Getting Your Dollar's Worth

With today's weak dollar, you need all the help you can get when you travel abroad. Your best bet is to use a credit card or debit card for your purchases, because you'll get the best exchange rate available.

Capital One and Discover Card have no exchange fees. The next best tactic is to get cash from an ATM, especially from machines that are affiliated with your bank.

Traveler's checks and prepaid cards not only charge much higher exchange fees, they may not be accepted at many merchants.

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The Loan Arrangers

Several Web-based services offer individuals the chance to become lenders, with returns of 8%-12% or more. For borrowers, these services are lower-cost alternatives to credit card debt and unsecured bank loans.

Would-be borrowers must reveal what they're planning to use the money for and how much interest they are willing to pay. They also must agree to have their credit reports pulled and have key details revealed online.

Lenders can reduce their risk by spreading loans among several borrowers and looking for borrowers with relatively high credit scores.

Some Web sites that now bring lenders and borrowers together include prosper.com and lendingclub.com, and no doubt others will follow their lead.

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A Wall of Worry

Bets against the market, in the form of short sales and open interest in put options, are at record levels. Analysts have more stocks at "hold" than at "buy" for the first time in a decade. Some 75% of mutual fund flows are heading overseas.

Volatility, a measure of investor fear, has increased sharply. In a bull market, the time to worry is when investors get too confident, not when they're too cautious, so it still may be the time to buy stocks.

Even though stocks have reached record levels, valuations are still a long way from the overheated levels of the late 1990s.

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It's Out Of Bernanke's Reach

This is the title of an article appearing on page 36 of the September 3, 2007 edition of BusinessWeek magazine.

By cutting the largely symbolic discount rate on August 17, the Federal Reserve hoped to calm nerves and return borrowing conditions to normal. Instead, conditions got worse.

A reliable measure of panic - the difference in yields between safe and less-safe securities - widened to the biggest gap in more than 10 years. Five days later, markets remained severely impaired.

Why didn't Chairman Bernanke's script play as well as many hoped, at least in the early going? Simply put, the Federal Reserve did not - and cannot - fix the problem at the root of the market crisis. That problem is a lack of crucial information.

The lending mistakes of the past several years were too serious to be fixed by a quick rewrite at the Fed. The best the chairman can do is tide the economy over until lenders sort out their mistakes and gather the crucial information they neglected the first time.

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Is Today's Trend Eastward?

Among the world's largest stock markets, India and China are the two priciest, selling at 4.9 and 4.6 times book value, respectively. By contrast, Japan, Korea and Taiwan sell for no more than two times book value. And of those three stock markets, Taiwan has the most promising metrics: 26% expected earnings growth in 2007 and an estimated 2007 price/earnings ratio of 14. (For China, the p/e ratio is 26.)

Investing in such foreign countries is easy today, thanks to mutual funds, exchange-traded funds, American Depository Receipts, U.S.-listed foreign shares, and even online trading of shares on foreign exchanges.

Some discount brokers now have online trading platforms that allow you to buy stocks listed in Europe and Asia.

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In BARRON'S This Week

If your investing interests tend toward high-dividend paying securities, then you should check out the article on page 31 of this week's Barron's entitled, "Seeking Shelter From The Storms."

Among the main points in this article is the fact that studies have found that dividend payments and price appreciation go hand-in-hand.

But the cloud on that silver lining is the reality that good news draws a crowd, and that in turn can dampen the upside on any investment strategy!

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Safe Havens

Utilities traditionally have been safe havens for investors. They pay steady dividends and their product is always in demand. Now, though, utilities have become one of the priciest sectors, outpacing seven of the 10 sectors in the S&P 500 over the past five years.

In 2007 so far, the S&P Utility Index is up 12%, vs. 7% for the broad index, and dividends are at a historic low rate of 3%. Deregulation and low bond yields account for the increased interest in utilities over the past five years.

At current price levels, the stocks of regulated utilities might be the most vulnerable because regulators can cap their profitability.

Although this might not be a good time to start with utility stocks, if you are currently dollar-cost-averaging into utilities, then it makes sense to keep up regular contributions because supply-demand imbalances make utilities appealing long-term holdings.

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A Matter of Concern

Mr. Howard Davinowitz is a very well-known retail analyst in New York City. Today during a radio interview, he was discussing the dismal report on earnings by Wal-Mart and he credited that in large part with the economic plight of the average consumer in the country at this point in time, "where they are in debt up to their eyeballs and cannot obtain any more credit." He also pointed out that the more upscale retailers like Target and Nordstrom should continue to do well because their clientele comes from a higher salary base whereas people who shop at either Wal-Mart or K-Mart tend to be the typical "Joe Six-Pack" type.

The situation is very serious according to Mr. Davinowitz, and he sees it as setting the stage for a full blown recession to occur in this country at some point during the next six to twelve months.

Let's hope that his forecast proves to be wrong, although his prediction "track record" in the past has been very much on target!

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Food For Thought

"With all of the hysteria, all of the fear, all of the phony science, could it be that man-made global warming is the greatest hoax ever perpetrated on the American people?"

-Senator James Inhofe (R., OK)

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Investments Worth Checking Into

Hotels may be attractive investments right now because room rates have risen a great deal and that increase is not slowing down. Both business and vacation travel are growing while relatively few hotels are being built.

According to Morningstar, average nightly hotel room rates have surged 17% since 2002. Revenue per available room (RevPAR), a key number to look at when evaluating hotels, rose by more than 8% in both 2005 and 2006, the fastest rate in 20 years.

Helping to keep RevPAR above par, the supply of hotel rooms grew by a mere 0.5% annually over the last three years, well below the historic average rate.

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Private Equity Goes Public

Top-tier private equity deals are reserved for high-net-worth individuals and institutions, but now all investors have access to PowerShares Listed Private Equity Portfolio (PSP), an exchange-traded fund that was introduced last October,

This ETF seeks to replicate an index of publicly-traded companies that have direct investments in more than 1,000 private businesses.

It's an indirect play because investors own the private equity firms rather than the underlying companies. However, it's the only real option for the average investor who wants to participate in private equity.

You should take note of the fact that this ETF has had a very short history and therefore, you ought to check its daily trading volume to be certain that should you decide to buy in, there will be a ready market for the shares when you decide to close out your position.

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Here's An Interesting Statistic!

Did you know that the number of households in the United States with at least $5 million available for investing grew by 26% last year?

This means there are now at least 930,000 American households with that amount of investable capital!

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NEXT MEETING: Thursday - August 16, 2007

This month we'll devote the entire evening to the subject of Portfolio Building, so please be certain to bring your copy of the AAII book on this topic along with you to the meeting. And because I have come across some very valuable additional information that the AAII book does not cover, I will provide it as a supplement to the AAII book - for each person who attends this meeting.

In September, we'll have a very interesting guest speaker for a change of pace and then resume our discussion of Portfolio Building in October.
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We meet monthly at DePaul University, located at 150 West Warrenville Road in Naperville, Illinois. The meeting begins at 7:00 PM and ends at 9:00 PM. The room number will be posted on the easel which stands near the reception desk in the main lobby. And we always welcome anyone who shares our interest in learning and talking about investments to join with us as AAII membership is not a pre-requisite for attendance.

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Lowest Trading Costs

In a recent survey of more than 18 firms, TradeKing, which charges $4.95 for stock trades, was found to be the least expensive on-line stock trading firm.

But with regard to quality of services offered, E*Trade Financial, which charges a minimum trade fee of $12.99, is rated slightly higher because of its banking, research, asset management, investor education, and its customer-support services.

The highest rating overall went to Firstrade Securities, which offers a minimum trade fee of $6.95, including a large number of services, plus 10,000 funds all of which have no transaction fees.

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