is on the way.

In This Issue:

Banks And Auto Stocks Led The Way Down, And Now Up
Yes, The Rebound Could Be Another Bear Trap
If There Ever Was A Time To Use Stops, It’s Now!
In Many Cities, Real Estate May Be Set To Rise
The Bottom Line

Over the past month, the stock market staged a strong reversal as the Dow and the Nasdaq rose 6.9% and 9.1% respectively. As often happens when investment optimism begins to replace a long period of pessimism, small stocks did better than their larger cousins.

However, many blue chips also performed very well. For example, our first three picks from last month, JP Morgan Chase (JPM), Archer Daniels Midland (ADM), and Ford (F) jumped 21.5%, 5.3%, and 42.3% respectively. Our fourth pick, SPDR Gold Trust (GLD), dropped 2.4%.

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.

In This Issue:

Sometimes Good News Can Be Bad News
Treasury Bonds May Be A Bubble
It’s Time To Choose Shorter Bond Maturities
Three Ways To Win If Treasuries Decline
Investing In Times Of Extremes
Staying Healthy During Impossible Times
The Bottom Line This Week

The optimistic mood that lifted the stock market two weeks ago didn’t last very long. In fact it might have been the smallest January bounce on record. After the 2^nd, prices started to move back down again.

There is some solace in noting that the market is still up some 20% from where the zigzag rally started on November 21. Despite all the turmoil, it may turn out that the bear market reached bottom at that time. We shall know soon enough.

In any event, by the time last Friday afternoon rolled around, the Dow and the Nasdaq were down 4.8% and 3.7% respectively. During the first three days of this week, the market continued to decline sharply as more disturbing economic numbers were announced.