Morningstar Advisor - April/May 2010 - 39

Strong-Dollar Era
How it could happen: The United States comes out of global recession the strongest among developed countries, building case that the dollar is a long-term safe haven. What investors can do: Buy foreign companies

MorningstarAdvisor.com’s Bloggers Weigh In
Shattered Myths By Janet Briaud The fundamental myths of our economy are changing, and this shift will keep investors off balance for some time. Old myths have been shattered: r value of your house always go up. The r salary should keep up with inflation. Your r Anyone can be a millionaire. r is worth taking risk in the stock market It because you always achieve higher returns. r you have a college degree you can get a If good job. Americans will advocate frugality, shun risky investments, and look unfavorably upon the wealthy. Our focus is on capital preservation and income. We expect low inflation or deflation, so we will not need to make high absolute returns to meet client goals. We encourage clients to be debt-free. We are buying Treasury bonds and notes with the expectation that rates will come down as investors seek a safe haven and begin to worry more about deflation than inflation. We do not expect to hold these bonds over the entire decade. We expect developing stock markets to become very cheap in the next 10 years with P/E ratios lower than 10 and dividend yields of more than 5%. We have cash and cash-equivalent investments to take advantage of these bargains. We have positions in gold as a safety net in case the dollar declines substantially. We have oil-and-gas income property and hope to purchase more if prices come down; we expect oil- and natural-gas prices to be substantially higher in the next decade. In general, we expect most markets to be very volatile, which will create great buying and selling opportunities. Janet Briaud, CFP, is CEO and senior financial advisor of Briaud Financial Advisors. Pressing the Accelerator By Kent Grealish The Federal Reserve is pushing on a string in its attempts to hold back the deflationary pressures of falling asset prices, debt liquidation, and credit destruction. Government spending and monetary stimulus is keeping us from a more serious recession. Normally, that kind of increase in the money supply would have shown up in the inflation figures by now, even with high unemployment. But it hasn’t, so deflation is still the short-term risk. When that danger passes, however, keep an eye peeled for inflation risks. Look for signs of an improving economy: rising employment figures tied to small-business profitability, increased bank lending, (dare I wish) tax cuts. Then, it would be up to the Fed to act (or not). All that fiscal and monetary stimulus will have to be mopped up. But given the magnitude of the stimulus, doing so could risk another recession. It is highly unlikely that this Fed, this Congress, or this administration has the intestinal fortitude to accept a recession as the price for containing inflation. Inflation will be the political path of least resistance. Think of it this way: Your car is in a ditch and your wheels aren’t getting enough traction to pull you out. You step harder and harder on the accelerator with no effect, and then suddenly, your tires get traction and you explode out of the ditch. You have to quickly shift from stamping on the accelerator to jamming on the brakes before you hit something. It will be difficult for the government to slam on the brakes. Kent Grealish, CFP, AIF, is a partner in Quacera Capital Management.

that export to United States; avoid U.S. exporters and firms that earn most of their revenue overseas. Buy foreign funds, such as Mutual European TEMIX and Tweedy, Browne Global Value TBGVX, that hedge away currency exposure. Buy investments with annuitylike characteristics, such as utilities and pipelines.
Unconventional approach: Invest in cheap

vacations to other countries. Hedonic research has shown people tend to be happier from spending money on experiences and memories rather than physical objects.

Faltering China
How it could happen: China’s huge stimulus

program and bank lending create credit excesses and asset bubbles that make its economy vulnerable to hiccups that damage growth. Investors flee at the first sign of trouble.
What investors can do: Buy companies, such

as Wal-Mart WMT, that source from China— their costs would go down.
Unconventional approach: Sell call spreads on companies tied to infrastructure plays in China. If early enough (before volatilities start going up), buy puts on these companies. Consider commodity funds, such as ELEMENTS S&P CTI ETN LSC, that can benefit from downward trends in prices as new supply continues to rise from current investment but demand plummets.

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Morningstar Advisor - April/May 2010

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