The AIA Advocate Newsletter

In This Issue:

Mixed Economic Signals Worry Investors
Another Kind Of Bailout Is Also A Concern
A New Economic Reality Is Emerging
For Efficient Companies, Slow Growth Can Be Profitable
Your Best Strategy Now
Three Analysts And A Fool Have Recommended This Stock
The Bottom Line This Week

In our last issue we remarked that 'the rally may be getting short of breath.' Shortly thereafter, the huffing and puffing began in earnest. On Monday of this week, definite wheezing sounds were heard as the bull dropped to its knees just short of pushing the market into positive territory for the year. Perhaps the old boy was out of shape after letting the bear take over for six months.

In any event, since May 28 the Dow dropped 0.8% while the Nasdaq managed to squeak ahead a miniscule 0.8%. More importantly, both measures slipped 3.0% and 1.7% last week - and they are even lower now.

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:

Signs Of A Better Economy? (Or At Least Not As Bad?)
Stocks For A Weak Recovery
The Bottom Line This Week

Last month investors received another booster shot from Wall Street as the Dow and the Nasdaq rose an additional 1.2% and 5.5% respectively. The gains left stocks up 26% from the rally's jumping off point. With any luck, and a few encouraging numbers from the economy, the rally could continue for another few weeks.

Lest anyone think the bear is finished, however, we must remind you that the market never moves in a straight line very long. Even if this is the start of a new bull market, we must expect to get some nasty shocks along the way. After such a strong rally, the first correction may be close at hand.

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:

The Federal Bailout Is A Mixed Bag
Capitulation May Have Been Reached
Some Blue Chip Stocks Will Win Blue Ribbons
A Speculation Is Also Attractive
Gold Regains Its Appeal, But There Are Problems
An Economic Indicator That We Can Love
The Bottom Line This Week

Since our last newsletter on January 29, the stock market took a sharp turn for the worse. In fact, calling it a "turn" is an understatement. "Plunge" would better describe the 9.6% and 4.4% declines in the Dow and the Nasdaq. The slide left the market at a 12 year low.

Curiously, the plunge isn't due to another panic. At this point in the long bear market, most investors are too tired to sprint for the exits. Instead, many of them are dropping their gear and are simply walking off the field.

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:

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.

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.

In This Issue:

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week

There's nothing like the start of a new year to shake investors out of a funk. It happened again a few days ago when the market rallied as the first of January approached. The week the calendar turned over, the Dow and the Nasdaq went up an impressive 6.1% and 6.7% respectively. It was an encouraging end to a dismal year that saw the two indices plunge 33.8% and 40.5% - the third worst performance in recent memory.

Alas, it is far too early to declare an end to the bear market. With manufacturing and home sales dropping to very low levels, it is clear that the economy is still sinking. But as we will discuss later, that doesn't mean that a recovery is off the table for late 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.